<PAGE> 1
Filed Pursuant To Rule 424(b)(4)
Registration Statement No. 333-05809
PROSPECTUS
$200,000,000
LEAR CORP. LOGO
9 1/2% Subordinated Notes due 2006
---------------------
Interest Payable January 15 and July 15
---------------------
Lear Corporation ("Lear" or the "Company") is offering $200,000,000
aggregate principal amount of its 9 1/2% Subordinated Notes due 2006 (the
"Notes"). Interest on the Notes will be payable on January 15 and July 15 of
each year, commencing January 15, 1997. The Notes will be redeemable at the
option of Lear, in whole or in part, on or after July 15, 2001, at the
redemption prices set forth herein, plus accrued and unpaid interest to the date
of redemption. The Notes will not be subject to any mandatory sinking fund
payment.
Each holder of the Notes may require Lear to repurchase such holder's Notes
in the event of a Change of Control Triggering Event (as defined herein) at 101%
of the principal amount thereof, plus accrued interest to the date of
repurchase.
The Notes will be general unsecured obligations of Lear, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of Lear. As of March 30, 1996, and after giving pro forma effect to the
Pro Forma Transactions (as defined herein), the aggregate amount of Senior
Indebtedness of Lear was approximately $920.9 million, including obligations
under the Credit Agreements (as defined herein), and the Senior Subordinated
Notes (as defined herein). Additionally, certain of Lear's subsidiaries have
outstanding indebtedness that effectively ranks prior to the claims of the
holders of the Notes. As of March 30, 1996, and after giving pro forma effect to
the Pro Forma Transactions, Lear's subsidiaries would have had outstanding
approximately $46.6 million of indebtedness. See "Description of the Notes."
The Company is currently proposing to sell 7,500,000 shares of its Common
Stock ("Common Stock") in an underwritten public offering (the "Common Stock
Offering"). The offering of the Notes (the "Note Offering") is conditioned in
its entirety upon consummation of the Common Stock Offering.
---------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 11 HEREIN FOR CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Per Note............................... 100% 2% 98%
- ------------------------------------------------------------------------------------------------------
Total.................................. $200,000,000 $4,000,000 $196,000,000
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from July 12, 1996.
(2) Lear has agreed to indemnify the several Underwriters and certain other
persons against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by Lear estimated at $500,000.
---------------------
The Notes offered by this Prospectus are offered by the Underwriters
subject to prior sale, withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to certain
further conditions. It is expected that delivery of the Notes will be made at
the offices of BT Securities Corporation, One Bankers Trust Plaza, New York, New
York, on or about July 12, 1996.
---------------------
BT SECURITIES CORPORATION
CHASE SECURITIES INC.
MORGAN STANLEY & CO.
INCORPORATED
SCHRODER WERTHEIM & CO.
---------------------
The date of this Prospectus is July 9, 1996
<PAGE> 2
[INSIDE FRONT COVER]
LEAR CORPORATION LOGO
INTERIOR SYSTEMS CAPABILITIES
[A PICTURE OF A FORD WINDSTAR SEAT SYSTEM]
[A PICTURE OF A FORD WINDSTAR]
[A PICTURE OF A CHEVROLET CAVALIER DOOR PANEL]
[A PICTURE OF A CHEVROLET CAVALIER]
[DIAGRAM OF AN AUTOMOTIVE INTERIOR ILLUSTRATING FOUR INTERIOR PRODUCTS:
SEAT SYSTEMS, DOOR PANELS, HEADLINERS AND FLOOR AND ACOUSTIC SYSTEMS]
[A PICTURE OF A SAAB 9000]
[A PICUTRE OF A SAAB 9000 HEADLINER]
[A PICTURE OF A JEEP GRAND CHEROKEE]
[A PICTURE OF A JEEP GRAND CHEROKEE FLOOR SYSTEM]
<PAGE> 3
IN CONNECTION WITH THE NOTE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------------
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). The registration
statement ("Registration Statement") (which term encompasses any amendments
thereto) and the exhibits thereto filed by the Company with the Commission, as
well as the reports and other information filed by the Company with the
Commission, may be inspected at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and are also available for inspection and copying at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and at the New York Stock Exchange located
at 20 Broad Street, New York, New York 10005. Copies of such material may also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Commission maintains a Web site at http:/www.sec.gov that contains periodic
reports and other information regarding registrants, like the Company, that file
electronically with the Commission. The Company will send to each holder of the
Notes annual reports containing audited consolidated financial statements of the
Company and a report thereon by independent public accountants and quarterly
reports for the first three quarters of each fiscal year containing unaudited
condensed consolidated financial information, in compliance with the terms of
the Indenture pursuant to which the Notes will be issued.
The Company has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Notes. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement or to a document incorporated by
reference herein, reference is hereby made to the exhibit for a more complete
description of the matter involved and each such statement shall be deemed
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference and made a part hereof:
(a) the Company's Annual Report on Form 10-K for the year ended December 31,
1995;
(b) the Company's Quarterly Report on Form 10-Q for the period ended March 30,
1996;
(c) the Company's Current Report on Form 8-K dated May 22, 1996;
(d) the audited consolidated financial statements of Automotive Industries
Holding, Inc. and the notes thereto included on pages 3 through 36 of the
Company's Current Report on Form 8-K dated August 28, 1995; and
(e) the Company's Current Report on Form 8-K dated June 27, 1996.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the Note Offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any subsequently filed document which is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to the Company's principal
office: Lear Corporation, 21557 Telegraph Road, P.O. Box 5008, Southfield,
Michigan 48086-5008, Attention: Director of Investor Relations (telephone: (800)
413-5327).
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere or
incorporated by reference in this Prospectus. As used in this Prospectus, 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, including the operations of the Company's AI Division and
Masland Division, are conducted through wholly-owned subsidiaries of Lear
Corporation. Effective as of May 9, 1996, Lear changed its name from "Lear
Seating Corporation" to "Lear Corporation." Unless otherwise indicated, all
information contained in this Prospectus is based on the assumption that the
Underwriters' over-allotment option is not exercised.
THE COMPANY
GENERAL
Lear is the largest independent supplier of automotive interior systems in
the estimated $40 billion global automotive interior market and the tenth
largest independent automotive supplier in the world. The Company's principal
products include: finished automobile and light truck seat systems; interior
trim products, such as door panels and headliners; and component products, such
as seat frames, seat covers and various blow molded plastic parts. The Company's
extensive product offerings were recently expanded through the acquisition of
Masland Corporation ("Masland"), a leading Tier I designer and manufacturer of
automotive floor and acoustic systems and interior and luggage trim components.
This acquisition, together with the August 1995 acquisition of Automotive
Industries Holding, Inc. ("AI" or "Automotive Industries"), has made Lear the
world's largest independent automotive supplier with the ability to design,
engineer, test and deliver products for a total vehicle interior. As original
equipment manufacturers ("OEMs") continue their worldwide expansion and seek
ways to improve their vehicle quality while simultaneously reducing the costs of
various vehicle components, management believes that suppliers such as Lear will
be increasingly asked to fill the role of "Systems Integrator" to manage the
design, purchasing and supply of the total automotive interior. Lear's
full-service capabilities make it well-positioned to fill this role.
The Company has experienced substantial growth in market presence and
profitability over the last five years both as a result of internal growth as
well as acquisitions. The Company's sales have grown from approximately $1.1
billion for the year ended June 30, 1991 to approximately $4.7 billion for the
year ended December 31, 1995, a compound annual growth rate of 38%. After giving
pro forma effect to the AI and Masland acquisitions, the Company's sales would
have been approximately $5.7 billion for the year ended December 31, 1995. The
Company's operating income has grown from approximately $44.7 million for the
year ended June 30, 1991 to approximately $244.8 million for the year ended
December 31, 1995, a compound annual growth rate of 46%.
The Company's present customers include 24 OEMs, the most significant of
which are Ford, General Motors, Fiat, Chrysler, Volvo, Saab, Volkswagen, Audi
and BMW. As of June 1, 1996, after giving pro forma effect to the acquisition of
Masland, the Company would have employed approximately 40,000 people in 19
countries and operated 131 manufacturing, research, design, engineering, testing
and administration facilities.
STRATEGY
The Company's principal objective is to expand its position as the leading
independent supplier of automotive interior systems in the world. To this end,
the Company's strategy is to capitalize on two significant trends in the
automotive industry: (i) the outsourcing of automotive components and systems by
OEMs; and (ii) the consolidation and globalization of the OEMs' supply base.
Outsourcing of interior components and systems has increased in response to
competitive pressures on OEMs to improve quality and reduce capital needs, costs
of labor, overhead and inventory. Consolidation among automotive industry
suppliers has occurred as OEMs have more frequently awarded long-term sole
source contracts to the most capable global suppliers. Increasingly, the
criteria for selection include not only cost, quality and responsiveness, but
also certain full-service capabilities including design, engineering and project
management support. With the recent acquisitions of AI and Masland, Lear has
substantial manufacturing capabilities in four of the five principal
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automotive interior segments: seat systems; floor and acoustic systems; door
panels; and headliners. The Company intends to enter into the remaining interior
segment, instrument panels, through strategic alliances, acquisitions, supplier
relationships and/or joint ventures.
Elements of the Company's strategy include:
- Strong Relationships with the OEMs. The Company's management has
developed strong relationships with its 24 OEM customers which allow Lear
to identify business opportunities and customer needs in the early stages
of vehicle design. Management believes that working closely with OEMs in
the early stages of designing and engineering automotive interior systems
and components gives it a competitive advantage in securing new business.
Lear maintains an excellent reputation with the OEMs for timely delivery
and customer service and for providing world class quality at competitive
prices.
- Global Presence. In 1995, more than two-thirds of total worldwide
vehicle production occurred outside of the United States and Canada. 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 South America,
South Africa, the Pacific Rim and elsewhere, giving it the capability to
provide its products on a global basis to its OEM customers. In 1995, the
Company's sales outside the United States and Canada, after giving pro
forma effect to the AI and Masland acquisitions, would have grown to
approximately $1.7 billion, or approximately 30% of the Company's total pro
forma sales.
- Increased Interior Content. OEMs increasingly view the interior of
the vehicle as a major selling point to their customers. A major focus of
Lear's research and development efforts is to identify new interior
features that make vehicles safer and more comfortable, while continuing to
appeal to consumer preferences. The development of these features has been,
and management believes will continue to be, an important factor in the
Company's future growth.
- Product Technology and Product Design Capability. Lear has made
substantial investments in product technology and product design capability
to support its products. The Company maintains four advanced technical
centers (in Southfield, Michigan, Rochester Hills, Michigan, Plymouth,
Michigan and Turin, Italy) where it develops and tests current and future
products to determine compliance with safety standards, 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. At its 16 customer-dedicated engineering
centers, specific program applications are developed and tested. The
Company has also made substantial investments in advanced computer aided
design, engineering and manufacturing ("CAD/CAM") systems.
- Lean Manufacturing Philosophy. Lear's "lean manufacturing"
philosophy seeks to eliminate waste and inefficiency in its own operations
and in those of its customers and suppliers. All of the Company's seat
system facilities and many of its other manufacturing facilities are linked
by computer directly to those of the Company's suppliers and customers.
These facilities receive components from their suppliers on a just-in-time
("JIT") basis, and deliver interior systems and components to their
customers on a sequential just-in-time basis, which provides products to an
OEM's manufacturing facility in the color and order in which the products
are used. This process minimizes inventories and fixed costs for both the
Company and its customers and enables the Company to deliver products on as
little as 90 minutes' notice.
- Growth Through Strategic Acquisitions. Strategic acquisitions have
been, and management believes will continue to be, an important element in
the Company's growth worldwide and in its efforts to capitalize on
automotive industry trends. These acquisitions complement Lear's existing
capabilities and provide new growth opportunities. The Company's recent
acquisitions have expanded its OEM customer base and worldwide presence and
enhanced its relationships with existing customers. The Company's most
recent acquisitions have also given it a significant presence in the
non-seating segments of the automobile and light truck interior market. In
1995, after giving pro forma effect to the AI and Masland
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<PAGE> 6
acquisitions, the Company's sales of non-seating systems and components
would have been approximately $1.4 billion, or approximately 25% of the
Company's total pro forma sales.
Implementation of the Company's strategy has resulted in rapid growth of
the Company's net sales from approximately $159.8 million in the fiscal year
ended June 30, 1983 to approximately $4.7 billion in the year ended December 31,
1995, a compound annual growth rate of approximately 33%. This increase in sales
has been achieved through internal growth as well as through acquisitions. In
1995, the Company was the leading independent supplier to the $40 billion global
automotive interior market, with a 12% share after giving pro forma effect to
the AI and Masland acquisitions. The Company's North American content per
vehicle has increased from $12 in 1983 to $227 in 1995. In Europe, the Company's
content per vehicle has grown from $3 in 1983 to $102 in 1995.
RECENT ACQUISITIONS
On July 1, 1996, the Company completed the acquisition of all of the issued
and outstanding shares of common stock of Masland (the "Masland Acquisition")
for an aggregate purchase price of approximately $476.6 million (including the
assumption of an estimated $81.7 million of Masland's existing indebtedness as
of July 1, 1996, net of cash and cash equivalents, and the payment of fees and
expenses of $10 million in connection with the acquisition). The acquisition of
Masland gives the Company substantial capabilities to produce automotive floor
and acoustic systems, which the Company did not previously have. In 1995,
Masland held a leading 38% share of the estimated $1 billion North American
floor and acoustic systems market. Masland is also a major supplier of interior
and luggage compartment trim components and other acoustical products which are
designed to minimize noise and vibration for passenger cars and light trucks.
Masland supplies the North American operations of Ford, Chrysler, General
Motors, Honda, Isuzu, Mazda, Mitsubishi, Nissan, Subaru and Toyota, as well as
the European operations of Nissan, Peugeot and Saab. Masland has had a
continuous relationship with Ford, its largest customer, since 1922. For its
fiscal year ended June 30, 1995, Masland had net sales, EBITDA, operating income
and net income of $496.6 million, $62.2 million, $47.0 million and $21.3
million, respectively.
In August 1995, the Company acquired all of the issued and outstanding
common stock of Automotive Industries, 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 acquisition
of AI (the "AI Acquisition") afforded Lear a significant presence in the door
panel and headliner segments of the interior market, which account for
approximately 15% of the global automotive interior market. The AI Acquisition
also gave the Company access to AI's premier program management systems, CAD/CAM
capabilities, product and process variety and technological expertise.
The acquisitions of AI and Masland have solidified the Company's position
as the leading independent automotive interior supplier in the world. Currently,
Lear has manufacturing capabilities in four of the five principal automotive
interior segments: seat systems; floor and acoustic systems; door panels; and
headliners. Lear intends to enter into the remaining segment, instrument panels,
through strategic alliances, acquisitions, supplier relationships and/or joint
ventures. Management believes that the Company's ability to offer OEMs a total
interior system provides Lear with a competitive advantage as OEMs continue to
reduce their supplier base while demanding improved quality and additional Tier
I services. Management believes that as the outsourcing and supplier
consolidation trends continue, OEMs will increasingly seek global suppliers,
such as Lear, to provide total interiors, resulting in greater value from the
on-going integration of the Lear, AI and Masland businesses and long-term growth
opportunities for the Company.
In addition to the AI and Masland acquisitions, since 1990 Lear has
completed five additional strategic acquisitions. In December 1994, the Company
acquired the primary automotive seat systems supplier to Fiat and certain
related businesses (the "Fiat Seat Business" or the "FSB"), establishing Lear as
the leading independent supplier of automotive seat systems in Europe. In 1993,
the Company significantly expanded its operations in North America by purchasing
certain portions of the North American seat cover and seat systems business (the
"NAB") of Ford (the "NAB Acquisition"). In 1991 and 1992, the Company acquired
the seat systems businesses of Saab in Sweden and Finland and of Volvo in
Sweden. In addition to broadening
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the Company's geographic coverage, these acquisitions, like the AI and Masland
acquisitions, have expanded the Company's customer base and solidified
relationships with existing customers.
The Company's principal executive offices are located at 21557 Telegraph
Road, Southfield, Michigan 48086-5008. Its telephone number at that location is
(800) 413-5327.
COMMON STOCK OFFERING
The Company is currently proposing to sell 7,500,000 shares of its Common
Stock ("Common Stock") in the Common Stock Offering. In such offering, certain
selling stockholders are also selling 7,500,000 shares of Common Stock (without
giving effect to the underwriters' over-allotment option). The Note Offering is
conditioned in its entirety upon the consummation of the Common Stock Offering.
The Common Stock Offering is not, however, conditioned upon the consummation of
the Note Offering. The net proceeds to the Company from the Common Stock
Offering will be used to repay a portion of the indebtedness outstanding under
the Credit Agreement and/or the New Credit Agreement (each as defined herein).
6
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THE NOTE OFFERING
<TABLE>
<S> <C>
Securities Offered....... $200,000,000 principal amount of 9 1/2% Subordinated Notes due
2006.
Maturity Date............ July 15, 2006.
Interest Payment Dates... January 15 and July 15, commencing January 15, 1997.
Optional Redemption...... The Notes will be redeemable at the option of the Company, in
whole or in part, on or after July 15, 2001, at the redemption
prices set forth herein, plus accrued and unpaid interest to the
date of redemption.
Mandatory Sinking Fund... None.
Subordination............ The Notes will be subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in
"Description of the Notes -- Certain Definitions") of the Company
and will be senior in right of payment to or pari passu with all
other subordinated indebtedness of the Company. As of March 30,
1996, and after giving pro forma effect to the Pro Forma
Transactions, the aggregate amount of Senior Indebtedness of the
Company (including its obligations under the Credit Agreements
and the Senior Subordinated Notes) would have been approximately
$920.9 million. In addition, certain of the Company's
subsidiaries have outstanding indebtedness that effectively ranks
prior to the claims of the holders of the Notes. As of March 30,
1996, and after giving pro forma effect to the Pro Forma
Transactions, the Company's subsidiaries would have had
outstanding approximately $46.6 million of indebtedness. See
"Description of the Notes -- Subordination."
Change of Control
Triggering Event....... Upon a Change of Control Triggering Event (as defined herein),
each holder of the Notes may require the Company to repurchase
such holder's Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase. See
"Description of the Notes -- Certain Covenants -- Repurchase of
Notes Upon a Change of Control Triggering Event."
Certain Covenants........ The Indenture under which the Notes will be issued will contain
certain covenants that will restrict, among other things, the
incurrence of additional indebtedness, the payment of dividends,
the repurchase of capital stock and the making of certain other
Restricted Payments (as defined herein), the creation of liens,
the creation of any restriction on the ability of subsidiaries of
the Company to pay dividends or to make any other distributions,
sales of assets, the issuance of preferred stock, transactions
with affiliates and certain mergers and consolidations. See
"Description of the Notes -- Certain Covenants."
Use of Proceeds.......... The net proceeds to the Company from the Note Offering will be
used to repay indebtedness outstanding under the Credit
Agreement, a portion of which was incurred to finance the Masland
Acquisition, and/or indebtedness outstanding under the New Credit
Agreement.
</TABLE>
RISK FACTORS
Investment in the Notes involves certain risks discussed under "Risk
Factors" that should be considered by prospective purchasers.
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SUMMARY FINANCIAL DATA OF THE COMPANY
The following summary consolidated financial data were derived from the
consolidated financial statements of the Company. The consolidated financial
statements of the Company for each of the years ended December 31, 1995, 1994
and 1993 have been audited by Arthur Andersen LLP. The consolidated financial
statements of the Company for the three months ended March 30, 1996 and April 1,
1995 are unaudited; however, in the Company's opinion, they reflect all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and results of operations for such
periods. The results for the three months ended March 30, 1996 are not
necessarily indicative of the results to be expected for the full year. The
summary financial data below should be read in conjunction with the other
financial data of the Company included in this Prospectus, the consolidated
financial statements of the Company and the notes thereto incorporated by
reference in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company."
LEAR CORPORATION
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED AS OF OR FOR THE YEAR ENDED
--------------------- --------------------------------------------
MARCH 30, APRIL 1, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
--------- -------- ------------ ------------ ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND CONTENT PER VEHICLE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.............................. $1,405.8 $1,043.5 $4,714.4 $3,147.5 $1,950.3
Operating income....................... 70.0 47.7 244.8 169.6 79.6
Interest expense(1).................... 24.4 14.2 75.5 46.7 45.6
Net income (loss)(2)................... 25.8 17.0 91.6 59.8 (13.8)
Net income (loss) per share(2)......... .43 .34 1.74 1.26 (.39)
BALANCE SHEET DATA:
Total assets........................... $3,122.2 $1,797.9 $3,061.3 $1,715.1 $1,114.3
Long-term debt......................... 1,033.3 519.9 1,038.0 418.7 498.3
Stockholders' equity................... 612.5 217.1 580.0 213.6 43.2
OTHER DATA:
EBITDA(3).............................. $ 103.2 $ 66.1 $ 336.8 $ 225.7 $ 122.2
Depreciation and amortization.......... 33.2 18.4 92.0 56.1 42.6
Capital expenditures................... 33.7 23.6 110.7 103.1 45.9
North American content per
vehicle(4)........................... 274 182 227 169 112
European content per vehicle(5)........ 107 78 102 48 38
Ratio of EBITDA to interest
expense (1)(3)....................... 4.2x 4.7x 4.5x 4.8x 2.7x
Ratio of earnings to fixed
charges(6)........................... 2.5x 2.9x 2.9x 3.2x 1.5x
</TABLE>
- -------------------------
(1) Interest expense includes non-cash charges for amortization of deferred
financing fees of approximately $.8 million, $.6 million, $2.7 million, $2.4
million and $2.6 million for the three months ended March 30, 1996 and April
1, 1995 and for the years ended December 31, 1995, 1994 and 1993,
respectively.
(2) After extraordinary charges of $2.6 million and $11.7 million ($.05 and $.33
per share) for the years ended December 31, 1995 and 1993, respectively,
relating to the early extinguishment of debt.
(3) "EBITDA" is operating income plus amortization and depreciation. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles.
(4) "North American content per vehicle" is the Company's net automotive sales
in North America divided by total North American vehicle production. "North
American vehicle production" comprises car and light truck production in the
United States, Canada and Mexico estimated by the Company from industry
sources.
(5) "European content per vehicle" is the Company's net automotive sales in
Western Europe divided by total Western European vehicle production.
"Western European vehicle production" comprises car and light truck
production in Western Europe estimated by the Company from industry sources.
(6) "Fixed charges" consist of interest on debt, amortization of deferred
financing fees and that portion of rental expenses representative of
interest (deemed to be one-third of rental expenses). "Earnings" consist of
income (loss) before income taxes, fixed charges, undistributed earnings and
minority interest.
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SUMMARY FINANCIAL DATA OF MASLAND CORPORATION
The following summary consolidated financial data were derived from the
consolidated financial statements of Masland. The consolidated financial
statements of Masland for each fiscal year presented have been audited by Price
Waterhouse LLP. The consolidated financial statements of Masland for the nine
months ended March 29, 1996 and March 31, 1995 are unaudited; however, in the
opinion of Masland's management, they reflect all adjustments, consisting only
of normal recurring items, necessary for a fair presentation of the financial
position and results of operations for such periods. The results for the nine
months ended March 29, 1996 are not necessarily indicative of the results to be
expected for the full fiscal year. The summary financial data below should be
read in conjunction with the other financial data of Masland included in this
Prospectus, the consolidated financial statements of Masland and the notes
thereto incorporated by reference in this Prospectus and "Management's
Discussion and Analysis of Results of Operations of Masland Corporation."
MASLAND CORPORATION
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE FISCAL YEAR
NINE MONTHS ENDED ENDED
----------------------- ----------------------------
MARCH 29, MARCH 31, JUNE 30, JULY 1, JULY 2,
1996 1995 1995 1994 1993
--------- --------- -------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT CONTENT PER VEHICLE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales......................................... $ 343.4 $ 373.8 $496.6 $ 429.9 $ 353.5
Operating income.................................. 26.5 34.2 47.0 45.0 25.8
Net income applicable to common stock............. 11.8 15.0 21.3 20.5 11.7
BALANCE SHEET DATA:
Total assets...................................... $ 276.8 $ 226.0 $228.0 $ 203.8 $ 197.3
Long-term debt.................................... 70.8 40.2 37.0 31.4 50.1
Stockholders' equity.............................. 98.8 82.5 88.2 68.5 60.1
OTHER DATA:
EBITDA(1)......................................... $ 40.2 $ 46.5 $ 62.2 $ 57.6 $ 37.1
Capital expenditures.............................. 20.6 14.7 22.0 17.8 18.0
North American content per vehicle(2)............. 34 31 33 30 26
</TABLE>
- -------------------------
(1) "EBITDA" is operating income plus amortization and depreciation. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles.
(2) "North American content per vehicle" is Masland's net automotive sales in
North America divided by total North American vehicle production. "North
American vehicle production" comprises car and light truck production in the
United States, Canada and Mexico estimated by the Company from industry
sources.
9
<PAGE> 11
SUMMARY PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA
The following summary pro forma unaudited consolidated financial data were
derived from and should be read in conjunction with the pro forma unaudited
consolidated financial data included elsewhere in this Prospectus. The following
summary pro forma unaudited consolidated operating data and other data of the
Company for the three months ended March 30, 1996 and for the year ended
December 31, 1995 were prepared to illustrate the estimated effects of (i) the
Masland Acquisition (including the refinancing of certain debt of Masland with
borrowings under the Credit Agreement), (ii) the AI Acquisition (including the
refinancing of certain debt of AI with borrowings under the Credit Agreement),
(iii) the acquisition of Plastifol GmbH & Co. KG ("Plastifol") by AI in July
1995 prior to the AI Acquisition (the "Plastifol Acquisition"), (iv) the public
offering of Common Stock by the Company and the application of the net proceeds
therefrom in September 1995 (the "1995 Stock Offering"), (v) the refinancing of
the Company's prior credit facility with borrowings under the Credit Agreement,
(vi) the completion of the New Credit Agreement and (vii) the Note Offering and
the Common Stock Offering and the application of the net proceeds to the Company
therefrom to repay indebtedness outstanding under the Credit Agreement, a
portion of which was incurred to finance the Masland Acquisition, and/or
indebtedness outstanding under the New Credit Agreement (collectively, the "Pro
Forma Transactions"), as if the Pro Forma Transactions had occurred on January
1, 1995. The following summary pro forma unaudited consolidated balance sheet
data were prepared as if the completion of the New Credit Agreement, the Masland
Acquisition, the Note Offering and the Common Stock Offering and the application
of the net proceeds therefrom to repay indebtedness incurred pursuant to the
Credit Agreement to finance the Masland Acquisition had occurred as of March 30,
1996. The following summary pro forma unaudited consolidated financial data do
not purport to represent (i) the actual results of operations or financial
condition of the Company had the Pro Forma Transactions occurred on the dates
assumed or (ii) the results to be expected in the future.
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
THREE MONTHS ENDED YEAR ENDED
MARCH 30, 1996 DECEMBER 31, 1995
------------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE AND CONTENT PER VEHICLE DATA)
<S> <C> <C>
OPERATING DATA:
Net sales................................................. $ 1,527.3 $ 5,708.0
Operating income.......................................... 81.5 327.1
Interest expense(1)....................................... 30.0 125.1
Net income................................................ 27.9 103.7
Net income per share...................................... .41 1.53
BALANCE SHEET DATA:
Total assets.............................................. $ 3,700.6
Long-term debt............................................ 1,259.6
Stockholders' equity...................................... 864.3
OTHER DATA:
EBITDA(2)................................................. $ 120.7 $ 467.2
Depreciation and amortization............................. 39.2 140.1
Capital expenditures...................................... 41.8 184.2
North American content per vehicle(3)..................... 308 285
European content per vehicle(4)........................... 107 111
Ratio of EBITDA to interest expense(1)(2)................. 4.0x 3.7x
Ratio of earnings to fixed charges(5)..................... 2.5x 2.4x
</TABLE>
- -------------------------
(1) Interest expense includes non-cash charges for amortization of deferred
financing fees of approximately $1.0 million and $3.7 million for the three
months ended March 30, 1996 and the year ended December 31, 1995,
respectively.
(2) "EBITDA" is operating income plus amortization and depreciation. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles.
(3) "North American content per vehicle" is the Company's pro forma net
automotive sales in North America divided by total North American vehicle
production. "North American vehicle production" comprises car and light
truck production in the United States, Canada and Mexico estimated by the
Company from industry sources.
(4) "European content per vehicle" is the Company's pro forma net automotive
sales in Western Europe divided by total Western European vehicle
production. "Western European vehicle production" comprises car and light
truck production in Western Europe estimated by the Company from industry
sources.
(5) "Fixed charges" consist of interest on debt, amortization of deferred
financing fees and that portion of rental expenses representative of
interest (deemed to be one-third of rental expenses). "Earnings" consist of
income (loss) before income taxes, fixed charges, undistributed earnings and
minority interest.
10
<PAGE> 12
RISK FACTORS
A potential investor should consider carefully all of the information
contained in this Prospectus before deciding whether to purchase the Notes
offered hereby and, in particular, should consider the following:
LEVERAGE
A significant portion of the funds needed to finance the Company's recent
acquisitions, including the Masland Acquisition and the AI Acquisition, were
initially raised through borrowings. As a result, the Company has debt that is
greater than its stockholders' equity and a significant portion of the Company's
cash flow from operations will be used to service its debt obligations. As of
March 30, 1996, after giving effect to the Pro Forma Transactions, the Company
would have had total debt of $1,289.9 million and stockholders' equity of $864.3
million, producing a total capitalization of $2,154.2 million, so that total
debt as a percentage of total capitalization would have been approximately 60%.
The Company's leverage may have consequences, including the following: (i)
the ability of the Company to obtain additional financing for working capital,
capital expenditures and debt service requirements or other purposes may be
impaired; (ii) the Company may be more highly leveraged than companies with
which it competes, which may place it at a competitive disadvantage; (iii)
because certain of the Company's obligations under the Credit Agreement and the
New Credit Agreement bear interest at floating rates, an increase in interest
rates could adversely affect the Company's ability to service its debt
obligations; and (iv) the Company may be more vulnerable in the event of a
downturn or disruption in its business or in the economy generally. If the
Company is unable to generate sufficient cash flow to service its debt
obligations, it will have to adopt one or more alternatives, such as reducing or
delaying planned expansion and capital expenditures, selling assets,
restructuring debt or obtaining additional equity capital. There can be no
assurance that any of these strategies could be effected on satisfactory terms.
In addition, the Credit Agreement and the New Credit Agreement, together
with the Company's 11 1/4% Senior Subordinated Notes due 2000 (the "Senior
Subordinated Notes"), its 8 1/4% Subordinated Notes due 2002 (the "Subordinated
Notes") and the Notes, contain or will contain various restrictive covenants
including, among other things, financial covenants relating to the maintenance
of minimum operating profit and net worth levels and interest coverage ratios as
well as restrictions on indebtedness, guarantees, acquisitions, capital
expenditures, investments, loans, liens, dividends and other restricted payments
and asset sales. Such restrictions, together with the leveraged nature of the
Company, could limit the Company's ability to respond to market conditions, to
provide for unanticipated capital investments or to take advantage of business
opportunities.
NATURE OF AUTOMOTIVE INDUSTRY
The Company's principal operations are directly related to domestic and
foreign automotive vehicle production. Automobile sales and production are
cyclical and can be affected by the strength of a country's general economy. In
addition, automobile production and sales can be affected by labor relations
issues, regulatory requirements, trade agreements and other factors. A decline
in automotive sales and production could result in a decline in the Company's
results of operations or financial condition.
RELIANCE ON MAJOR CUSTOMERS AND SELECTED CAR MODELS
Two of the Company's customers, General Motors and Ford, accounted for
approximately 34% and 33%, respectively, of the Company's net sales during
fiscal 1995. After giving effect to the Masland Acquisition, sales to General
Motors and Ford will continue to represent a similar substantial portion of the
Company's total sales. Although the Company has purchase orders from many of its
customers, such purchase orders generally provide for supplying the customers'
annual requirements for a particular model or assembly plant, renewable on a
year-to-year basis, rather than for manufacturing a specific quantity of
products. In addition, certain of the Company's manufacturing and assembly
plants are dedicated to a single customer's automotive assembly plant. The
customer's decision to close any such plant would require the Company to obtain
alternate supply agreements, relocate existing business to such facility or
close such facility. To date, neither
11
<PAGE> 13
model discontinuances nor plant closings have had a material adverse effect on
the Company because of the breadth of the Company's product lines and the
ability of the Company to relocate its facilities with minimal capital
expenditures. There can be no assurances that the Company's loss of business
with respect to either a particular automobile model or a particular assembly
plant would not have a material adverse effect on the Company's results of
operations or financial condition in the future.
There is substantial and continuing pressure from the major OEMs to reduce
costs, including costs associated with outside suppliers such as the Company.
Management believes that the Company's ability to develop new products and to
control its own costs, many of which are variable, will allow the Company to
remain competitive. However, there can be no assurance that the Company will be
able to improve or maintain its gross margins.
FOREIGN EXCHANGE RISK
As a result of recent acquisitions and the Company's business strategy,
which includes plans for the global expansion of its operations, a significant
portion of the Company's revenues and expenses are denominated in currencies
other than U.S. dollars. Changes in exchange rates therefore may have a
significant effect on the Company's results of operations and financial
condition.
SUBORDINATION
Payments under the Notes are subordinated to all existing and future Senior
Indebtedness of the Company. As of March 30, 1996, and after giving pro forma
effect to the Pro Forma Transactions, the aggregate amount of Senior
Indebtedness of Lear would have been approximately $920.9 million, comprised of
$795.9 million outstanding under the Credit Agreements (of which $56.1 million
would have been outstanding under letters of credit) and $125.0 million of
Senior Subordinated Notes.
In addition, certain of the Company's subsidiaries have outstanding
indebtedness and may incur indebtedness in the future. Holders of such
indebtedness will have a claim against the assets of such subsidiaries that will
rank prior to the claims of the holders of the Notes. As of March 30, 1996, and
after giving pro forma effect to the Pro Forma Transactions, the Company's
subsidiaries would have had outstanding approximately $46.6 million of
indebtedness.
Because of the subordination provisions of the Notes, and after the
occurrence of certain events, creditors whose claims are senior to the Notes may
recover more, ratably, than the holders of the Notes. Substantially all of the
assets of the Company are pledged under the Credit Agreements. Consequently, in
the event of a default under the Credit Agreements, such assets could be subject
to foreclosure by the lenders under the Credit Agreements. See "Description of
Certain Indebtedness -- Credit Agreements."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
Lear has no plans to list the Notes on a securities exchange. Lear has been
advised by each of the Underwriters that they presently intend to make a market
in the Notes; however, none of them is obligated to do so. Any such
market-making activity, if initiated, may be discontinued at any time, for any
reason, without notice. If any Underwriter ceases to act as a market maker for
the Notes for any reason, there can be no assurance that another firm or person
will make a market in the Notes. There can be no assurance that an active market
for the Notes will develop or, if a market does develop, at what prices the
Notes will trade.
12
<PAGE> 14
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. When used in this
document, the words "anticipate," "believe," "estimate," and "expect" and
similar expressions are generally intended to identify forward-looking
statements. Prospective investors are cautioned that any forward-looking
statements, including statements regarding the intent, belief, or current
expectations of the Company or its management, are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors including but not limited to (i) general economic conditions in
the markets in which the Company operates, (ii) fluctuations in worldwide or
regional automobile and light truck production, (iii) labor disputes involving
the Company or its significant customers, and (iv) those items identified under
"Risk Factors." Should one or more of those risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
USE OF PROCEEDS
All the net proceeds to the Company from the Note Offering will be used to
repay (i) indebtedness outstanding under the Credit Agreement, a portion of
which was incurred to finance the Masland Acquisition, and/or (ii) indebtedness
outstanding under the New Credit Agreement. Indebtedness under the Credit
Agreement and the New Credit Agreement bore a rate of interest as of July 1,
1996 of approximately 6.64%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company -- Liquidity and
Capital Resources."
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
30, 1996, after giving effect on a pro forma basis to the Masland Acquisition,
the incurrence of indebtedness under the Credit Agreement to finance such
acquisition and the completion of the New Credit Agreement, and as adjusted to
reflect the Note Offering and the Common Stock Offering and the application of
the net proceeds to the Company therefrom. See "Use of Proceeds" and "Pro Forma
Financial Data."
<TABLE>
<CAPTION>
AS OF MARCH 30, 1996
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Short-term debt:
Short-term borrowings.................................. $ 17.3 $ 17.3 $ 17.3
Current portion of long-term debt...................... 12.0 13.0 (1) 13.0
--------- --------- ---------
Total short-term debt............................... 29.3 30.3 30.3
--------- --------- ---------
Long-term debt, less current portion:
Domestic revolving loans............................... 715.5 1,178.1 (2) 739.8(4)
Industrial revenue bonds............................... 20.5 22.5 (1) 22.5
Other.................................................. 27.3 27.3 27.3
11 1/4% Senior Subordinated Notes due 2000............. 125.0 125.0 125.0
8 1/4% Subordinated Notes due 2002..................... 145.0 145.0 145.0
9 1/2% Subordinated Notes due 2006..................... -- -- 200.0(5)
--------- -------- ---------
Total long-term debt, less current portion.......... 1,033.3 1,497.9 1,259.6
--------- -------- ---------
Stockholders' equity:
Common stock, par value $.01 per share; 150,000,000
shares authorized, 56,589,288 shares issued
(64,089,288 after adjustment for the Common Stock
Offering)........................................... .6 .6 .6
Additional paid-in capital............................. 562.9 571.9 (3) 814.7(6)
Notes receivable from sale of Common Stock............. (.9) (.9) (.9)
Treasury stock, 10,230 shares of Common Stock.......... (.1) (.1) (.1)
Retained earnings...................................... 68.0 68.0 68.0
Cumulative translation adjustment...................... (14.5) (14.5) (14.5)
Minimum pension liability.............................. (3.5) (3.5) (3.5)
--------- --------- ---------
Total stockholders' equity.......................... 612.5 621.5 864.3
--------- --------- ---------
Total capitalization.............................. $1,675.1 $2,149.7 $ 2,154.2
========= ========= =========
OTHER DATA:
Debt to total capitalization........................... 63.4% 71.1 % 59.9%
</TABLE>
- -------------------------
(1) Reflects debt assumed in connection with the Masland Acquisition.
(2) Reflects borrowings under the Credit Agreement of (i) $375.9 million to
acquire all of the outstanding common stock of Masland and retire certain
stock options of Masland in connection with the Masland Acquisition, (ii)
$75.7 million to retire certain debt assumed in connection with the Masland
Acquisition, and (iii) $11 million to pay estimated fees and expenses
related to the Masland Acquisition and the New Credit Agreement. In
connection with the Masland Acquisition, the Company incurred $300 million
of indebtedness under the New Credit Agreement, the proceeds of which were
used to repay borrowings under the Credit Agreement.
(3) Reflects the issuance of options originally granted under the Masland
Corporation 1993 Stock Option Plan which were converted into options to
purchase Common Stock in connection with the Masland Acquisition.
(4) Reflects the application of the net proceeds from the Common Stock Offering
of $242.8 million and the Note Offering of $195.5 million.
(5) Reflects the issuance of $200 million aggregate principal amount of the
Notes.
(6) Reflects the issuance of 7,500,000 shares of Common Stock in the Common
Stock Offering at $33 1/2 per share, net of $8.5 million in estimated fees
and expenses.
14
<PAGE> 16
PRO FORMA FINANCIAL DATA
The following pro forma unaudited consolidated statements of operations of
the Company for the three months ended March 30, 1996 and for the year ended
December 31, 1995 were prepared to illustrate the estimated effects of (i) the
Masland Acquisition (including the refinancing of certain debt of Masland
pursuant to the Credit Agreement), (ii) the AI Acquisition (including the
refinancing of certain debt of AI pursuant to the Credit Agreement), (iii) the
Plastifol Acquisition, (iv) the 1995 Stock Offering, (v) the refinancing of the
Company's prior credit facility with borrowings under the Credit Agreement (vi)
the completion of the New Credit Agreement and (vii) the Note Offering and the
Common Stock Offering and the application of the net proceeds to the Company
therefrom to repay indebtedness outstanding under the Credit Agreement, a
portion of which was incurred to finance the Masland Acquisition, and/or
indebtedness outstanding under the New Credit Agreement (collectively, the "Pro
Forma Transactions"), as if the Pro Forma Transactions had occurred on January
1, 1995.
The following pro forma unaudited consolidated balance sheet (collectively
with the pro forma unaudited consolidated statements of operations, the "Pro
Forma Statements") was prepared as if the Masland Acquisition, the completion of
the New Credit Agreement, and the Note Offering and the Common Stock Offering
and the application of the net proceeds therefrom to repay indebtedness incurred
pursuant to the Credit Agreement to finance the Masland Acquisition had occurred
as of March 30, 1996.
The Pro Forma Statements do not purport to represent (i) the actual results
of operations or financial position of the Company had the Pro Forma
Transactions occurred on the dates assumed or (ii) the results to be expected in
the future.
The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable. The Pro Forma
Statements and accompanying notes should be read in conjunction with the
historical financial statements of the Company, Masland and AI, including the
notes thereto, and the other financial information pertaining to the Company,
Masland and AI, including the information set forth in "Capitalization" and
related notes thereto, included elsewhere or incorporated by reference in this
Prospectus.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 1996
<TABLE>
<CAPTION>
OPERATING AND
LEAR MASLAND FINANCING
HISTORICAL HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ------------- ------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.......................................... $ 1,405.8 $ 122.5 $(1.0)(2) $1,527.3
Cost of sales...................................... 1,285.2 99.1 (1.0)(2) 1,383.3
--------- ------- ------- -------
Gross profit....................................... 120.6 23.4 -- 144.0
Selling, general and administrative expenses....... 43.3 10.0 -- 53.3
Amortization....................................... 7.3 .6 1.3(3) 9.2
--------- ------- ------- -------
Operating income................................... 70.0 12.8 (1.3) 81.5
Interest expense................................... 24.4 1.1 4.5(4) 30.0
Other expense, net................................. 3.1 .7 -- 3.8
--------- ------- ------- -------
Income before income taxes......................... 42.5 11.0 (5.8) 47.7
Income taxes....................................... 16.7 4.7 (1.6)(5) 19.8
--------- ------- ------- -------
Net income......................................... $ 25.8 $ 6.3 $(4.2) $ 27.9
========= ======= ======= =======
Net income per share............................... $ .43 $ .41
Weighted average shares outstanding (in
millions)........................................ 60.0 7.7(6) 67.7
EBITDA(7).......................................... $ 103.2 $ 120.7
</TABLE>
15
<PAGE> 17
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
OPERATING AND
LEAR AI MASLAND FINANCING
HISTORICAL PRO FORMA(8) HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ------------ ------------- ------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 4,714.4 $523.7 $ 473.2 $ (3.3)(2) $5,708.0
Cost of sales........................ 4,311.3 428.9 392.8 (3.3)(2) 5,129.7
-------- ------ ----- -------- ------
Gross profit......................... 403.1 94.8 80.4 -- 578.3
Selling, general and
administrative expenses............ 139.0 36.5 39.3 -- 214.8
Amortization......................... 19.3 9.5 2.3 5.3(3) 36.4
-------- ------ ----- -------- ------
Operating income..................... 244.8 48.8 38.8 (5.3) 327.1
Interest expense..................... 75.5 14.0 3.9 31.7(4) 125.1
Other expense, net................... 12.0 -- 3.4 -- 15.4
-------- ------ ----- -------- ------
Income before income taxes........... 157.3 34.8 31.5 (37.0) 186.6
Income taxes......................... 63.1 16.8 14.1 (11.1)(5) 82.9
-------- ------ ----- -------- ------
Income before extraordinary items.... 94.2 18.0 17.4 (25.9) 103.7
-------- ------ ----- -------- ------
Extraordinary loss on early
extinguishment of debt............. 2.6 -- -- (2.6)(9) --
-------- ------ ----- -------- ------
Net income........................... $ 91.6 $ 18.0 $ 17.4 $ (23.3) $ 103.7
======== ====== ===== ======== ======
Net income per share................. $ 1.74 $ 1.53
Weighted average shares outstanding
(in millions)...................... 52.6 15.0(6) 67.6
EBITDA(7)............................ $ 336.8 $ 467.2
</TABLE>
- -------------------------
(1) The Masland historical information represents amounts derived from (i) the
unaudited results of operations for the three months ended March 29, 1996
and (ii) with respect to the year ended December 31, 1995, the audited
results of operations for Masland's fiscal year ended June 30, 1995 and its
unaudited results of operations for the six month periods ending December
29, 1995 and December 30, 1994.
(2) Reflects the elimination of net sales from Masland to the Company.
(3) The adjustment to amortization represents the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 30, 1996 DECEMBER 31, 1995
------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Amortization of goodwill from the Masland
Acquisition.......................................... $ 1.9 $ 7.6
Elimination of the historical goodwill amortization of
Masland.............................................. (.6) (2.3)
----- -----
$ 1.3 $ 5.3
===== =====
</TABLE>
16
<PAGE> 18
(4) Reflects interest expense changes as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Reduction of interest due to application of the
proceeds from the Common Stock Offering.............. $ (4.0) $ (17.0)
Reduction of interest due to application of the
proceeds of the 1995 Stock Offering.................. -- (14.7)
Reduction in interest due to application of the
proceeds from the Note Offering to repay indebtedness
incurred under the Credit Agreement.................. (3.3) (14.0)
Interest on the Notes at 9 1/2%........................ 4.8 19.0
Estimated interest on borrowings to finance
the AI Acquisition................................... -- 39.6
Elimination of interest on AI debt refinanced.......... -- (12.6)
Estimated interest on borrowings to finance the Masland
Acquisition.......................................... 7.6 32.3
Elimination of interest on Masland debt refinanced..... (1.1) (3.8)
Other changes in interest expense, commitment fees and
amortization of deferred finance fees due to the Note
Offering, the New Credit Agreement, and the
refinancing of the prior credit facility with the
Credit Agreement..................................... .5 2.9
----- -----
$ 4.5 $ 31.7
===== =====
</TABLE>
(5) Reflects the income tax effects of the operating and financing adjustments.
(6) The adjustment to weighted average shares outstanding represents the
following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Effect of the issuance of 7.5 million shares pursuant
to the Common Stock Offering........................ 7.5 7.5
Effect of the issuance of 10.0 million shares pursuant
to the 1995 Stock Offering.......................... -- 7.3
Conversion of certain Masland stock options into Lear
stock options in connection with the Masland
Acquisition......................................... .2 .2
----- ------
7.7 15.0
===== ======
</TABLE>
(7) "EBITDA" is operating income plus depreciation and amortization. EBITDA
does not represent and should not be considered as an alternative to net
income or cash flow from operations as determined by generally accepted
accounting principles.
(8) The AI Pro Forma information reflects (i) AI historical unaudited results
of operations for the period from January 1, 1995 through August 17, 1995,
the date on which AI was acquired by the Company, (ii) the unaudited
historical results of operations of Plastifol from January 1, 1995 through
the date of the AI Acquisition and (iii) adjustments to reflect interest on
borrowings by AI to finance the Plastifol Acquisition, amortization of
goodwill and the related income tax effects of such adjustments. The
results from operations of AI for the three months ended March 30, 1996 and
for the period subsequent to August 17, 1995 are included in the historical
results of the Company.
(9) Reflects the elimination of the extraordinary loss on refinancing of the
prior credit facility. Such loss would have been incurred in a prior period
had the Pro Forma Transactions taken place as of the beginning of the
periods presented.
17
<PAGE> 19
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF MARCH 30, 1996
<TABLE>
<CAPTION>
OPERATING
ACQUISITION AND AND
LEAR MASLAND VALUATION OF FINANCING
HISTORICAL HISTORICAL MASLAND(1) ADJUSTMENTS PRO FORMA
---------- ---------- ---------------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 21.6 $ 14.0 $ (461.6) $ 461.6(2) $ 35.6
Accounts receivable, net................ 879.0 63.4 -- -- 942.4
Inventories............................. 178.9 18.8 -- -- 197.7
Other current assets.................... 178.4 28.7 -- -- 207.1
--------- ------- -------- ------- --------
1,257.9 124.9 (461.6) 461.6 1,382.8
--------- ------- -------- ------- --------
Property, plant and equipment, net........ 648.4 114.7 -- -- 763.1
Goodwill and other intangibles, net....... 1,093.5 6.9 296.1 -- 1,396.5
Other..................................... 122.4 30.3 -- 5.5(3) 158.2
--------- ------- -------- ------- --------
$3,122.2 $276.8 $ (165.5) $ 467.1 $3,700.6
========= ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings................... $ 17.3 $ 6.9 $ (6.9) $ -- $ 17.3
Accounts payable and drafts............. 881.7 41.1 -- -- 922.8
Accrued liabilities..................... 395.0 24.6 -- -- 419.6
Current portion of long-term debt....... 12.0 1.0 -- -- 13.0
--------- ------- -------- ------- --------
1,306.0 73.6 (6.9) -- 1,372.7
--------- ------- -------- ------- --------
Long-Term Liabilities:
Long-term debt.......................... 1,033.3 70.8 (68.8) 224.3(4) 1,259.6
Deferred national income taxes.......... 36.7 7.6 -- -- 44.3
Other................................... 133.7 26.0 -- -- 159.7
--------- ------- -------- ------- --------
1,203.7 104.4 (68.8) 224.3 1,463.6
--------- ------- -------- ------- --------
Stockholders' Equity...................... 612.5 98.8 (89.8) 242.8(5) 864.3
--------- ------- -------- ------- --------
$3,122.2 $276.8 $ (165.5) $ 467.1 $3,700.6
========= ======= ======== ======= ========
</TABLE>
- -------------------------
(1) Assumes a purchase price of $473.6 million which consists of (i) $384.9
million to acquire all of the common stock of Masland ($375.9 million to
purchase outstanding shares and $9.0 million in connection with the
retirement of certain stock options of Masland in connection with the
Masland Acquisition), (ii) the assumption of all of Masland's existing
indebtedness and the refinancing of a portion thereof ($78.7 million as of
March 29, 1996, of which $75.7 million was refinanced) and (iii) $10.0
million to pay estimated fees and expenses related to the Masland
Acquisition. The Masland Acquisition was accounted for using the purchase
method of accounting and the total purchase cost was allocated first to
assets and liabilities based on their respective fair values, with the
remainder ($296.1 million) allocated to goodwill. The adjustment to
stockholders' equity reflects the elimination of Masland's equity along with
the issuance of options originally granted under the Masland Corporation
1993 Stock Option Plan which were converted into options to purchase Common
Stock in connection with the Masland Acquisition. The allocation of the
purchase price above is based on historical costs and management's estimates
which may differ from the final allocation.
(2) Reflects proceeds of borrowings under the Credit Agreement of $461.6
million.
(3) Reflects the capitalization of fees incurred in establishing the New Credit
Agreement of $1.0 million, and fees incurred in connection with the Note
Offering of $4.5 million.
(4) Reflects the effects of the Pro Forma Transactions as follows:
<TABLE>
<S> <C>
Borrowings under the Credit Agreement to finance the Masland Acquisition................. $ 461.6
Issuance of the Notes.................................................................... 200.0
Borrowings under the Credit Agreement to pay fees and expenses incurred in establishing
the New Credit Agreement and in the Note Offering...................................... 5.5
Application of the net proceeds of the Common Stock Offering............................. (242.8)
Application of the proceeds of the Note Offering......................................... (200.0)
-------
$ 224.3
=======
</TABLE>
(5) Reflects the net proceeds of the Common Stock Offering.
18
<PAGE> 20
SELECTED FINANCIAL DATA OF THE COMPANY
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 each of the fiscal years ended December 31, 1995,
1994 and 1993 and June 30, 1993, 1992 and 1991 have been audited by Arthur
Andersen LLP. Effective December 31, 1993, the Company changed its fiscal year
end from June 30 to December 31. The consolidated financial statements of the
Company for the three months ended March 30, 1996 and April 1, 1995 are
unaudited; however, in the Company's opinion, they reflect all adjustments,
consisting only of normal recurring items, necessary for a fair presentation of
the financial position and results of operations for such periods. The results
for the three months ended March 30, 1996 are not necessarily indicative of the
results to be expected for the full fiscal year. The selected financial data
below should be read in conjunction with the consolidated financial statements
of the Company and the notes thereto incorporated by reference in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company."
LEAR CORPORATION
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED AS OF OR FOR THE YEAR ENDED
------------------- -----------------------------------------------------------------------
MARCH 30, APRIL 1, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1995 1994 1993 1993 1992 1991
--------- -------- ------------ ------------ ------------ -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND CONTENT PER VEHICLE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales......................... $1,405.8 $1,043.5 $4,714.4 $3,147.5 $1,950.3 $1,756.5 $1,422.7 $1,085.3
Gross profit...................... 120.6 76.6 403.1 263.6 170.2 152.5 115.6 101.4
Selling, general and
administrative expenses......... 43.3 25.8 139.0 82.6 62.7 61.9 50.1 41.6
Incentive stock and other
compensation expense(1)......... -- -- -- -- 18.0 -- -- 1.3
Amortization...................... 7.3 3.1 19.3 11.4 9.9 9.5 8.7 13.8
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income.................. 70.0 47.7 244.8 169.6 79.6 81.1 56.8 44.7
Interest expense(2)............... 24.4 14.2 75.5 46.7 45.6 47.8 55.2 61.7
Other expense, net(3)............. 3.1 2.1 12.0 8.1 9.2 5.4 5.8 2.2
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary items......... 42.5 31.4 157.3 114.8 24.8 27.9 (4.2) (19.2)
Income taxes...................... 16.7 14.4 63.1 55.0 26.9 17.8 12.9 14.0
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) before
extraordinary items............. 25.8 17.0 94.2 59.8 (2.1) 10.1 (17.1) (33.2)
Extraordinary items(4)............ -- -- 2.6 -- 11.7 -- 5.1 --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)................. $ 25.8 $ 17.0 $ 91.6 $ 59.8 $ (13.8) $ 10.1 $ (22.2) $ (33.2)
========= ========= ========= ========= ========= ========= ========= =========
Net income (loss) per share before
extraordinary items............. $ .43 $ .34 $ 1.79 $ 1.26 $ (.06) $ .25 $ (.62) $ (2.01)
Net income (loss) per share....... $ .43 $ .34 $ 1.74 $ 1.26 $ (.39) $ .25 $ (.80) $ (2.01)
Weighted average shares
outstanding (in millions)(5).... 60.0 49.4 52.6 47.6 35.5 40.0 27.8 16.5
BALANCE SHEET DATA:
Current assets.................... $1,257.9 $ 904.3 $1,207.2 $ 818.3 $ 433.6 $ 325.2 $ 282.9 $ 213.8
Total assets...................... 3,122.2 1,797.9 3,061.3 1,715.1 1,114.3 820.2 799.9 729.7
Current liabilities............... 1,306.0 956.8 1,276.0 981.2 505.8 375.0 344.2 287.1
Long-term debt.................... 1,033.3 519.9 1,038.0 418.7 498.3 321.1 348.3 386.7
Common stock subject to limited
redemption rights, net.......... -- -- -- -- 12.4 3.9 3.5 1.8
Stockholders' equity.............. 612.5 217.1 580.0 213.6 43.2 75.1 49.4 4.4
OTHER DATA:
EBITDA(6)......................... $ 103.2 $ 66.1 $ 336.8 $ 225.7 $ 122.2 $ 121.8 $ 91.8 $ 81.4
Capital expenditures.............. $ 33.7 $ 23.6 $ 110.7 $ 103.1 $ 45.9 $ 31.6 $ 27.9 $ 20.9
Number of facilities(7)........... 116 82 107 79 61 48 45 40
North American content per
vehicle(8)...................... $ 274 $ 182 $ 227 $ 169 $ 112 $ 98 $ 94 $ 84
European content per vehicle(9)... $ 107 $ 78 $ 102 $ 48 $ 38 $ 37 $ 21 $ 11
Ratio of EBITDA to interest
expense(2)(6)................... 4.2x 4.7x 4.5x 4.8x 2.7x 2.6x 1.7x 1.3x
Ratio of earnings to fixed
charges(10)..................... 2.5x 2.9x 2.9x 3.2x 1.5x 1.5x -- --
Fixed charges in excess of
earnings(10).................... $ -- $ -- $ -- $ -- $ -- $ -- $ 6.5 $ 20.7
</TABLE>
- -------------------------
(1) Includes a one-time charge of $18.0 million, of which $14.5 million was
non-cash, for the year ended December 31, 1993 for incentive stock and
other compensation expense.
(2) Interest expense includes non-cash charges for amortization of deferred
financing fees of $.8 million, $.6 million, $2.7 million, $2.4 million,
$2.6 million, $3.0 million, $3.2 million and $4.1 million for the three
months ended March 30, 1996 and April 1, 1995, and for the years ended
December 31, 1995, 1994 and 1993, and the fiscal years ended June 30, 1993,
1992 and 1991.
(3) Consists of foreign currency exchange gain or loss, minority interest in
net income (loss) of subsidiaries, equity (income) loss 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 fully-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 automotive sales
in North America divided by total North American vehicle production. "North
American vehicle production" comprises car and light truck production in
the United States, Canada and Mexico estimated by the Company from industry
sources.
(9) "European content per vehicle" is the Company's net automotive sales in
Western Europe divided by total Western European vehicle production.
"Western European vehicle production" comprises car and light truck
production in Western Europe estimated by the Company from industry
sources.
(10) "Fixed charges" consist of interest on debt, amortization of deferred
financing fees and that portion of rental expenses representative of
interest (deemed to be one-third of rental expenses). "Earnings" consist of
income (loss) before income taxes, fixed charges, undistributed earnings
and minority interest.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
Lear's sales have grown rapidly, both internally and through acquisitions,
from approximately $159.8 million in the fiscal year ended June 30, 1983 to
approximately $4.7 billion in the year ended December 31, 1995, a compound
annual growth rate of approximately 33%. As a result of this growth, the Company
has experienced substantial upfront costs for new programs and new facilities.
Such expenses consist of administrative expenses and engineering and design
expenses for new seating programs, including pre-production expenses and
inefficiencies incurred until the customer reaches normal operating levels. The
Company expenses such non-recurring pre-production expenses as they are
incurred.
The following chart shows operating results of the Company by principal
geographic area.
GEOGRAPHIC OPERATING RESULTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
----------------------- --------------------------------------------
MARCH 30, APRIL 1, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
--------- --------- ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES:
United States and Canada............ $ 916.6 $ 714.4 $3,108.0 $2,378.7 $1,357.0
Europe.............................. 382.9 276.5 1,325.4 572.5 403.8
Mexico and other.................... 106.3 52.6 281.0 196.3 189.5
--------- --------- --------- --------- ---------
Net sales......................... $1,405.8 $ 1,043.5 $4,714.4 $3,147.5 $1,950.3
========= ========= ========= ========= =========
OPERATING INCOME (LOSS):
United States and Canada............ $ 56.7 $ 44.6 $ 204.8 $ 155.6 $ 86.9
Europe.............................. 9.4 .1 26.5 4.4 (9.6)
Mexico and other.................... 3.9 3.0 13.5 9.6 20.3
Unallocated corporate expense(1).... -- -- -- -- (18.0)
--------- --------- --------- --------- ---------
Operating income.................. $ 70.0 $ 47.7 $ 244.8 $ 169.6 $ 79.6
========= ========= ========= ========= =========
</TABLE>
- -------------------------
(1) Unallocated corporate expense consists of incentive stock option expense and
other one-time compensation expense.
Three Months Ended March 30, 1996 Compared With Three Months Ended April 1, 1995
Net sales of $1,405.8 million in the quarter ended March 30, 1996 surpassed
the first quarter of 1995 by $362.3 million or 34.7%. Sales as compared to prior
year benefited primarily from the acquisition of AI in August 1995 and new
business in North America.
Net sales in the United States and Canada of $916.6 million in the first
quarter of 1996 exceeded the comparable period in the prior year by $202.2
million or 28.3%. Sales in the current quarter benefited from the contribution
of $175.4 million in sales from the AI Acquisition and new Ford passenger car
and Chrysler and Ford truck programs introduced within the past twelve months.
Partially offsetting the increase in sales were a downturn in production build
schedules on mature seat programs by domestic automotive manufacturers and the
impact of a General Motors work stoppage in March 1996.
Net sales in Europe of $382.9 million increased in the first quarter of
1996 as compared to the first quarter of 1995 by $106.4 million or 38.5%. Sales
in the quarter ended March 30, 1996 benefited from $42.7 million in sales from
the AI Acquisition, additional volume on carryover programs in Italy and
favorable exchange rate fluctuations in Sweden, Germany and Italy.
20
<PAGE> 22
Net sales of $106.3 million in the first quarter of 1996 in the Company's
remaining geographic regions, consisting of Mexico, the Pacific Rim, South
Africa and South America, surpassed the first quarter of the prior year by $53.7
million or 102.1%. Sales in the current quarter benefited from increased
Chrysler truck and General Motors passenger car activity in Mexico and from new
business operations in Australia, South America and South Africa.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of net sales) were $120.6 million and 8.6% for the first quarter
of 1996 as compared to $76.6 million and 7.3% in 1995. Gross profit in the
current quarter benefited from the acquisition of AI, the overall growth in
sport utility and light truck seat programs in North America and increased sales
activity on seat programs in Europe and Mexico.
Selling, general and administrative expenses, including research and
development, as a percentage of net sales increased to 3.1% for the quarter
ended March 30, 1996 as compared to 2.5% a year earlier. Actual expenditures and
the percentage increased in comparison to prior year due to the inclusion of
AI's operating expenses and increased U.S. and European engineering and
administrative expenses in support of expansion of existing and potential
business opportunities.
Operating income and operating margin (operating income as a percentage of
net sales) were $70.0 million and 5.0% for the first quarter of 1996 as compared
to $47.7 million and 4.6% for the first quarter of 1995. For the quarter ended
March 30, 1996, operating income benefited from the acquisition of AI, increased
market demand on new and ongoing sport utility and light truck seat programs in
North America and improved performance at the Company's European and Mexican
operations. Partially offsetting the increase in operating income were
engineering and administrative support expenses, preproduction and facility
costs for new seat programs to be introduced globally within the next twelve
months and the adverse impact of the General Motors work stoppage. Non-cash
depreciation and amortization charges were $33.2 million and $18.4 million for
the first quarter of 1996 and 1995, respectively.
Interest expense for the first quarter of 1996 increased by $10.2 million
from the comparable period in the prior year largely as a result of interest
incurred on additional debt utilized to finance the AI Acquisition.
Other expenses for the three months ended March 30, 1996, which include
state and local taxes, foreign exchange, equity income of non-consolidated
affiliates and other non-operating expenses, increased in comparison to prior
year due to increased state and local taxes associated with the AI Acquisition.
Net income for the first quarter of 1996 was $25.8 million, or $.43 per
share, as compared to $17.0 million, or $.34 per share, in the prior year first
quarter. The provision for income taxes in the current quarter was $16.7
million, or an effective tax rate of 39.3%, as compared to $14.4 million, or an
effective tax rate of 45.9% in the previous year. The decline in the effective
tax rate is primarily due to changes in operating performance and related income
levels among the various tax jurisdictions. Earnings per share increased in 1996
by 26.5% despite the impact of the General Motors work stoppage, estimated to be
approximately $.10 per share, and an increase in the number of shares
outstanding of approximately 10.6 million shares.
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Net sales of $4,714.4 million in the year ended December 31, 1995
represented the Company's fourteenth consecutive year of record sales and
increased by $1,566.9 million or 49.8% over net sales for the year ended
December 31, 1994. Net sales in the current year benefited from the acquisitions
of Automotive Industries on August 17, 1995 and the Fiat Seat Business on
December 15, 1994 which together accounted for $795.3 million of the increase.
Further contributing to the growth in sales were incremental volumes on new
seating programs in North America and increased production in Europe.
Gross profit and gross margin were $403.1 million and 8.6% in 1995 as
compared to $263.6 million and 8.4% in 1994. Gross profit in the current year
benefited from the overall increase in North American and European sales
activity, the acquisitions of AI and FSB, and production of certain new seat
programs in the United States and Mexico. Partially offsetting the increase in
gross profit were new program start-up expenses of $32.1 million versus $23.1
million in the prior year, and costs associated with new business opportunities
in the Pacific Rim, South America and South Africa.
21
<PAGE> 23
Selling, general and administrative expenses, including research and
development, as a percentage of net sales increased to 2.9% in 1995 as compared
to 2.6% in the previous year. Actual expenditures in 1995 increased in
comparison to prior year primarily due to the inclusion of AI and FSB
engineering and administrative expenses in 1995. In addition, research and
development costs increased at the United States and European customer focused
technical centers in support of existing and potential business opportunities.
Operating income and operating margin were $244.8 million and 5.2% in the
year ended December 31, 1995 as compared to $169.6 million and 5.4% in the year
ended December 31, 1994. The increase in operating income was primarily due to
increased volumes on new and existing light truck seating programs, improved
performance at the Company's European operations and the incremental operating
income derived from acquisitions. Partially offsetting the increase in operating
income and contributing to the decline in operating margins were design and
development costs associated with the expansion of business and program start-up
expenses for new seat programs to be introduced worldwide within the next twelve
months. Also contributing to the decline in operating margin were the increased
sales in Europe caused by the FSB which had lower margins. Non-cash depreciation
and amortization charges were $92.0 million and $56.1 million for the years
ended December 31, 1995 and 1994, respectively.
Interest expense in the year ended December 31, 1995 increased in
comparison to prior year as a result of interest incurred on additional debt
utilized to finance the AI and FSB acquisitions as well as higher interest rates
in 1995 under the Company's senior credit facility.
Other expenses in 1995 increased in comparison to prior year as foreign
exchange losses incurred at the Company's North American and European
operations, along with increased state and local taxes associated with the AI
Acquisition, more than offset income derived from joint ventures accounted for
under the equity method.
Net income for the year ended December 31, 1995 was $91.6 million, or $1.74
per share, as compared to $59.8 million, or $1.26 per share in the year ended
December 31, 1994. The provision for income taxes in fiscal 1995 was $63.1
million, or an effective tax rate of 40.1%, versus $55.0 million and 47.9% for
the previous year. The decrease in rate is largely the result of changes in
operating performance and related income levels among the various tax
jurisdictions. Earnings per share increased in 1995 by 38.1% despite an increase
in the number of shares outstanding and an extraordinary loss of $2.6 million
($.05 per share) for the early retirement of debt.
United States and Canadian Operations
Net sales in the United States and Canada were $3,108.0 million and
$2,378.7 million in the years ended December 31, 1995 and 1994, respectively.
Sales in 1995 benefited from new Ford and General Motors passenger car programs,
the contribution of $248.1 million in sales from the AI Acquisition and
incremental volume on light truck seating for previously existing programs.
Operating income and operating margin were $204.8 million and 6.6% in 1995
as compared to $155.6 million and 6.5% in 1994. Operating income in 1995
increased primarily due to increased volumes at certain of the Company's car and
light-truck seating facilities, the benefits derived from the AI Acquisition and
increased productivity and cost reduction programs at existing seat and seat
component facilities. Partially offsetting this increase in operating margin
were engineering and administrative support expenses along with preproduction
costs at new business operations.
European Operations
Net sales in Europe were $1,325.4 million in the year ended December 31,
1995 and $572.5 million in the year ended December 31, 1994. Sales in the
current year benefited from $547.2 million in sales from the FSB and AI
acquisitions, incremental volume on existing programs in Sweden and England and
favorable exchange rate fluctuations in Germany and Sweden.
Operating income and operating margin were $26.5 million and 2.0% in 1995
as compared to $4.4 million and 0.8% in 1994. Operating income in 1995 benefited
from incremental volume on mature Scandinavian and
22
<PAGE> 24
German seat programs and the benefits derived from the FSB and AI Acquisitions.
Partially offsetting the increase in operating income were engineering,
preproduction and facility costs associated with the start-up of a new seat
program in Germany.
Mexico and other Operations
Net sales of $281.0 million in 1995 in the Company's remaining geographic
regions, consisting of Mexico, the Pacific Rim, South Africa and South America,
increased by $84.7 million or 43.1% as compared to $196.3 million in the
comparable period in the prior year. Sales in the year ended December 31, 1995
benefited from the overall growth in Mexican sales activity, including the
production of new General Motors and Ford passenger car and truck seat programs.
Further contributing to the increase in sales was the addition of new business
operations in Australia, South Africa, Brazil and Argentina.
Operating income and operating margin were $13.5 million and 4.8% in the
year ended December 31, 1995 and $9.6 million and 4.9% in the previous year. The
increase in operating income was largely the result of the benefits derived from
increased market demand for new and ongoing seat programs in Mexico. Partially
offsetting the increase in operating income were engineering and preproduction
costs for recently opened manufacturing facilities in the Pacific Rim, South
Africa and South America.
Year Ended December 31, 1994 Compared With Year Ended December 31, 1993
Net sales of $3,147.5 million in the year ended December 31, 1994
represented the thirteenth consecutive year of record sales and surpassed sales
of $1,950.3 million in the year ended December 31, 1993 by $1,197.2 million or
61.4%. Sales in 1994 benefited from internal growth from new programs and
increased seat content per vehicle, higher automotive production in the United
States and Europe and the NAB Acquisition, which accounted for $421.0 million of
the increase.
Gross profit and gross margin were $263.6 million and 8.4%, respectively,
in the year ended December 31, 1994 as compared to $170.2 million and 8.7%,
respectively, in the year ended December 31, 1993. Gross profit in 1994
surpassed gross profit in 1993 due to the benefit of higher sales volume,
including the effect of the NAB Acquisition and the Company's cost reduction
programs. Partially offsetting the increase in gross profit were $23.1 million
of expense for engineering and pre-production costs for new facilities in the
United States, Canada and Europe, lower margin contribution in Mexico and the
$3.9 million increase in post-retirement health care expenses (SFAS 106).
Selling, general and administrative expenses as a percentage of net sales
declined to 2.6% for the year ended December 31, 1994 as compared to 3.2% in the
prior year. The increase in actual expenditures was largely the result of
administrative support expenses and research and development costs associated
with the expansion of domestic and foreign business and expenses related to new
business opportunities.
Operating income and operating margin were $169.6 million and 5.4%,
respectively, in the year ended December 31, 1994 and $79.6 million and 4.1%,
respectively, in the year ended December 31, 1993. The 113.1% increase in
operating income was attributable to the benefits of higher sales volume,
including the effect of the NAB Acquisition, non-recurring incentive stock and
other compensation expense of $18.0 million in 1993 and the Company's cost
reduction programs. Partially offsetting the increase in operating income were
new facility and engineering costs for future seat programs, reduced margins in
Mexico and the effect of the adoption of SFAS 106. Non-cash depreciation and
amortization charges were $56.1 million and $42.6 million, respectively, for the
years ended December 31, 1994 and 1993.
Other expense for the year ended December 31, 1994, including state and
local taxes, foreign exchange gains and losses, minority interests and equity in
income of affiliates, decreased in comparison to the prior year as the
non-recurring write-off of equipment associated with a discontinued program in
Germany and non-seating related assets in the United States, along with a
foreign exchange gain, offset state and local tax expense associated with the
NAB Acquisition. Interest expense in 1994 increased in relation to 1993 as
additional debt incurred to finance the NAB Acquisition and higher short-term
interest expense in Europe
23
<PAGE> 25
offset the benefits derived from the refinancing of subordinated debt at a lower
interest rate and the Company's initial public offering of Common Stock in April
1994.
Net income for the year ended December 31, 1994 was $59.8 million, or $1.26
per share, as compared to a net loss of $13.8 million, or $.39 per share,
realized in the year ended December 31, 1993. The net income of $59.8 million in
1994 reflects a $55.0 million provision for national income taxes of which $26.0
million relates to foreign operations. Further contributing to the improvement
in 1994 net income was the extraordinary expense in 1993 of $11.7 million for
the early extinguishment of debt.
United States and Canadian Operations
Net sales in the United States and Canada increased by 75.3% from $1,357.0
million in the year ended December 31, 1993 to $2,378.7 million for the year
ended December 31, 1994. Sales for the year ended December 31, 1994 benefited
from the full year contribution of the NAB Acquisition, vehicle production
increases on mature seating programs, incremental volume on new Chrysler truck,
Ford truck and Ford passenger car programs and sales generated by a lead vendor
program under which the Company assumed management of components for a seat
program with Ford.
Operating income and operating margin were $155.6 million and 6.5%,
respectively, in the year ended December 31, 1994 and $86.9 million and 6.4%,
respectively, in the year ended December 31, 1993. Operating income and
operating margin in 1994 as compared to the prior year benefited from the NAB
Acquisition, the overall increase in vehicle production and cost reduction
programs which offset new program costs for new facilities, administrative
expenses associated with the expansion of business and increased research and
development expenses.
European Operations
Net sales in Europe increased by 41.8% to $572.5 million for the year ended
December 31, 1994 compared to $403.8 million for the year ended December 31,
1993. The sales increase was due primarily to the addition of new seat programs
in Germany and England and vehicle production increases on established programs
in Germany, Sweden and Austria.
Operating income in Europe was $4.4 million in the fiscal year ended
December 31, 1994 compared to an operating loss of $9.6 million sustained in the
year ended December 31, 1993. Operating income in 1994 as compared to the prior
year benefited from the higher sales levels and cost reduction programs at
existing seat and seat component facilities. Partially offsetting the increase
in operating income were incremental costs associated with the start-up of a new
seat facility in England and the introduction of a replacement component program
within an established facility in Germany.
Mexican Operations
Net sales in Mexico were $196.3 million in the year ended December 31, 1994
and $189.5 million in the year ended December 31, 1993. Sales for the year ended
December 31, 1994 surpassed the prior year due to new Chrysler truck and Ford
passenger car seat programs and incremental volume on mature Ford programs.
Partially offsetting the increase in net sales was the product phase out of a
mature truck program and participation in customer cost reduction programs.
Operating income and operating margin in Mexico were $10.2 million and
5.2%, respectively, in the year ended December 31, 1994 and $20.3 million and
10.7%, respectively, in the prior year. Operating income and operating margin in
1994 declined in relation to the prior year as a result of the Company's
participation in customer cost reduction programs and costs associated with the
introduction of replacement products at new and established facilities.
LIQUIDITY AND CAPITAL RESOURCES
On August 17, 1995, the Company entered into a secured revolving credit
agreement with a syndicate of financial institutions (the "Credit Agreement")
providing for borrowings in the principal amount of up to $1.5 billion.
Borrowings under the Credit Agreement have been used to finance the AI and
Masland Acquisitions, to refinance certain existing indebtedness of AI and
Masland at the time of their acquisition by
24
<PAGE> 26
Lear, to refinance the Company's prior $500 million credit facility and for
general corporate purposes. As of March 30, 1996, after giving pro forma effect
to the Masland Acquisition, the incurrence of indebtedness under the New Credit
Agreement (described below) to repay indebtedness under the Credit Agreement
incurred in connection with the Masland Acquisition and the Note Offering and
the Common Stock Offering and the application of the net proceeds therefrom, the
Company would have had $495.9 million outstanding under the Credit Agreement
($56.1 million of which was outstanding under letters of credit), with $979.1
million unused and available. In addition the Company would have had $40.8
million of long term debt outstanding with various governmental authorities,
banks and other financial institutions as well as $470.0 million of subordinated
debt.
On June 27, 1996, the Company entered into a second revolving credit
agreement with a syndicate of financial institutions (the "New Credit Agreement"
and, together with the Credit Agreement, the "Credit Agreements"). The New
Credit Agreement contains substantially identical terms as the Credit Agreement
and permits borrowings of up to $300 million. Following the Masland Acquisition,
the Company borrowed the full amount permitted under the New Credit Agreement
and used the proceeds to repay outstanding indebtedness under the Credit
Agreement.
Borrowings under the Credit Agreements bear interest at the election of the
Company, at a floating rate of interest equal to (i) the higher of Chemical
Bank's prime lending rate and the federal funds rate plus .5% or (ii) the
Eurodollar Rate (as defined in the Credit Agreements) plus a borrowing margin of
.5% to 1.0%. The applicable borrowing margin is determined based on the level of
a specified financial ratio of the Company. Under the Credit Agreement and the
New Credit Agreement, Lear is permitted to convert variable rate interest
obligations on up to an aggregate of $500 million in principal amount of
indebtedness into fixed rate interest obligations.
Amounts available under the Credit Agreements will be reduced by an
aggregate amount of $750 million prior to maturity on September 30, 2001. The
Company's scheduled principal payments on long-term debt, including debt assumed
in connection with the Masland Acquisition, are approximately $9.0 million,
$11.5 million, $7.6 million, $5.5 million and $128.2 million for the remainder
of 1996 and for the full years 1997, 1998, 1999 and 2000, respectively.
As of March 30, 1996, the Company had net cash and cash equivalents of
$21.6 million. The Company's actual cash availability on the date hereof will be
less than at March 30 because of greater working capital needs during the third
calendar quarter. Nevertheless, the Company believes that cash flows from
operations and funds available under existing credit facilities (principally the
Credit Agreement) will be sufficient to meet its future debt service
obligations, projected capital expenditures and working capital requirements, as
well as to provide the flexibility to fund future acquisitions.
The Company is currently undertaking the Common Stock Offering, which is
not conditioned upon the consummation of the Note Offering. The Note Offering
is, however, conditioned upon the consummation of the Common Stock Offering. The
Notes will be subordinated in right of payment to all existing and future senior
indebtedness of the Company, including the indebtedness evidenced by the Credit
Agreement, the New Credit Agreement and the Senior Subordinated Notes. The Notes
will rank pari passu in right of payment with the Subordinated Notes. The net
proceeds to the Company from the Common Stock Offering will be used to repay
indebtedness outstanding under the Credit Agreement and/or the New Credit
Agreement.
The Credit Agreement and the New Credit Agreement, together with the Senior
Subordinated Notes, the Subordinated Notes and the Notes, impose or will impose
various restrictions and covenants on the Company, including, among other
things, financial covenants relating to the maintenance of minimum operating
profit and net worth levels and interest coverage ratios as well as restrictions
on indebtedness, guarantees, acquisitions, capital expenditures, investments,
loans, liens, dividends and other restricted payments and asset sales. Such
restrictions, together with the leveraged nature of the Company, could limit the
Company's ability to respond to market conditions, to provide for unanticipated
capital investments or to take advantage of business opportunities.
25
<PAGE> 27
CAPITAL EXPENDITURES
During the year ended December 31, 1995, the Company's capital expenditures
aggregated approximately $110.7 million. For the years ended December 31, 1994
and 1993, capital expenditures of the Company were $103.1 million and $45.9
million, respectively. For 1996, the Company anticipates capital expenditures of
approximately $175.0 million, reflecting a full year of AI operations and
approximately $10.0 million relating to the Masland Division.
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 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 facilities in Mendon,
Michigan and Troy, Michigan. Management believes that the Company will not incur
compliance costs or cleanup cost 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 four Superfund sites where liability has not been
completely determined. The Company has also been identified as a PRP at four
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 four
Superfund sites. Expected liability, if any, at the four additional sites is not
material.
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 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which must be adopted by the Company in 1996 and requires that
stock compensation, including compensation in the form of stock options, be
calculated using a measure of fair value, compared with intrinsic value required
under current accounting principles. The new method may be either reflected in
the financial statements or disclosed in the notes to the statements. The
Company expects to adopt the statement by disclosing the effects of the fair
value method in the notes to its 1996 financial statements.
26
<PAGE> 28
SELECTED FINANCIAL DATA OF MASLAND CORPORATION
The following summary consolidated financial data were derived from the
consolidated financial statements of Masland. The consolidated financial
statements of Masland for each of fiscal years 1995, 1994 and 1993 have been
audited by Price Waterhouse LLP. The consolidated financial statements of
Masland for the nine months ended March 29, 1996 and March 31, 1995 are
unaudited; however, in the opinion of Masland's management, they reflect all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and results of operations for such
periods. The results for the nine months ended March 29, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year.
The selected financial data below should be read in conjunction with the
consolidated financial statements of Masland and the notes thereto incorporated
by reference in this Prospectus and "Management's Discussion and Analysis of
Results of Operations of Masland Corporation."
MASLAND CORPORATION
<TABLE>
<CAPTION>
AS OF OR FOR THE NINE AS OF OR FOR THE FISCAL
MONTHS ENDED YEAR ENDED
---------------------- ----------------------------
MARCH 29, MARCH 31, JUNE 30, JULY 1, JULY 2,
1996 1995 1995 1994 1993
--------- --------- -------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT CONTENT PER VEHICLE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales...................................... $ 343.4 $ 373.8 $496.6 $ 429.9 $ 353.5
Gross profit................................... 57.6 68.4 91.2 86.4 62.0
Selling, general and administrative expenses... 29.4 32.6 42.1 39.5 32.7
Amortization................................... 1.7 1.6 2.1 1.9 3.5
------- ------- ------- ------- -------
Operating income............................... 26.5 34.2 47.0 45.0 25.8
Interest expense, net.......................... 3.0 3.4 4.2 3.7 4.3
Other (income) expense, net(1)................. 2.3 3.4 4.2 4.4 (.3)
------- ------- ------- ------- -------
Income before income taxes..................... 21.2 27.4 38.6 36.9 21.8
Income taxes................................... 9.4 12.4 17.3 15.9 8.7
------- ------- ------- ------- -------
Net income..................................... 11.8 15.0 21.3 21.0 13.1
Preferred dividend............................. -- -- -- .5 1.4
------- ------- ------- ------- -------
Net income applicable to common stock.......... $ 11.8 $ 15.0 $ 21.3 $ 20.5 $ 11.7
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Current assets................................. $ 124.9 $ 111.6 $110.2 $ 101.9 $ 99.0
Total assets................................... 276.8 226.0 228.0 203.8 197.3
Current liabilities............................ 73.6 75.2 71.7 79.6 70.1
Long-term debt................................. 70.8 40.2 37.0 31.4 50.1
Stockholders' equity........................... 98.8 82.5 88.2 68.5 60.1
OTHER DATA:
EBITDA(2)...................................... $ 40.2 $ 46.5 $ 62.2 $ 57.6 $ 37.1
Capital expenditures........................... 20.6 14.7 22.0 17.8 18.0
North American content per vehicle(3).......... 34 31 33 30 26
</TABLE>
- -------------------------
(1) Other (income) expense includes minority interest in consolidated
subsidiaries.
(2) "EBITDA" is operating income plus depreciation and amortization. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles.
(3) "North American content per vehicle" is Masland's net automotive sales in
North America divided by total North American vehicle production. "North
American vehicle production" comprises car and light truck production in the
United States, Canada and Mexico estimated by the Company from industry
sources.
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS OF MASLAND CORPORATION
Nine Months Ended March 29, 1996 Compared with Nine Months Ended March 31, 1995
Net sales decreased $30.4 million or 8.1% from $373.8 million for the nine
months ended March 31, 1995 to $343.4 million for the nine months ended March
29, 1996. The net sales decrease was due to lower North American light vehicle
production and a slower than anticipated ramp up in production of the redesigned
Ford Taurus/Mercury Sable. Also, the fiscal 1995 period included approximately
$6.5 million in sales from the non-automotive business of H.L. Blachford, Inc.
("Blachford") which was divested in March 1995.
Cost of sales as a percentage of net sales increased from 81.7% for the
nine months ended March 31, 1995 to 83.2% for the nine months ended March 29,
1996. This cost increase was primarily due to the effect of decreased sales on
fixed costs combined with additional costs for several new product and program
launches, including the redesigned Ford F-Series pickup and the redesigned Ford
Taurus/Mercury Sable.
Selling, general and administrative expenses decreased $1.3 million or 6.5%
from $19.4 million for the nine months ended March 31, 1995 to $18.1 million for
the nine months ended March 29, 1996. The decrease was primarily due to lower
incentive compensation expense and cost savings associated with the Blachford
acquisition, which was completed in September 1994. This decrease was partially
offset by reorganization expenses related to streamlining, decentralization and
customer focus efforts.
Research, development and engineering declined from 3.5% of net sales for
the nine months ended March 31, 1995 to 3.3% of net sales for the nine months
ended March 29, 1996. Interest expense decreased from $3.4 million for the nine
months ended March 31, 1995 to $3.0 million for the nine months ended March 29,
1996, primarily due to a decline in interest rates. Other expense decreased $1.1
million for the nine months ended March 29, 1996 compared to the nine months
ended March 31, 1995. The improvement in other expense is primarily due to the
nine months ended March 31, 1995 containing the foreign exchange loss resulting
from the 50% devaluation of the Mexican peso between December 20, 1994 and March
31, 1995. The effective income tax rates for the nine months ended March 31,
1995 and March 29, 1996 were 41.8% and 39.9%, respectively. The decrease in the
effective tax rate was due to a decrease in the state income tax rate in
Masland's primary state tax jurisdiction and due to changes in the distribution
of income among Masland's various foreign and domestic tax jurisdictions.
Net cash flow provided by operating activities for the first nine months of
fiscal 1996 was $15.7 million. This was the result of net income of $11.8
million and non-cash charges of $11.2 million, primarily depreciation, offset by
an increase in non-cash working capital of $7.3 million. Significant
non-operating uses of cash were investments of $23 million in Sommer Masland
(U.K.) Ltd. and Precision Fabrics Group, Inc. ("PFG"), capital expenditures of
$20.6 million and dividends on common stock of $0.05 per share, totaling $2.0
million.
On July 31, 1995, Masland formed a joint venture, Sommer Masland (U.K.)
Ltd. by purchasing 50% of Sommer Allibert S.A.'s existing manufacturing facility
in Washington, England for approximately $8 million. This facility, which
supplies Nissan, Peugeot and Saab, has annual sales of approximately $20
million. Masland and Sommer plan to conduct their acoustic and soft-surface trim
business in the United Kingdom exclusively through the joint venture.
On September 27, 1995, Masland invested $15 million in PFG in exchange for
a 29% equity interest. In connection with the investment, Masland received an
option to acquire the remainder of PFG for 4.1 million shares of Masland. PFG
recently introduced the Precision Technology Airbag which it plans to market to
the automotive industry. PFG is presently a technology leader in the development
and manufacture of highly engineered lightweight fabrics for the aerospace,
medical and computer industries.
28
<PAGE> 30
Fiscal Year Ended June 30, 1995 Compared with Fiscal Year Ended July 1, 1994
Net sales increased $66.7 million, or 15.5%, from $429.9 million in fiscal
1994 to $496.6 million in fiscal 1995. About $33 million of the increase was
associated with the acquisition of Blachford. The remaining increase was
primarily due to participation on several new vehicles during fiscal 1995,
including the Ford Contour/Mystique, the Lincoln Continental/Town Car and the
Toyota Avalon and an overall increase in industry automotive vehicle builds
during fiscal 1995. The increase in industry vehicle builds was concentrated in
the first half of fiscal 1995.
Cost of sales as a percentage of net sales increased from 79.9% in fiscal
1994 to 81.6% in fiscal 1995. This increase in cost of sales as a percentage of
net sales was primarily due to lower margins on the acquired business of
Blachford, costs incurred on several new product launches and product mix. These
increases were partially offset by the effect of the increased sales volume on
fixed costs and the impact of various productivity initiatives.
Selling, general and administrative expenses decreased from 5.9% of net
sales in fiscal 1994 to 5.0% of net sales in fiscal 1995. This improvement was
primarily due to the effect of the increased sales volume on fixed costs,
decreased incentive compensation in fiscal 1995, and a nonrecurring charge of
$0.9 million in fiscal 1994 associated with the vesting of certain stock options
at the date of Masland's initial public offering.
Research, development and engineering expenses increased 21.1% from $14.2
million in fiscal 1994 to $17.2 million in fiscal 1995, primarily due to
increased levels of activity regarding new process and product development at
Masland's Technical Center in Plymouth, Michigan and due to incremental costs
associated with the acquisition of Blachford. Interest expense increased from
$3.7 million in fiscal 1994 to $4.2 million in fiscal 1995 due to incremental
debt arising from the Blachford acquisition and an increase in average interest
rates. Other income and expense consists of foreign currency exchange losses in
fiscal 1994 and fiscal 1995. The loss of $1.0 million incurred in fiscal 1995
relates primarily to the 45% devaluation of the Mexican peso subsequent to
December 20, 1994. The effective income tax rates for fiscal 1994 and fiscal
1995 were 39.0% and 41.3%, respectively. The increase in the effective income
tax rate was due to decreased tax benefits recognized in fiscal 1995 compared to
fiscal 1994 associated with tax net operating loss carryforwards and other tax
credits and due to changes in the distribution of income among Masland's various
foreign and domestic tax jurisdictions.
Fiscal Year Ended July 1, 1994 Compared to the Fiscal Year Ended July 2, 1993
Net sales increased 21.6% from $353.5 million in fiscal 1993 to $429.9
million in fiscal 1994. On May 8, 1993, Masland began to consolidate the results
of Amtex, Inc., a 50% owned joint venture ("Amtex"), as a result of entering
into a revised Joint Venture Agreement with its joint venture partner. Prior to
this date, the results of Amtex were accounted for under the equity method. Had
the results of Amtex been consolidated for all of fiscal 1993, sales for that
year would have been $369.4 million and the increase in Masland's sales for
fiscal 1994 would have been $60.5 million or 16.4%. This increase was due to
overall increases in North American automotive industry vehicle builds during
fiscal 1994 compared to fiscal 1993, and participation on several new vehicles
during fiscal 1994, including the Chrysler Neon and the Ford Mustang.
Cost of sales as a percentage of net sales improved from 82.5% in fiscal
1993 to 79.9% in fiscal 1994. This improvement was a result of Masland's
continuing efforts to improve productivity and reduce costs and the effect of
increased sales on fixed costs in fiscal 1994.
Selling, general and administrative expenses increased by $2.2 million, but
decreased from 6.5% of net sales in fiscal 1993 to 5.9% of net sales in fiscal
1994. The increased costs in fiscal 1994 were primarily due to a charge to
expense of $0.9 million resulting from the immediate vesting of certain stock
options concurrent with Masland's initial public offering, the consolidation of
Amtex and to increased incentive compensation resulting from improved
profitability.
29
<PAGE> 31
Research, development and engineering expenses increased 47.9% from $9.6
million in fiscal 1993 to $14.2 million in fiscal 1994, primarily due to
Masland's Technical Center in Plymouth, Michigan becoming fully operational
during fiscal 1994 and an increase in engineering personnel and related
expenses. Interest expense decreased from $4.3 million in fiscal 1993 to $3.7
million in fiscal 1994 due to a decrease in average interest rates and lower
average borrowings, partially offset by additional interest expense resulting
from the consolidation of Amtex. Earnings of Amtex prior to May 8, 1993 were
recorded under the equity method of accounting and were included in other
(income) expense, primarily accounting for the change in this balance from
income of $0.5 million for fiscal 1993 to expense of $0.4 million in fiscal
1994. The effective income tax rates for fiscal 1993 and fiscal 1994 were 39.4%
and 39.0%, respectively.
30
<PAGE> 32
BUSINESS OF THE COMPANY
GENERAL
Lear is the largest independent supplier of automotive interior systems in
the estimated $40 billion global automotive interior systems market and the
tenth largest independent automotive supplier in the world. The Company's
principal products include: finished automobile and light truck seat systems;
interior trim products, such as door panels and headliners; and component
products, such as seat frames, seat covers and various blow molded plastic
parts. The Company's extensive product offerings were recently expanded through
the acquisition of Masland, a leading Tier I designer and manufacturer of
automotive floor and acoustic systems and interior and luggage trim components.
This acquisition, together with the August 1995 acquisition of Automotive
Industries, has made Lear the world's largest independent automotive supplier
with the ability to design, engineer, test and deliver products for a total
vehicle interior. The Company's present customers include 24 original equipment
manufacturers ("OEMs"), the most significant of which are Ford, General Motors,
Fiat, Chrysler, Volvo, Saab, Volkswagen and BMW. As of June 1, 1996, after
giving pro forma effect to the Masland Acquisition, the Company would have
employed approximately 40,000 people in 19 countries and operated 131
manufacturing, research and development, product engineering and administration
facilities.
The Company has experienced substantial growth in market presence and
profitability over the last five years both as a result of internal growth as
well as acquisitions. The Company's sales have grown from approximately $1.1
billion for the year ended June 30, 1991 to approximately $4.7 billion for the
year ended December 31, 1995, a compound annual growth rate of 38%. After giving
pro forma effect to the AI and Masland acquisitions, the Company's sales would
have been approximately $5.7 billion for the year ended December 31, 1995. The
Company's operating income has grown from $44.7 million for the year ended June
30, 1991 to $244.8 million for the year ended December 31, 1995, a compound
annual growth rate of 46%.
The increase in the Company's sales and the improvement in its operating
performance are attributable primarily to the Company's strategy of capitalizing
on two significant trends in the automotive industry: (i) the outsourcing of
automotive components and systems by OEMs; and (ii) the consolidation and
globalization of the OEMs' supply base. Outsourcing of interior components and
systems has increased in response to competitive pressures on OEMs to improve
quality and reduce capital needs, costs of labor, overhead and inventory.
Consolidation among automotive industry suppliers has occurred as OEMs have more
frequently awarded long-term sole source contracts to the most capable global
suppliers. Increasingly, the criteria for selection include not only cost,
quality and responsiveness, but also certain full-service capabilities,
including design, engineering and project management support. OEMs now have
rigorous programs for evaluating and rating suppliers, which encompass quality,
cost control, reliability of delivery, new technology implementation and overall
management. Under these programs, each facility operated by a supplier is
evaluated independently. The suppliers who obtain superior ratings from an OEM
are considered for new business; those who do not may continue their existing
contracts, but are unlikely to be considered for additional business. As a
result, the OEMs' new supplier policies will continue to reduce the number of
component and system suppliers. The Company believes that OEMs in North America
and Europe will continue to pursue outsourcing and supplier consolidation as a
means of cost reduction.
The Company has positioned itself as the leading global Tier I supplier of
interior systems and components to OEMs. Tier I status typically means that the
supplier is awarded a program for a particular vehicle in the early stages of a
vehicle's design. The Tier I supplier becomes responsible for total product
management, including design, development, component sourcing, quality assurance
procedures, manufacture and delivery to the OEM's assembly plant. The OEMs
benefit from lower costs, improved quality, timely delivery and the
administrative convenience of being able to outsource complete systems to a
single supplier or a small group of suppliers.
In 1995, Lear was the leading independent supplier to the total $40 billion
global automotive interior market, with a 12% share after giving pro forma
effect to the AI and Masland acquisitions. In addition, the Company in 1995 held
a leading 34% share of the estimated $6.9 billion total North American seat
systems market and was the leading independent supplier to the estimated $5.5
billion total Western European seat
31
<PAGE> 33
systems market, with a 19% share. The door panel and headliner segments of the
automotive interior market are highly fragmented, 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 automakers in the North American
and European markets to outsource more of their door panel and headliner
requirements.
The Company's North American content per vehicle has increased from $12 in
1983 to $227 in 1995. In Western Europe, the content per vehicle has grown from
$3 in 1983 to $102 in 1995. These increases have resulted from the Company's
ability to capitalize on a number of industry trends including outsourcing,
greater design responsibility by Tier I suppliers and the increased
sophistication of seat systems and other interior products as OEMs add
convenience features and luxury items into vehicle models. The increases in
content per vehicle also resulted from several recent acquisitions, including
Automotive Industries and the Fiat Seat Business. See " -- Recent Acquisitions."
In addition, the Company believes it can further increase interior content
through the development of more advanced automobile safety features, such as
side impact airbags and fully integrated seatbelts.
The Company is the successor to a seat frame manufacturing business founded
in 1917 that served as a supplier to General Motors and Ford from its inception.
As a result of the expansion of the Company's business from automotive seat
systems to products for a vehicle's complete interior, the Company changed its
name to "Lear Corporation" from "Lear Seating Corporation" effective May 9,
1996.
BUSINESS STRATEGY
Lear's business objective is to expand its position as the leading
independent supplier of automotive interior systems in the world. To achieve
this objective, the Company will continue to pursue a strategy based upon the
following elements:
- Strong Relationships with the OEMs. The Company's management has
developed strong relationships with its 24 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 an excellent
reputation with the 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.
- Global Presence. In 1995, more than two-thirds of total worldwide vehicle
production occurred outside of the United States and Canada. Due to
opportunities for significant cost savings and improved product quality and
consistency, OEMs have increasingly required their suppliers to manufacture
interior systems and other components in multiple geographic markets. In recent
years, the Company has aggressively expanded its operations in Western Europe
and emerging markets in South America, South Africa, the Pacific Rim and
elsewhere, giving it the capability to provide its products on a global basis to
its OEM customers. A global market presence also affords Lear some protection
against cyclical downturns in any single market. During 1995, in furtherance of
its global expansion strategy, the Company entered into three joint ventures and
expanded its wholly-owned operations into South Africa. The first joint venture
agreement was with an affiliate of Industria Espanola del Polieter, S.A., a
Spanish corporation, to supply seat systems in Brazil for the Volkswagen Gol.
The Company also entered into a joint venture agreement with TeknoSeating S.A.,
the largest independent automotive supplier in Argentina, to supply seat systems
to Volkswagen in Argentina for the Gol and the Cordoba models and with
Trambusti, a Brazilian company, to supply seat systems to Fiat in Brazil for the
Palio (Fiat's World Car), the Tempra, and several light truck models. In
addition, Lear further expanded its presence internationally by opening a
facility in South Africa to provide seat systems to BMW. In 1995, the Company's
sales outside the United States and Canada, after giving pro forma effect to the
AI and Masland acquisitions, would have grown to approximately $1.7 billion or
approximately 30% of the Company's total pro forma sales.
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<PAGE> 34
- Increased Interior Content. OEMs increasingly view the interior of the
vehicle as a major selling point to their customers. A major focus of Lear's
research and development efforts is to identify new interior features that make
vehicles safer and more comfortable, while continuing to appeal to consumer
preferences. For example, Lear's involvement in 1994 with Volvo and AutoLiv led
to the automotive industry's first vehicle with side-impact airbags. In
addition, Lear's proprietary Integral Restraint Seat, which will be introduced
in GM's 1997 Buick Park Avenue, offers consumers easy access to the vehicle's
rear seat as well as improved seat comfort and safety. The development of these
and other safety and comfort features has been, and management believes will
continue to be, an important factor in the Company's future growth.
- Product Technology and Design Capability. Lear has made substantial
investments in technology and design capability to support its products. The
Company maintains four research and development centers (in Southfield,
Michigan, Rochester Hills, Michigan, Plymouth, Michigan and Turin, Italy) where
it develops and tests current and future products to determine compliance with
safety standards, 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. At its 16 customer-dedicated
product engineering centers, specific program applications are developed and
tested. Benchmarking studies are also conducted to aid in developing innovative
interior design features. The Company has also made substantial investments to
upgrade its advanced computer-aided engineering ("CAE") and computer-aided
design/computer-aided manufacturing ("CAD/CAM") systems. Several tools recently
added to electronically create a product and evaluate its performance include
advanced design modeling software, dynamic crash simulation, linear and
non-linear finite element analysis and solids modeling. Lear's "Best-in-Class"
testing program incorporates the use of a state-of-the-art programmable vehicle
model, which allows the Company to evaluate the actual feel and ergonomic
implications of various interior products. In addition, the Company has
developed a program management process to ensure that customers' expectations
are met. The proprietary "Visions" program allows Lear to manage all aspects of
product development. The process ensures that employees, customers and suppliers
of the Company work as a team to deliver high quality, cost-effective products
on a timely basis.
- Lean Manufacturing Philosophy. Lear's "lean manufacturing" philosophy
seeks to eliminate waste and inefficiency in its own operations and in those of
its customers and suppliers. The Company believes that it provides superior
quality automotive interior products at lower costs than the OEMs. All of the
Company's seat system facilities and many of its other manufacturing facilities
are linked by computer directly to those of the Company's suppliers and
customers. These facilities receive components from their suppliers on a JIT
basis, and deliver interior systems and components to customers on a sequential
JIT basis, which provides products to an OEM's manufacturing facility in the
color and order in which the products are used. The process minimizes
inventories and fixed costs for both the Company and its customers and enables
the Company to deliver products on as little as 90 minutes' notice. For the year
ended December 31, 1995, the Company's overall annual inventory turnover rate
was 30 times and up to 200 times in the case of certain of the Company's JIT
plants. The Company also minimizes fixed costs by using existing suppliers to
the OEMs and the OEMs themselves for certain components. In cases where one of
the Company's seating manufacturing facilities is underutilized, the Company is
able to redistribute products to increase facility utilization.
- Growth Through Strategic Acquisitions. Strategic acquisitions have been,
and management believes will continue to be, an important element in the
Company's growth worldwide and in its efforts to capitalize on the outsourcing
and supplier consolidation trends. The Company's recent acquisitions have
expanded its OEM customer base and worldwide presence and enhanced its
relationships with existing customers. The AI and Masland acquisitions also
provide the Company a significant presence in the non-seating segments of the
automobile and light truck interior market. The Company believes that these
markets hold significant growth potential for Lear because currently there is no
dominant independent supplier of these products and they are in the early stages
of the outsourcing and consolidation process that has contributed to the
expansion of the seat systems industry since the early 1980's. In 1995, after
giving pro forma effect to the AI and Masland acquisitions, the Company's sales
of non-seating systems and components would have been approximately $1.4
billion, or approximately 25% of the Company's total pro forma sales. The
Company will continue to consider strategic acquisitions that expand its global
presence, improve its technological capabilities or enhance customer
relationships.
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RECENT 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:
Masland Acquisition
On July 1, 1996, the Company completed the acquisition of all of the issued
and outstanding shares of common stock of Masland for an aggregate purchase
price of $476.6 million (including the assumption of an estimated $81.7 million
of Masland's existing indebtedness as of July 1, 1996, net of cash and cash
equivalents, and the payment of fees and expenses of $10 million in connection
with the acquisition). In 1995, Masland held a leading 38% share of the
estimated $1 billion North American floor and acoustic systems market. Masland
is also a major supplier of interior and luggage compartment trim components and
other acoustical products which are designed to minimize noise and vibration for
passenger cars and light trucks. Masland supplies the North American operations
of Ford, Chrysler, General Motors, Honda, Isuzu, Mazda, Mitsubishi, Nissan,
Subaru and Toyota, as well as the European operations of Nissan, Peugeot and
Saab. Masland has had a continuous relationship with Ford, its largest customer,
since 1922. For its fiscal year ended June 30, 1995, Masland had net sales,
EBITDA, operating income and net income of $496.6 million, $62.2 million, $47.0
million and $21.3 million, respectively.
In addition to the experience and expertise of Masland's management team,
the Company believes that the Masland Acquisition will provide Lear with several
benefits, including the following:
- Total Interior Systems. The Masland Acquisition enhances Lear's ability
to provide a total interior system. Before the acquisition, the Company
had manufacturing capabilities in three of the five principal automotive
interior system segments. The Masland Acquisition gives Lear
manufacturing capabilities and a leading market position in a fourth
segment, floor and acoustic systems, leaving instrument panels as the
only segment in which the Company does not have a manufacturing
capability. Management believes that the ability to offer a total
interior system provides Lear with a competitive advantage as OEMs
continue to reduce their supplier base while demanding improved quality
and additional Tier I services. Integrating the total interior for a
model through one supplier provides several benefits to an OEM, including
(i) cost reduction, (ii) shorter product development cycles, (iii)
improved interior appearance through better fitting components and color,
grain and material matching and (iv) greater ability to focus on core
competencies.
- Growth Opportunities. Lear's market leadership, expertise and established
relationships with European OEMs (Fiat, Opel, Volvo, Saab and BMW) will
provide Masland with additional access to the European market. In
addition, Lear's entry into global automotive growth areas, particularly
in South America and the Asia-Pacific region, affords further growth
opportunities for Masland.
- Margin Improvements. Operating margins in the floor and acoustic systems
market are generally higher than those in the seating market.
Historically, Masland's operating margins have been higher than the
Company's and should, therefore, improve the Company's consolidated
operating margin. The additional cash flows provided from operations
would be available for debt reduction or reinvestment in new growth
opportunities worldwide. In addition, the Company believes that
additional savings will be realized through purchasing, engineering,
manufacturing and administration consolidation.
- Technology. Masland provides the Company with access to leading-edge
technology. Its 33,000 square foot Technical Center in Plymouth, Michigan
provides complete full service acoustics testing, design, product
engineering, systems integration and program management. Masland's
acoustics lab offers state-of-the-art instrumentation, testing, and
data-analysis capabilities. It also 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 gathering
and analysis capabilities, Masland provides precisely controlled
laboratory conditions for sophisticated interior and exterior noise,
vibration, and harshness (NVH) testing of parts, materials, and systems,
including powertrain, exhaust, and suspension components. Masland also
owns a 29%
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interest in PFG, which has patented a process to sew and fold an
ultralight fabric into airbags which are 60% lighter than the current
airbags used in the automotive industry.
AI Acquisition
In August 1995, the Company acquired all the outstanding common stock of
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 system segment
of the interior market, which comprises approximately 47% of the total combined
North American and Western European interior markets. By providing the Company
with substantial manufacturing capabilities in door panels and headliners, the
AI Acquisition made Lear the largest independent Tier I supplier of automotive
interior systems in the North American and Western European light vehicle
interior market. Management believes that OEMs will increasingly ask their lead
suppliers to fill the role of "Systems Integrator" to manage the design,
purchase and supply of the total vehicle interior. As a result of the AI
Acquisition, as well as the Masland Acquisition, Lear is well-positioned to fill
this role. The aggregate purchase price for the AI Acquisition was $885.0
million (including the assumption of $250.5 million of AI's existing
indebtedness and fees and expenses of $18.1 million). These funds were provided
by borrowings under the Credit Agreement.
Prior to its acquisition by Lear, Automotive Industries itself augmented
its substantial internal growth with selected strategic acquisitions. The
acquisitions allowed AI to expand its interior trim systems product capabilities
and substantially increased AI's ability to provide advanced design, engineering
and program management services to its customers. At the same time, these
acquisitions increased AI's global presence and provided AI access to new
customers and new technologies. As a division of Lear, AI continues to consider
strategic acquisitions as a means to further growth.
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 the market leader in automotive seat systems in
Europe, but combined with its leading position in North America, made Lear the
largest automotive seat systems manufacturer 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 will supply 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
consists of an integrated United States and Mexican operation which produces
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 was able to enhance its
relationship with one of its largest OEM customers, entering into a five year
supply agreement with Ford 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.
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Scandinavian Acquisitions
In 1991 and 1992, the Company acquired the seat systems businesses of Saab
in Sweden and Finland and of Volvo in Sweden. In connection with each of these
acquisitions, the Company entered into long-term relationships with the
respective OEMs.
PRODUCTS
Lear's products have evolved from the Company's many years of experience in
the seat frame market where it has been a major supplier to General Motors and
Ford since its inception in 1917. The seat frame has structural and safety
requirements which make it the basis for overall seat design and was the logical
first step to the Company's emergence as a dominant supplier of entire seat
systems and seat components. With the acquisitions of Automotive Industries and
Masland, the Company has expanded its product offerings and can now manufacture
and supply its customers with floor systems, headliners and door panels. 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.
The following is the approximate composition by product category of the
Company's net sales in the year ended December 31, 1995, after giving pro forma
effect to the AI and Masland acquisitions: seat systems, $3.7 billion; floor and
acoustic systems, $450 million; door panels, $350 million; headliners, $100
million; and other component products, $1.1 billion.
- SEAT SYSTEMS. The seat systems business consists of the manufacture,
assembly and supply of seating requirements for a vehicle or assembly plant.
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 can provide ergonomic designs which offer styling flexibility at low
cost. In addition, the Company is able to incorporate many convenience features
and safety improvements into its seat designs, such as storage armrests, rear
seat fold down panels, integrated restraint systems, child restraint seats, and
side impact air bags.
Lear's position as a market leader in seat systems is largely attributable
to seating programs on new vehicle models launched in the past five years. The
Company believes that supplying seating for these new vehicle models will
provide it with a revenue stream throughout the lives of these models. The
Company is currently working with customers in the development of a number of
seat systems products to be introduced by automobile manufacturers in the next
six years, which it expects will lead to an increase in opportunities in the
future. In addition, with the AI and Masland acquisitions, the Company believes
it has significant cross-selling opportunities across both customers and vehicle
platforms and is well-positioned to expand its position as the leading
independent supplier of automotive interior systems in the world.
- 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, through its Masland Division, is the largest
supplier of vinyl floor systems in North America, and the only supplier of both
carpet and vinyl floor systems. Recently, Masland developed Maslite(TM), a
lightweight material which has replaced vinyl accessory mats on selected
applications. Maslite(TM) is a superior product with improved performance with
the additional significant advantage of 40% less weight than vinyl.
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
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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. The Masland Division's significant experience
has enabled it 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, heat and vibration 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.
The Masland Division'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 Masland Division's ability to produce both the dash
insulator and the floor system enables the Company 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.
Floor and acoustic systems accounted for approximately 81% of Masland's
total revenues in 1995 when it held a leading 38% share in the estimated $1
billion North American floor and acoustic systems market. In addition, the
Masland Division participates in the European floor system 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 and 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 1995, after giving pro forma effect to the AI Acquisition, the Company
would have held a leading 16% share of the estimated $1.6 billion North American
door panel market. Management believes that this leadership position has been
obtained 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 are highly fragmented and just beginning to
experience the outsourcing and/or 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.
- 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 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 internally achieve. Through its manufacturing
capabilities, the Company also believes that it is one of the most
process-diverse suppliers of headliners in North America.
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 and other automobile components as well as blow molded plastic parts.
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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
allows 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
and medium trucks. Seat frames are primarily manufactured using precision
stamped, tubular steel and aluminum components joined together by highly
automated, state-of-the-art welding and assembly techniques. The manufacture of
seat frames must meet strict customer specified safety standards. The Company's
seat frames are either delivered to its own plants where they become part of a
completed seat that is sold to the OEM customer, to customer-operated assembly
plants or to other independent seating suppliers for use in the manufacture of
assembled seating systems.
The Company, through its AI Division, 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 AI's 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 finished by trimming, drilling and other operations.
MANUFACTURING
All of the Company's facilities use JIT manufacturing techniques and 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 automobile manufacturers, is the cornerstone
of the Company's manufacturing and supply strategy. This strategy involves many
of the principles of the Japanese system, but was redeveloped for compatibility
with the greater volume requirements and geographic distances of the North
American market. The Company first developed JIT operations in the early 1980s
at its seat frame manufacturing plants in Morristown, Tennessee and Kitchener,
Ontario, Canada. These plants previously operated under traditional
manufacturing practices, resulting in relatively low inventory turnover rates,
significant scrap and rework, a high level of indirect labor costs and long
production set-up times. As a result of JIT manufacturing techniques, the
Company has been able to consolidate plants, increase capacity and significantly
increase inventory turnover, quality and productivity.
The JIT principles first developed at Lear's seat frame plants were next
applied to the Company's growing seat systems business and have now evolved into
sequential parts delivery ("SPD") principles. The Company's seating plants are
typically no more than 30 minutes or 20 miles from its customers' assembly
plants and 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 ensuing week. In addition, constant computer
and other communication is maintained between personnel at the Company's plants
and personnel at the customers' plants to keep production current with the
customers' demand.
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) process, a technique in
which fabric is affixed to the underlying foam padding using adhesives. The
SureBond(TM) process has several major advantages when compared to traditional
methods, including design flexibility, increased quality and lower cost. The
SureBond(TM) process, unlike alternative bonding processes, results in a more
comfortable seat in which air can circulate freely. The SureBond(TM) process,
moreover, is reversible, so that seat covers that are improperly installed can
be removed and repositioned properly with minimal materials cost. In addition,
the SureBond(TM)
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process is not capital intensive when compared to competing bonding
technologies. Approximately one-third of the Company's seats are manufactured
using the SureBond(TM) process.
The seat assembly process begins with pulling the requisite components from
inventory. Inventory at each plant is kept at a minimum, with each component's
requirement monitored on a daily basis. This allows the plant to devote the
maximum space to production, but also requires precise forecasts of the day's
output. Seats are assembled 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 customer's assembly plant.
The Company's AI Division uses numerous molding, bonding, trimming and
finishing manufacturing processes. The wide variety of manufacturing processes
helps to satisfy customers' different cost and functionality specifications.
AI's ability and experience in producing interior products for such a vast array
of applications enhances the Company's ability to provide total interior
solutions to OEMs globally. The AI Division employs many of the same JIT
principles used at the Company's seat facilities.
The core technologies used in the AI Division's interior trim 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 the AI Division's strategy
is to focus on more complex, value-added products such as door panels and
armrests. The AI Division 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 AI.
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, automobile 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.
The Masland Division produces carpet at its largest plant in Carlisle,
Pennsylvania. Smaller "focused" factories are dedicated to specific groups of
customers and are strategically located near their production facilities. This
proximity improves responsiveness to Masland customers and speeds product
delivery to customer assembly lines, which is done on a JIT basis. Masland'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 their EcoPlus(TM) recycling process as well as Maslite(TM), a
lightweight proprietary material used in the production of accessory mats.
The Company obtains steel, aluminum and foam chemicals used in its seat
systems from several producers under various supply arrangements. These
materials are supplied under various arrangements and 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. 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.
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-Benz, Mitsubishi,
Mazda, Toyota, Subaru, Nissan, Isuzu, Peugeot, Porsche, Renault, and Suzuki.
During the year ended December 31, 1995, after giving pro forma effect to the AI
and Masland acquisitions, Ford and General
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Motors, the two largest automobile and light truck manufacturers in the world,
would have accounted for approximately 36% and 31%, respectively, of the
Company's net sales. For additional information regarding customers, foreign and
domestic operations and sales, see Note 17, "Geographic Segment Data," to the
consolidated financial statements of the Company incorporated by reference in
this Prospectus.
In the past six years, in the course of retooling and reconfiguring plants
for new models and model changeovers, OEMs have eliminated seating production
from certain of their facilities, thereby committing themselves to purchasing
seat systems and components from outside suppliers. During this period, the
Company became a supplier of these products for a significant number of new
models, many on a JIT basis.
The purchase of seat systems on a JIT basis has allowed the Company's
customers to realize a competitive advantage as a result of (i) a reduction in
labor costs since suppliers like the Company generally enjoy lower direct labor
and benefit rates, (ii) the elimination of working capital and personnel costs
associated with the production of seat systems by the OEM, (iii) a reduction in
net overhead expenses and capital investment due to the availability of
approximately 60,000 to 80,000 square feet of seat production plant space for
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 seating 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 most 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 automobiles 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 the assembly.
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
avoid duplication of sales and engineering efforts. As innovative designs are
developed which integrate components into a single unit, the potential to
provide the Company's customers with additional cost and time savings should
significantly increase. With the acquisition of Masland, the Company intends to
integrate floor and acoustic systems into its existing marketing strategy.
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, 1995 were comprised of
the following vehicle categories: 41% light truck; 23% mid-size; 15% compact and
other; 12% luxury/sport; and 9% full-size. The following table presents an
overview of the major vehicle models for which the Company or its affiliates
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produce seat systems, floor and acoustic systems, interior trim products or
other components and the locations of such production:
<TABLE>
<S> <C> <C>
UNITED STATES AND CANADA
BMW: FORD (CONT.): GENERAL MOTORS (CONT.):
3 Series Ford Windstar Minivan GMC Sonoma
Z3 Lincoln Continental GMC Top Kick
SUZUKI: Lincoln Mark VIII Oldsmobile 88
Geo Metro Lincoln Town Car Oldsmobile Achieva
Geo Tracker Mercury Cougar Oldsmobile Aurora
Suzuki Sidekick Mercury Grand Marquis Oldsmobile Ciera
Suzuki Swift Mercury Mystique Oldsmobile Cutlass Supreme
CHRYSLER: Mercury Sable Oldsmobile Eurosport
Chrysler Cirrus Mercury Tracer Oldsmobile Silhouette
Chrysler Concorde Mercury Villager Pontiac Bonneville
Chrysler LeBaron SUBARU/ISUZU: Pontiac Firebird
Chrysler LHS Isuzu Rodeo Pontiac Grand Am
Chrysler Sebring Subaru Legacy Pontiac Grand Prix
Chrysler Town & Country GENERAL MOTORS: Pontiac Sunfire
Dodge Avenger Buick Century Pontiac Transport
Dodge Caravan Buick LeSabre Prizm
Dodge Dakota Pick-up Truck Buick Park Avenue Saturn SC
Dodge Intrepid Buick Regal Saturn SL
Dodge Neon Buick Riviera HONDA:
Dodge Ram Pick-up Truck Buick Skylark Accord
Dodge Ram Van Cadillac DeVille/Concours Civic
Dodge Ram Wagon Cadillac Eldorado Passport
Dodge Viper Chevrolet Astro MAZDA:
Eagle Talon Chevrolet Beretta 626
Jeep Cherokee Chevrolet Blazer B2000
Jeep Grand Cherokee Chevrolet C/K Pick-up Truck MX6
Jeep Wrangler Chevrolet Camaro MITSUBISHI:
Plymouth Neon Chevrolet Cavalier Eclipse
Plymouth Voyager Chevrolet Corsica Gallant
FORD: Chevrolet Corvette NISSAN:
Ford Aerostar Chevrolet Kodiak Altima
Ford Bronco Chevrolet Lumina/Van King Cab Pick-up Truck
Ford Contour Chevrolet Monte Carlo Quest
Ford Crown Victoria Chevrolet Express Sentra
Ford Econoline/Club Wagon Chevrolet/GMC Suburban TOYOTA:
Ford Escort Chevrolet S Pick-up Truck Avalon
Ford Explorer Chevrolet Tahoe/GMC Yukon Camry
Ford F-Series Pick-up Truck GMC 10-30,15-35 Corolla
Ford Mustang GMC C/K Pick-up Truck Tacoma Pick-up Truck
Ford Probe GMC Savana
Ford Ranger GMC Safari
Ford Taurus
Ford Taurus SHO
Ford Thunderbird
MEXICO
BMW: FORD: GENERAL MOTORS (CONT.):
3 Series Ford Contour Opel Corsa
CHRYSLER: Ford Escort Pontiac Sunfire
Chrysler Cirrus Ford F-Series NISSAN:
Dodge Neon Ford Ghia Pick-up
Dodge Ram Mercury Mystique Tsuru
JX Convertible Mercury Tracer VOLKSWAGEN:
Plymouth Neon GENERAL MOTORS: Golf
Chevrolet Cavalier Jetta
Chevrolet C/K Pick-up Truck Derby
Chevrolet Tahoe/GMC Yukon GPA Minivan
</TABLE>
41
<PAGE> 43
<TABLE>
<S> <C> <C>
EUROPE
ALFA ROMEO: OPEL: ROVER (CONT.):
Alfa 145/146 Astra 400/Saloon
Alfa 155 Corsa/Van 600
Alfa 164 Omega 800
Coupe Vectra Discovery
Spider HONDA: Land Rover
AUDI: Accord Maestro
A Series Civic Metro
B Series JAGUAR: MGA
BMW: XK8 Mini
3 Series X300 R3
5 Series X330 Range Rover
CHRYSLER: MAN: SAAB:
Voyager Eurostar Heavy Truck Saab 900
DINA: LANCIA: Saab 900 Cabriolet
Heavy Truck Dedra Saab 9000
FIAT: Delta TOYOTA:
126 Kappa Carina
500 Thema Corolla
Barchetta Y11 VOLVO:
Brava/Bravo MERCEDES: 800 Series
Coupe 500 200 Series 900 Series
Croma C-Class VOLKSWAGEN:
Ducato X230 E-Class Golf
Punto S-Class Passat
Tempra PORSCHE: Taro
Tipo 911 Transit
Uno 986 Boxster Transporter T4
FORD: RENAULT: T-4 Multivan
Escort Cabrio Viento
Fiesta ROVER:
Mondeo 200/New 400
Scorpio
OTHER
FIAT (SOUTH AMERICA): GENERAL MOTORS -- BMW (SOUTH AFRICA):
Brava/Bravo HOLDEN (AUSTRALIA): 3 Series
Duno Acclaim PEUGEOT (ARGENTINA):
Fiorino Berlina 306
Palio Caprice 405
Tempra Commodore 504
Tipo Statesman VOLKSWAGEN (SOUTH AMERICA):
Uno OPEL (INDONESIA): Combi
FORD (ARGENTINA): S-10 Blazer Gol
Ranger Polo
Saveiro
VOLVO (THAILAND):
800 Series
900 Series
</TABLE>
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' level of 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 UAW and the CAW, in order for any of
such manufacturers to
42
<PAGE> 44
obtain components that it currently produces itself from external sources, 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 will 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 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, the Company operates its Grand Rapids,
Michigan, 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.
The collective bargaining agreements between the UAW and the CAW and each
of General Motors, Ford and Chrysler expire in September 1996 and are presently
being renegotiated. Among other things, wage, benefit and outsourcing levels are
anticipated to be issues in such negotiations. There can be no assurance as to
the outcome of such negotiations.
The Company's contracts with its major customers generally provide for an
annual productivity price reduction and, in some cases, provide for the recovery
of increases in material and labor costs. Cost reduction through design changes,
increased productivity and similar programs with the Company's suppliers have
generally offset changes in selling prices. The Company's cost structure is
comprised of a high percentage of variable costs. The Company believes that this
structure provides it with additional flexibility during economic cycles.
MARKETING AND SALES
Lear markets its products by maintaining strong relationships with its
customers fostered during its 79-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 automobile manufacturers are an
integral part of the Company's marketing strategy. Recognizing this, the Company
is organized into seven independent divisions, each with the ability to focus on
its own 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 instilling a philosophy of "cooperative autonomy,"
the Company is more responsive to, and has strengthened its relationships with,
its customers. Automobile manufacturers have increasingly reduced the number of
their suppliers as part of a strategy of purchasing 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 automobile manufacturers 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 technical 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 several 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 avoid duplication of sales and engineering efforts.
43
<PAGE> 45
TECHNOLOGY
The Company conducts advanced product design development at its technical
centers in Southfield, Michigan, Rochester Hills, Michigan, Plymouth, Michigan
and Turin, Italy and at 16 worldwide 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 has and will continue to dedicate resources to research and
development to maintain its position as a leading developer of technology 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 operations as
incurred. Such costs amounted to approximately $53.3 million, $21.9 million, and
$16.2 million for the years ended December 31, 1995, 1994 and 1993.
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 has recently invested to further
upgrade its CAE and CAD/CAM systems, including three-dimensional color graphics,
customer telecommunications and direct interface with customer CAD systems.
Lear uses its patented SureBond(TM) process (the patent for which has
approximately 8 years remaining) 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
achieve new seating shapes, such as concave shapes, which were previously
difficult to manufacture.
Through its AI Division, 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 technical center, AI provides comprehensive support to its OEM
customers from product development to production.
The Masland Acquisition also provides the Company with access to
leading-edge technology. The Masland Division 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. Through its Masland Division, the Company also owns a 29% interest
in PFG, which has patented a process to sew and fold an ultralight fabric into
airbags which are 60% lighter than the current airbags used in the automotive
industry. As this new airbag fits 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.
JOINT VENTURES AND MINORITY INTERESTS
The Company pursues attractive joint ventures in order to facilitate the
exchange of technical information, expand its product offerings, and broaden its
customer base. Several of the Company's recent
44
<PAGE> 46
acquisitions, including Masland and Automotive Industries, have provided the
Company with strategic joint ventures. With the Masland Acquisition, Lear
acquired an interest in PFG, Sommer Masland (U.K.) Ltd. and Amtex. 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 Amtex joint venture established a relationship with
Hayashi Telempu Co., Ltd., the joint venture partner and a leading Japanese
automotive interior trim supplier. The AI Acquisition included a 40% interest in
Industrias Automotrices Summa, S.A. de C.V., as well as a 33% interest in
Guildford Kast Plastifol Ltd., both of which produce interior trim parts for
automobiles.
The following is a list of the Company's principal joint ventures and
minority-owned affiliates:
<TABLE>
<CAPTION>
PERCENTAGE
LOCATION PRODUCT OWNERSHIP
---------- ---------------- ----------
<S> <C> <C> <C>
Amtex* U.S.A. Interior trim 50%
General Seating of America, Inc. U.S.A. Seat systems 35
General Seating of Canada, Ltd. Canada Seat systems 35
Guildford Kast Plastifol Ltd. England Interior trim 33
Industrias Automotrices Summa, S.A. de C.V. Mexico Interior trim 40
Industrias Cousin Freres Spain Seat components 49
Lear Inespo Comercial, Industrial Ltda.* Brazil Seat systems 50
Lear Seating Thailand Thailand Seat systems and 49
components
Markol Automotiv Yan Sanayi Ve Ticart Turkey Seat systems 35
Precision Fabrics Group, Inc. U.S.A. Fabrics 29
Probel S.A. Brazil Seat components 31
Sommer Masland (U.K.) Ltd. England Interior trim 50
Teknoseating S.A.* Argentina Seat systems 50
</TABLE>
- -------------------------
* Consolidated entities.
COMPETITION
Lear is one of the two primary suppliers in the outsourced North American
seat systems market. The Company's main independent competitor is Johnson
Controls, Inc., and it competes, to a lesser extent, with Douglas & Lomason
Company and Magna International, Inc. The Company's major independent
competitors in Europe, besides Johnson Controls, Inc., are Bertrand Faure
(headquartered in France) and Keiper Recaro (headquartered in Germany). The
Company's primary independent competitors in the other segments of the
automotive interior market include Davidson Interior Trim (a division of
Textron), UT Automotive (a subsidiary of United Technologies), Prince
Corporation, The Becker Group, Collins & Aikman Corp. Automotive Division (a
division of Collins & Aikman Corporation), JPS Automotive Products Corporation,
a subsidiary of Foamex International, the Magee Carpet Company and a large
number of smaller operations. The Company also competes with the OEMs' in-house
seat system and automotive interior suppliers. The Company competes on the basis
of technical expertise, reliability, quality and price. The Company believes its
technical resources, product design capabilities and customer responsiveness are
the key factors that allow it to compete successfully in the automotive interior
market.
SEASONALITY
Lear's principal operations are directly related to the automotive
industry. Consequently, the Company may experience seasonal fluctuation to the
extent automotive vehicle production slows, 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. After giving pro forma effect to the AI and Masland
acquisitions, net sales for the year ended December 31, 1995 by calendar quarter
broke down as follows: first quarter, 24%; second quarter, 26%; third quarter,
23%; and fourth quarter, 27%.
45
<PAGE> 47
See Note 18, "Quarterly Financial Data," of the notes to the Company's
consolidated financial statements incorporated by reference in this Prospectus.
EMPLOYEES
As of June 1, 1996, after giving pro forma effect to the Masland
Acquisition, the Company would have employed approximately 18,700 persons in the
United States and Canada, 12,100 in Mexico and 7,900 in Europe. Of these, about
6,200 were salaried employees and the balance were paid on an hourly basis.
Approximately 25,500 of the Company's employees are members of unions. The
Company has collective bargaining agreements with several unions including: the
UAW; the Canadian Auto Workers (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.
LITIGATION
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 four Superfund sites where liability has not been
determined. The Company has also been identified as a PRP at four additional
sites. Management believes that the Company is, or may be, responsible for less
than one percent, if any, of total costs at the four Superfund sites. Expected
liability, if any, at the four 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.
PROPERTIES
The Company's operations are conducted through 131 facilities, including
111 manufacturing facilities, 16 product engineering centers and 4 research and
development centers, in 19 countries and one Crown Colony employing
approximately 40,000 people worldwide. The Company's management is headquartered
in Southfield, Michigan.
The Company's facilities are located in appropriately designed buildings
which are kept in good repair with sufficient capacity to handle present
volumes. The Company has designed many of its facilities to provide
46
<PAGE> 48
for efficient JIT manufacturing of its products. No facility is materially
underutilized. Of the 131 facilities, 70 are owned and 61 are leased with
expiration dates ranging from 1996 through 2005. Management believes
substantially all of the Company's property and equipment is in good condition
and that it has sufficient capacity to meet its current and expected
manufacturing and distribution needs. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Company -- Capital
Expenditures."
The following table summarizes the locations of the Company's facilities,
including those acquired in connection with the Masland Acquisition:
<TABLE>
<S> <C> <C> <C>
ARGENTINA GERMANY POLAND UNITED STATES (CONTINUED)
Buenos Aires Ebersberg Myslowice Grand Rapids, MI
Eisenach Tychy Marlette, MI
AUSTRALIA Gustavsburg Marshall, MI
Adelaide Munich SOUTH AFRICA Mendon, MI
Brooklyn Plattling Brits Mequon, MI
Quakenbruck Midland, MI
AUSTRIA Rietberg SPAIN Plymouth, MI
Koflach Pamplona Rochester Hills, MI
HONG KONG Romulus, MI
BRAZIL Wanchai SWEDEN Southfield, MI
Belo Horizante Bengtsfors Troy, MI
Sao Paolo INDIA Trollhattan Warren, MI
Holol Bridgeton, MO
CANADA THAILAND Wentzville, MO
Ajax INDONESIA Bangkok Bowling Green, OH
Kitchener Jakarta Fremont, OH
Maple TURKEY Huron, OH
Mississauga ITALY Bursa Lorain, OH
Oakville Bruino Lordstown, OH
St. Thomas Caivano UNITED STATES Sidney, OH
Whitby Cassino Manteca, CA Warren, OH
Woodstock Grugliasco Atlanta, GA Carlisle, PA
Melfi West Chicago, IL Lewistown, PA
ENGLAND Novara Frankfort, IN Duncan, SC
Abington Orbassano Greencastle, IN Morristown, TN
Coventry Pozzilli Hammond, IN El Paso, TX
Lancashire Louisville, KY Lebanon, VA
Nottingham MEXICO Madisonville, KY Luray, VA
Tipton Cuautitlan Allen Park, MI Strasburg, VA
Washington Hermosillo Clawson, MI Winchester, VA
La Cuesta Dearborn, MI Janesville, WI
FRANCE Naucalpan Detroit, MI Sheboygan, WI
Meaux Puebla Fair Haven, MI
Paris Ramos Arizpe Fenton, MI
Rio Bravo Flint, MI
Saltillo
San Lorenzo
Tlahuac
Toluca
</TABLE>
47
<PAGE> 49
MANAGEMENT
Set forth below is certain information concerning the executive officers of
the Company.
<TABLE>
<CAPTION>
YEARS WITH
THE COMPANY,
PREDECESSOR OR
NAME AGE POSITION ACQUIRED COMPANY
- ------------------------- --- --------------------------------------------- ----------------
<S> <C> <C> <C>
Kenneth L. Way........... 57 Chairman of the Board and Chief Executive 30
Officer
Robert E. Rossiter....... 50 President, Chief Operating Officer and 25
Director of the Company
James H. Vandenberghe.... 46 Executive Vice President, Chief Financial 23
Officer and Director of the Company
James A. Hollars......... 51 Senior Vice President and President -- BMW 23
Division of the Company
Roger Alan Jackson....... 50 Senior Vice President -- Human Resources and 1
Corporate Relations
Robert Lawrie............ 51 Senior Vice President -- Global Mergers, --
Acquisitions and Strategic Alliances
Frank J. Preston......... 53... Senior Vice President and President -- 1
Masland Division
Frederick F. Sommer...... 52 Senior Vice President and President -- 5
Automotive Industries Division of the Company
Gerald G. Harris......... 62 Senior Vice President and President -- GM 34
Division of the Company
Terrence E. O'Rourke..... 49 Senior Vice President and President -- Ford 2
Division of the Company
Joseph F. McCarthy....... 52 Vice President, Secretary and General Counsel 2
of the Company
Donald J. Stebbins....... 38 Vice President, Treasurer and Assistant 4
Secretary of the Company
</TABLE>
Set forth below is a description of the business experience of each
executive officer of the Company.
Kenneth L. Way. Mr. Way was elected to and has held the position of
Chairman of the Board and Chief Executive Officer of the Company since 1988.
Prior to this he served as Corporate Vice President, Automotive Group of Lear
Siegler, Inc. ("LSI") since October 1984. During the previous six years, Mr. Way
was President of LSI's General Seating Division. Prior to this, he was President
of LSI's Metal Products Division in Detroit for three years. Other positions
held by Mr. Way during his 30 years at Lear include Manufacturing Manager of the
Metal Products Division and Manager of Production Control for the Automotive
Division in Detroit. Mr. Way also serves as a director of Hayes Wheels
International, Inc.
Robert E. Rossiter. Mr. Rossiter became President of the Company in 1984
and a Director and the Chief Operating Officer of the Company in 1988. He joined
LSI in 1971 in the Material Control Department of the Automotive Division, then
joined the Metal Products Division of LSI as Production Control Manager, and
subsequently moved into sales and sales management. In 1979, he joined the
General Seating Division as Vice President of Sales and worked in that position,
as well as Vice President of Operations, until 1984.
James H. Vandenberghe. Mr. Vandenberghe is currently Executive Vice
President, Chief Financial Officer and Director of the Company. He was appointed
Executive Vice President of the Company in 1993 and became a director in
November 1995. Mr. Vandenberghe also served as a director of the Company from
1988 until the merger of Lear Holdings Corporation ("Holdings"), Lear's former
parent, into Lear. Mr. Vandenberghe previously served as Senior Vice President
- -- Finance, Secretary and Chief Financial Officer of the Company since 1988.
James A. Hollars. Mr. Hollars is currently Senior Vice President and
President -- BMW Division of the Company. He was appointed to this position in
November 1995. Prior to serving in this position, he was Senior Vice President
and President -- International Operations of the Company since November 1994.
Previously he served as Senior Vice President -- International Operations of the
Company since 1993 and Vice President -- International since the sale of LSI's
Power Equipment Division to Lucas Industries in 1988.
48
<PAGE> 50
Mr. Hollars joined LSI's Metal Products Division in 1973 as the Manufacturing
Manager and later served as Vice President -- Manufacturing for No-Sag Spring
Division. In 1979, he was named President of the Foam Products Division and was
subsequently promoted to President at the Anchorlok Division in 1985 and the
Power Equipment Division in 1986.
Roger Alan Jackson. Mr. Jackson was elected Senior Vice President -- Human
Resources and Corporate Relations in October 1995. Previously, he served as Vice
President -- Human Resources for Allen Bradley, a wholly-owned subsidiary of
Rockwell International. Mr. Jackson was employed by Rockwell International or
its subsidiaries from December 1977 to September 1995.
Robert Lawrie. Mr. Lawrie was elected Senior Vice President -- Global
Mergers, Acquisitions and Strategic Alliances in June 1996. Prior to joining the
Company, Mr. Lawrie served as Vice President and Special Counsel to the Chairman
of Magna International Inc. since July 1992. Prior to his tenure with Magna
International, Inc., Mr. Lawrie held positions as an International Consultant to
Consolidated Hydro Inc. in 1992 and as Senior Vice President, General Counsel
and Secretary of Abitibi-Price Inc., an international paper manufacturer, from
January 1991 to July 1992. From 1988 to 1991, Mr. Lawrie was the managing
partner of the Los Angeles office of Broad Schulz Larson & Wineberg, a law firm.
Frank J. Preston. Dr. Preston was elected Senior Vice President and
President -- Masland Division of the Company upon consummation of the Masland
Acquisition. Prior to the Masland Acquisition, he served as President of Masland
since January 1995 and Chief Executive Officer of Masland since January 1996.
During 1995, Dr. Preston also served as Chief Operating Officer of Masland.
Prior to joining Masland, Dr. Preston held various positions with Textron, most
recently President of Textron Automotive Interiors.
Frederick F. Sommer. Mr. Sommer was elected Senior Vice President and
President -- Automotive Industries Division of the Company upon consummation of
the AI Acquisition. Prior to the AI Acquisition, he served as President of AI
since November 1991 and Chief Executive Officer of AI since May 1994. From March
1992 to May 1994, Mr. Sommer served as Chief Operating Officer of AI. Mr. Sommer
also served as Executive Vice President of AI from October 1990 until November
1991. Prior thereto, he served as Vice President -- Manufacturing and Purchasing
of the U.S. subsidiary of Nissan from January 1987 until October 1990.
Gerald G. Harris. Mr. Harris was elected Vice President and President -- GM
Division of the Company in November 1994 and promoted to Senior Vice President
in July 1996. Mr. Harris previously served as Vice President and General Manager
- -- GM Operations since March 1994. Previously Mr. Harris served as Director --
Ford Business Unit from March 1992 to March 1994, Director of Sales from August
1990 to March 1992 and Sales Manager from January 1989 to August 1990. Prior to
1989, Mr. Harris held various managerial positions with the Company.
Terrence E. O'Rourke. Mr. O'Rourke was elected Vice President and President
- -- Ford Division of the Company in November 1995 and promoted to Senior Vice
President in July 1996. Prior to serving in this position, he was Vice President
and President -- Chrysler Division of the Company since November 1994.
Previously, Mr. O'Rourke served as Director -- Strategic Planning since October
1994. Prior to joining Lear, Mr. O'Rourke was employed by Ford Motor Company as
Supply Manager -- Climate Control Department from 1992 and Procurement
Operations Manager from 1988.
Joseph F. McCarthy. Mr. McCarthy was elected Vice President, Secretary and
General Counsel of the Company in April 1994. Prior to joining the Company, Mr.
McCarthy served as Vice President -- Legal and Secretary for both Hayes Wheels
International, Inc. and Kelsey-Hayes Company. Prior to joining Hayes Wheels
International, Inc. and Kelsey-Hayes Company, Mr. McCarthy was a partner in the
law firm of Kreckman & McCarthy from 1973 to 1983.
Donald J. Stebbins. Mr. Stebbins is currently Vice President, Treasurer and
Assistant Secretary of the Company. He joined the Company in June 1992 from
Bankers Trust Company, New York where he was a Vice President for four years.
Prior to his tenure at Bankers Trust Company, he held positions at Citibank,
N.A. and The First National Bank of Chicago.
49
<PAGE> 51
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture dated as of July 1, 1996 (the
"Indenture"), among the Company, as issuer, and The Bank of New York, as trustee
(the "Trustee").
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as in effect on the date of the Indenture.
The Notes are subject to all such terms, and holders of the Notes are referred
to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions thereof of certain terms used below. A copy
of the Indenture and a specimen of the Note have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. Capitalized terms
used herein and not otherwise defined, have the meanings assigned in the
Indenture.
GENERAL
The Notes are direct obligations of the Company, and will be issued in
denominations of $1,000 and integral multiples thereof. The Indenture authorizes
the issuance of $200,000,000 aggregate principal amount of Notes. As described
below under "Subordination," the Notes are subordinated in right of payment to
Senior Indebtedness of the Company. The Notes will be pari passu with the
Subordinated Notes.
As of March 30, 1996, the aggregate amount of Senior Indebtedness of the
Company (including its obligations under the Senior Subordinated Notes and
amounts outstanding under the Credit Agreements (as defined in this Prospectus))
would have been approximately $920.9 million, as adjusted to give effect to the
Pro Forma Transactions. In addition, certain of the Company's subsidiaries have
outstanding indebtedness and may incur indebtedness in the future. Holders of
such indebtedness will have a claim against the assets of such subsidiaries that
will rank prior to the claims of the holders of the Notes. As of March 30, 1996,
the aggregate indebtedness of such subsidiaries for money borrowed would have
been approximately $46.6 million.
The Notes will bear interest at the rate per annum shown on the cover page
of this Prospectus, payable semi-annually on January 15 and July 15 in each year
to holders of record of the Notes at the close of business on the immediately
preceding January 1 and July 1, respectively. The first interest payment date is
January 15, 1997. Interest is computed on the basis of a 360-day year of twelve
30-day months. The Notes mature on July 15, 2006.
Principal and interest on the Notes are payable, and the Notes are
transferable, initially at the offices of the Trustee in New York, New York.
Holders must surrender the Notes to the Paying Agent in order to collect
principal payments. Interest on the Notes may be paid by check mailed to the
registered holders of the Notes. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
with certain transfers or exchanges. Initially, the Trustee will act as Paying
Agent and Registrar under the Indenture. The Company or any of its Affiliates
may act as Paying Agent and Registrar, and the Company may change the Paying
Agent or Registrar without prior notice to holders.
OPTIONAL REDEMPTION
The Notes may not be redeemed prior to July 15, 2001. On or after such
date, the Company may, at its option, redeem the Notes in whole or in part, from
time to time, at the following redemption prices (expressed in percentages of
the principal amount thereof), in each case together with accrued interest, if
any, to the date of redemption.
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If redeemed during the 12-month period commencing July 15:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
----------------------------------------------------- ----------
<S> <C>
2001................................................. 104.75%
2002................................................. 103.16%
2003................................................. 101.58%
2004 and thereafter.................................. 100.00%
</TABLE>
The Credit Agreements (as defined in this Prospectus), the Senior
Subordinated Notes and the Subordinated Notes contain provisions that limit the
Company's ability to optionally redeem the Notes.
MANDATORY REDEMPTION
The Notes are not subject to mandatory redemption prior to maturity.
SUBORDINATION
The Indebtedness evidenced by the Notes is subordinated to the prior
payment, when due, of all Senior Indebtedness (including the Senior Subordinated
Notes) of the Company but will rank senior to the Indebtedness of the Company
expressly subordinated to the Notes. The Notes will be pari passu with the
Subordinated Notes.
Upon any payment or distribution of assets or securities of the Company due
to any dissolution, winding up, total or partial liquidation or reorganization
of the Company or in bankruptcy, insolvency, receivership, or other proceedings,
the payment of the principal of and interest on the Notes will be subordinated
in right of payment, as set forth in the Indenture, to the prior payment in full
of all Senior Indebtedness. Upon a default in the payment of any Obligations
with respect to Senior Indebtedness or upon the acceleration of the maturity of
Senior Indebtedness or while any judicial proceeding is pending with respect to
a default on Senior Indebtedness (of which the Trustee has received written
notice), no payment may be made upon or in respect of the Notes until such
default shall have been cured or waived. In addition, during the continuance of
any other event of default with respect to (i) the Senior Credit Agreements
pursuant to which the maturity thereof may be accelerated, upon (a) receipt by
the Trustee of written notice from the Agent Bank (or any Representative of any
Senior Indebtedness under any agreement which refinances or refunds any portion
of the Indebtedness outstanding under the Senior Credit Agreements so long as
amounts outstanding under such agreement are in excess of $50,000,000) or (b) if
such event of default results from the acceleration of the Notes, on the date of
such acceleration, no such payment may be made by the Company upon or in respect
of the Notes for a period ("Payment Blockage Period") commencing on the earlier
of the date of receipt of such notice or the date of such acceleration and
ending 119 days thereafter (unless such Payment Blockage Period shall be
terminated by written notice to the Trustee from the Agent Bank and any
Representative of any Senior Indebtedness under any agreement which refinances
or refunds any portion of the Indebtedness outstanding under the Senior Credit
Agreements so long as amounts outstanding under such agreement are in excess of
$50,000,000) or (ii) any other Specified Senior Indebtedness, upon receipt by
the Company of written notice from the Representative for the holders of such
Specified Senior Indebtedness, no such payment may be made by the Company upon
or with respect to the Notes for a Payment Blockage Period commencing on the
date of the receipt of such notice and ending 119 days thereafter (unless such
Payment Blockage Period shall be terminated by written notice to the Company
from such Representative commencing such Payment Blockage Period). In no event
will any one Payment Blockage Period extend beyond 179 days from the date the
payment on the Notes was due. Not more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 360 consecutive days;
provided that as long as amounts outstanding under the Senior Credit Agreements
or any agreement which refinances or refunds any portion of the Indebtedness
outstanding under the Senior Credit Agreements are in excess of $50,000,000, the
commencement of a Payment Blockage Period by the holders of the Specified Senior
Indebtedness other than the Senior Credit Agreements shall not bar the
commencement of a Payment Blockage Period by the Agent Bank within such period
of 360 days. No event of default which existed or was continuing on the date of
the commencement of any Payment Blockage Period with respect to the Specified
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis for the commencement of a second Payment
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<PAGE> 53
Blockage Period by the Representative of such Specified Senior Indebtedness
whether or not within a period of 360 consecutive days unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
If payments with respect to both the Notes and Senior Indebtedness become
due on the same day, then all obligations with respect to such Senior
Indebtedness due on that date shall first be paid in full before any payment is
made with respect to the Notes.
By reason of the subordination provisions described above, in the event of
the Company's insolvency, liquidation, reorganization, dissolution or other
winding-up, funds which would otherwise be payable to holders of Notes will be
paid to the holders of Senior Indebtedness to the extent necessary to pay the
Senior Indebtedness in full. The Indenture limits the amount of additional
Senior Indebtedness which the Company can create, incur, assume or guarantee.
See "Limitation on Indebtedness."
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to the Company, Indebtedness of
a person existing at the time such person becomes a Restricted Subsidiary of the
Company or assumed in connection with the acquisition by the Company or a
Restricted Subsidiary of the Company of assets from such person, which assets
constitute all of an operating unit of such person, and not incurred in
connection with, or in contemplation of, such person becoming a subsidiary of
the Company or such acquisition.
"Affiliate" means, when used with reference to the Company or another
person, any person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, the Company or such other person, as the
case may be. For the purposes of this definition, "control" when used with
respect to any specified person means the power to direct or cause the direction
of management or policies of such person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
Notwithstanding the foregoing, the term "Affiliate" shall not include any
wholly-owned subsidiary of the Company other than an Unrestricted Subsidiary.
"Agent Bank" means Chemical Bank and/or its Affiliates together with any
bank which is or becomes a party to the Senior Credit Agreements or any
successor to Chemical Bank and/or its Affiliates, and any other Agent Bank under
the Senior Credit Agreements.
"Asset Sale" means any sale exceeding $10,000,000, or any series of sales
in related transactions exceeding $10,000,000 in the aggregate, by the Company
or any Restricted Subsidiary of the Company, directly or indirectly, of
properties or assets other than in the ordinary course of business, including
capital stock of a Restricted Subsidiary of the Company, except for (i) the sale
of receivables by the Company or any subsidiary of the Company in the ordinary
course of business of the Company or any of its subsidiaries, or the transfer of
receivables to a special-purpose subsidiary of the Company and the issuance by
such special-purpose subsidiary, on a basis which is non-recourse (except for
representations as to the status or eligibility of such receivables or to the
limited extent described in clause (ix)(B) of the definition of "Permitted
Indebtedness") to the Company or any other subsidiary of the Company (other than
an Unrestricted Subsidiary), of securities secured by such receivables (a
"Qualified Receivables Program"), and (ii) any sale-and-lease-back transaction
involving a Capitalized Lease Obligation permitted under the provisions
described under "Limitation on Indebtedness."
"Automotive Interior Business" means the production, design, development,
manufacture, marketing or sale of seat systems, interior systems and components,
vehicle interiors or components or any related businesses.
"average weighted life" means, as of the date of determination, with
reference to any debt security, the quotient obtained by dividing (i) the sum of
the products of the number of years from the date of determination to the dates
of each successive scheduled principal payment of such debt security multiplied
by the amount of such principal payment by (ii) the sum of all such principal
payments.
"Capitalized Lease Obligation" means any lease obligation of a person
incurred with respect to any property (whether real, personal or mixed) acquired
or leased by such person and used in its business that is accounted for as a
capital lease on the balance sheet of such person in accordance with GAAP.
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<PAGE> 54
"Cash Equivalents" means (A) any evidence of Indebtedness maturing, or
otherwise payable without penalty, not more than 365 days after the date of
acquisition issued by the United States of America or an instrumentality or
agency thereof and guaranteed fully as to principal, premium, if any, and
interest by the United States of America, (B) any certificate of deposit
maturing, or otherwise payable without penalty, not more than 365 days after the
date of acquisition issued by, or a time deposit of, a commercial banking
institution that has combined capital and surplus of not less than $300,000,000,
whose debt is rated, at the time as of which any Investment therein is made,
"A2" (or higher) according to Moody's or "A" (or higher) according to S&P, (C)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate or subsidiary of the Company)
organized and existing under the laws of the United States of America or any
jurisdiction thereof, with a rating, at the time as of which any Investment
therein is made, of "P-l" (or higher) according to Moody's or "A-l" (or higher)
according to S&P, (D) any money market deposit accounts issued or offered by any
domestic institution in the business of accepting money market accounts or any
commercial bank having capital and surplus in excess of $300,000,000 and (E)
repurchase obligations with a term of not more than seven days for underlying
securities of the type described in clauses (A) and (B).
"Cash Proceeds" means, with respect to any Asset Sale, cash payments
(including any cash received by way of deferred payment pursuant to a note
receivable or otherwise, but only as and when so received) received from such
Asset Sale.
"Change of Control" means an event or series of events by which (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
(1) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire without
condition, other than the passage of time, whether such right is exercisable
immediately or only after the passage of time) of 50% or more of the Voting
Stock of the Company, (2) is or becomes a shareholder of the Company with the
right to appoint or remove directors of the Company holding 50% or more of the
voting rights at meetings of the Board of Directors on all, or substantially
all, matters or (3) is or becomes able to exercise the right to give directions
with respect to the operating and financial policies of the Company with which
the relevant directors are obliged to comply by reason of: (A) provisions
contained in the organizational documents of the Company or (B) the existence of
any contract permitting such person to exercise control over the Company; (ii)
the Company consolidates with, or merges or amalgamates with or into another
person or, directly or indirectly, conveys, transfers, or leases all or
substantially all of its assets to any person, or any person consolidates with,
or merges or amalgamates with or into the Company, in any such event pursuant to
a transaction in which the outstanding Voting Stock of the Company is changed
into or exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is changed
into or exchanged for Voting Stock of the surviving corporation which is not
redeemable capital stock or (x) such Voting Stock and (y) cash, securities and
other property in an amount which could be paid by the Company as a Restricted
Payment pursuant to the provisions described under "Limitation on Restricted
Payments" (and such amount shall be treated as a Restricted Payment subject to
the provisions described under "Limitation on Restricted Payments") and (B) the
holders of the Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, not less than a majority of the Voting Stock of the
surviving corporation immediately after such transaction; (iii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of 66 2/3% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (iv) the shareholders of the Company
approve any plan or proposal for the liquidation or dissolution of the Company
(whether or not otherwise in compliance with the provisions of the Indenture).
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
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<PAGE> 55
"Consolidated Adjusted Net Worth" means, with respect to any person, as of
any date of determination, the total amount of stockholders' equity of such
person and its Restricted Subsidiaries which would appear on the consolidated
balance sheet of such person as of the date of determination, less (to the
extent otherwise included therein) the following (the amount of such
stockholders' equity and deductions therefrom to be computed, except as noted
below, in accordance with GAAP): (i) an amount attributable to interests in
subsidiaries of such person held by persons other than such person or its
Restricted Subsidiaries; (ii) any reevaluation or other write-up in book value
of assets subsequent to December 31, 1995, other than upon the acquisition of
assets acquired in a transaction to be accounted for by purchase accounting
under GAAP made within twelve months after the acquisition of such assets; (iii)
treasury stock; (iv) an amount equal to the excess, if any, of the amount
reflected for the securities of any person which is not a subsidiary over the
lesser of cost or market value (as determined in good faith by the Board of
Directors) of such securities; and (v) Disqualified Stock of the Company or any
Restricted Subsidiary of the Company.
"Consolidated Amortization Expense" means for any person, for any period,
the amortization of goodwill and other intangible items of such person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Cash Flow Available for Interest Expense" means, for any
person and the Company, the sum of the aggregate amount, for the four fiscal
quarters for which financial information in respect thereof is available
immediately prior to the date of the transaction giving rise to the need to
calculate the Consolidated Cash Flow Available for Interest Expense (the
"Transaction Date"), of (i) Consolidated Net Income (Loss) of such person, (ii)
Consolidated Income Tax Expense, (iii) Consolidated Depreciation Expense, (iv)
Consolidated Amortization Expense, (v) Consolidated Interest Expense and (vi)
other noncash items reducing Consolidated Net Income (Loss), minus non-cash
items increasing Consolidated Net Income (Loss). Consolidated Cash Flow
Available for Interest Expense for any period shall be adjusted to give pro
forma effect (to the extent applicable) to (i) each acquisition by the Company
or a Restricted Subsidiary of the Company during such period up to and including
the Transaction Date (the "Reference Period") in any person which, as a result
of such acquisition, becomes a Restricted Subsidiary of the Company, or the
acquisition of assets from any person which constitutes substantially all of an
operating unit or business of such person and (ii) the sale or other disposition
of any assets (including capital stock) of the Company or a Restricted
Subsidiary of the Company, other than in the ordinary course of business, during
the Reference Period, as if such acquisition or sale or disposition of assets by
the Company or a Restricted Subsidiary of the Company occurred on the first day
of the Reference Period.
"Consolidated Depreciation Expense" means for any person, for any period,
the depreciation expense of such person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Income Tax Expense" means, for any person, for any period,
the aggregate of the income tax expense of such person and its Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, for any person, for any period, the
sum of (a) the Interest Expense of such person and its Restricted Subsidiaries
for such period, determined on a consolidated basis, (b) dividends in respect of
preferred or preference stock of a Restricted Subsidiary of the Company held by
persons other than the Company or a wholly owned Restricted Subsidiary of the
Company and (c) interest incurred during the period and capitalized by the
Company and its Restricted Subsidiaries on a consolidated basis in accordance
with GAAP. For purposes of clause (b) of the preceding sentence, dividends will
be deemed to be an amount equal to the actual dividends paid divided by one
minus the applicable actual combined Federal, state, local and foreign income
tax rate of the Company (expressed as a decimal), on a consolidated basis, for
the fiscal year immediately preceding the date of the transaction giving rise to
the need to calculate Consolidated Interest Expense.
"Consolidated Interest Expense Coverage Ratio" means, with respect to any
person, the ratio of (i) the aggregate amount of the applicable Consolidated
Cash Flow Available for Interest Expense of such person to (ii) the aggregate
Consolidated Interest Expense which such person shall accrue during the first
full fiscal
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<PAGE> 56
quarter following the Transaction Date and the three fiscal quarters immediately
subsequent to such fiscal quarter, such Consolidated Interest Expense to be
calculated on the basis of the amount of such person's Indebtedness (on a
consolidated basis) outstanding on the Transaction Date and reasonably
anticipated by such person in good faith to be outstanding from time to time
during such period.
"Consolidated Net Income (Loss)" means, with respect to any person, for any
period, the aggregate of the net income (loss) of such person and its Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded from such net income (to the
extent otherwise included therein) (i) the net income (loss) of any person which
is not a Restricted Subsidiary of such person and which is accounted for by the
equity method of accounting, except to the extent of the amount of cash
dividends or distributions paid by such other person to such person or to a
Restricted Subsidiary of such person, (ii) the net income (loss) of any person
accrued prior to the date on which it is acquired by such person or a Restricted
Subsidiary of such person in a pooling of interests transaction, (iii) except
for NS Beteiligungs GmbH (a German Foreign Subsidiary) or any successor entity,
the net income (loss) of any Restricted Subsidiary of such person to the extent
that the declaration or payment of dividends or similar distributions or
transfers or loans by that Restricted Subsidiary is not at the time permitted by
operation of the terms of its charter or any agreement or instrument (except any
agreement or instrument permitted under "Limitation on Payment Restrictions
Affecting Subsidiaries"), judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary, in each case determined in
accordance with GAAP, (iv) any gain or loss, together with any related provision
for taxes in respect of such gain or loss, realized upon the sale or other
disposition (including, without limitation, dispositions pursuant to
sale-and-lease-back transactions) of any asset or property outside of the
ordinary course of business and any gain or loss realized upon the sale or other
disposition by such person of any capital stock or marketable securities and (v)
any noncash charges incurred by the Company and its Restricted Subsidiaries at
any time in connection with SFAS 106.
"Default" means any event which is, or after notice or lapse of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to an Affiliate Transaction or
series of related Affiliate Transactions, a member of a Board of Directors who
has no financial interest, and whose employer has no financial interest, in such
Affiliate Transaction or series of related Affiliate Transactions.
"Disqualified Stock" means any capital stock of the Company or any
Restricted Subsidiary of the Company which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the maturity date of the
Notes or which is exchangeable or convertible into debt securities of the
Company or any Restricted Subsidiary of the Company, except to the extent that
such exchange or conversion rights cannot be exercised prior to the maturity of
the Notes.
"Foreign Subsidiary" mean any subsidiary of the Company organized and
conducting its principal operations outside the United States.
"GAAP" means generally accepted accounting principles on a basis
consistently applied, provided that all ratios and calculations contained in the
Indenture will be calculated in accordance with generally accepted accounting
principles in effect on the date of the Indenture.
"Indebtedness" means (without duplication), with respect to any person, any
indebtedness, contingent or otherwise, in respect of borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such person or
only to a portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (except any such balance that constitutes a trade payable
in the ordinary course of business that is not overdue by more than 120 days or
is being contested in good faith), if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such person
prepared on a consolidated basis in accordance with GAAP, and shall also include
letters of credit, Obligations with respect to Swap Obligations, any Capitalized
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<PAGE> 57
Lease Obligation, the maximum fixed repurchase price of any Disqualified Stock,
Obligations secured by a Lien to which any property or asset, including
leasehold interests under Capitalized Lease Obligations and any other tangible
or intangible property rights, owned by such person is subject, whether or not
the Obligations secured thereby shall have been assumed (provided that, if the
Obligations have not been assumed, such Obligations shall be deemed to be in an
amount not to exceed the fair market value of the property or properties to
which the Lien relates, as determined in good faith by the Board of Directors of
such person and as evidenced by a Board Resolution), and guarantees of items
which would be included within this definition (regardless of whether such items
would appear upon such balance sheet; provided that for the purpose of computing
the amount of Indebtedness outstanding at any time, such items shall be excluded
to the extent that they would be eliminated as intercompany items in
consolidation). For purposes of the preceding sentence, the maximum fixed
repurchase price of any Disqualified Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture,
and if such price is based upon, or measured by, the fair market value of such
Disqualified Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person.
"Interest Expense" means for any person, for any period, the aggregate
amount of interest in respect of Indebtedness (including all fees and charges
owed with respect to letters of credit and bankers' acceptance financing and the
net costs associated with Interest Swap Obligations and all but the principal
component of rentals in respect of Capitalized Lease Obligations) incurred or
scheduled to be incurred by such person during such period, all as determined in
accordance with GAAP, except that non-cash amortization or writeoff of deferred
financing fees and expenses will not be included in the calculation of Interest
Expense. For purposes of this definition, (a) interest on Indebtedness
determined on a fluctuating basis for periods succeeding the date of
determination will be deemed to accrue at a rate equal to the rate of interest
on such Indebtedness in effect on the last day of the fiscal quarter immediately
preceding the date of determination and (b) interest on a Capitalized Lease
Obligation will be deemed to accrue at an interest rate reasonably determined in
good faith by an officer of such person to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP (including Statement
of Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board).
"Investment" by any person means (i) all investments by such person in any
other person in the form of loans, advances or capital contributions, (ii) all
guarantees of Indebtedness or other obligations of any other person by such
person, (iii) all purchases (or other acquisitions for consideration) by such
person of Indebtedness, capital stock or other securities of any other person;
(iv) all other items that would be classified as investments (including, without
limitation, purchases outside the ordinary course of business) on a balance
sheet of such person prepared in accordance with GAAP or (v) the designation of
any Restricted Subsidiary of the Company as an Unrestricted Subsidiary as
provided under "Unrestricted Subsidiaries." For purposes of this definition and
the provisions described under "Unrestricted Subsidiaries" and "Limitation on
Restricted Payments" (i) with respect to a Restricted Subsidiary that is
designated as an Unrestricted Subsidiary, "Investment" will mean the portion
(proportionate to the Company's equity interest in such subsidiary) of the net
book value of the stockholders' equity of such subsidiary at the time that such
subsidiary is designated as an Unrestricted Subsidiary plus, without
duplication, all other outstanding Investments made by the Company in that
Restricted Subsidiary; (ii) with respect to a person that is designated as an
Unrestricted Subsidiary simultaneously with its becoming a subsidiary of the
Company, "Investment" will mean the Investment made by the Company and its
Restricted Subsidiaries to acquire such subsidiary plus, without duplication,
all other outstanding Investments made by the Company in such person; and (iii)
any property transferred to or from an Unrestricted Subsidiary will be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Investment Grade" is defined as BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such ratings by S&P or Moody's.
"Letters of Credit" means the letters of credit under the Senior Credit
Agreements.
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"Lien" means any lien, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement or any lease
creating a Capitalized Lease Obligation).
"Moody's" means Moody's Investor Services, Inc. or if Moody's ceases to
make a rating of the Notes publicly available, a nationally recognized
securities rating agency selected by the Company.
"Net Cash Proceeds" means, with respect to any Asset Sale, the Cash
Proceeds of such Asset Sale net of fees, commissions, expenses and other costs
of sale (including payment of the outstanding principal amount of, premium or
penalty, if any, and interest on any Indebtedness which is either secured by a
Lien on the stock or other assets sold or can be or is accelerated by such
sale), taxes paid or payable as a result thereof, and any amount required to be
paid to any person (other than the Company or any of its subsidiaries) owning a
beneficial interest in the stock or other assets sold, provided that when any
noncash consideration for an Asset Sale is converted into cash, such cash shall
then constitute Net Cash Proceeds.
"Obligation" means any principal, interest, premium, penalties, fees and
any other liabilities payable under the documentation governing any
Indebtedness.
"Permitted Indebtedness" means: (i) Indebtedness of the Company pursuant to
its Obligations under, or Indebtedness of any Restricted Subsidiary of the
Company under, the Senior Credit Agreements; provided that in no event shall the
aggregate amount of Indebtedness permitted to be outstanding at any one time
pursuant to this clause (i) exceed $1,800,000,000 (less any amounts permanently
repaid under the Senior Credit Agreements but without deducting payments under
the revolving credit facilities and the swing line facility of the Senior Credit
Agreements unless the commitments thereunder have been permanently reduced);
(ii) Indebtedness represented by guarantees of Indebtedness which is permitted
by the provisions described under "Limitation on Indebtedness;" (iii)
Indebtedness evidenced by the Notes; (iv) Indebtedness evidenced by the Senior
Subordinated Notes and the Subordinated Notes; (v) Indebtedness of the Company
to any Restricted Subsidiary of the Company and Indebtedness of any Restricted
Subsidiary of the Company to the Company or another Restricted Subsidiary of the
Company, provided that the Company or such Restricted Subsidiary shall not
become liable to any person other than the Company or a Restricted Subsidiary of
the Company with respect thereto; (vi) Indebtedness of the Company or any
Restricted Subsidiary of the Company represented by Swap Obligations, provided
that such Swap Obligations are related to payment Obligations on Indebtedness
otherwise permitted by the provisions described under "Limitation on
Indebtedness" and will not result in an increase in the principal amount of the
underlying outstanding Indebtedness or are used for the hedging of foreign
currency translation risk in the ordinary course; (vii) Indebtedness of the
Company and its Restricted Subsidiaries, and any undrawn amounts, under legally
binding revolving credit or standby credit facilities existing on the date of
the Indenture and Refinancing Indebtedness in respect of such Indebtedness or
amounts; (viii) Indebtedness of any Foreign Subsidiary that is a Restricted
Subsidiary to the extent that the aggregate principal amount of the Indebtedness
being incurred, together with all other outstanding Indebtedness of such Foreign
Subsidiary incurred pursuant to this clause (viii), does not exceed an amount
equal to the sum of (x) 80% of the consolidated book value of the accounts
receivable of such Foreign Subsidiary and (y) 60% of the consolidated book value
of the inventories of such Foreign Subsidiary; (ix) Indebtedness of the Company
or any of its Restricted Subsidiaries in respect of guarantees of receivables
originated by the Company or any of its Restricted Subsidiaries and sold to
other persons to the extent that (A) the sale of such receivables does not
constitute an Asset Sale and (B) such guarantees are in respect of warranties
granted by the Company or a Restricted Subsidiary on the products giving rise to
such receivables and such guarantees are not in respect of any other aspect of
such receivables, including the capacity of any customer to meet its obligations
under such receivables; (x) Indebtedness of the Company and its Restricted
Subsidiaries in respect of guarantees of Indebtedness of less than majority
owned persons, provided that in no event will Indebtedness permitted pursuant to
this clause (x) exceed $5,000,000; (xi) other Indebtedness of the Company and of
any Restricted Subsidiary of the Company, provided that in no event shall the
aggregate amount of Indebtedness of the Company and of Restricted Subsidiaries
of the Company permitted to be outstanding pursuant to this clause (xi) at any
one time exceed $50,000,000; and (xii) Indebtedness of special-purpose
subsidiaries of the Company in respect of securities secured by receivables
transferred to such special-purpose subsidiaries by the Company or a Restricted
Subsidiary of the Company, provided that (A) the transfer of such receivables
does not constitute an Asset Sale, (B) such
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special-purpose subsidiaries engage in no activities other than the purchase of
such receivables and the issuance of such securities, and (C) such securities
are non-recourse to the Company or any other Restricted Subsidiary of the
Company (except for representations as to the status or eligibility of such
receivables or to the limited extent described in clause (ix)(B) above in this
definition).
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings, promptly instituted and diligently conducted and, if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor; (ii) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's,
or other like Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor; (iii) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other Obligations of like nature
incurred in the ordinary course of business (exclusive of Obligations for the
payment of borrowed money); (v) easements, rights-of-way, restrictions, zoning
provisions and other governmental restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of the
Company or any of its subsidiaries; (vi) judgment Liens not giving rise to a
Default or Event of Default; (vii) leases or subleases granted to others not
interfering in any material respect with the business of the Company or any of
its subsidiaries; (viii) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business and which
are within the general parameters customary in the industry, in each case
securing Indebtedness under Swap Obligations; (ix) any interest or title of a
lessor in the property subject to any Capitalized Lease Obligation or operating
lease or any Lien granted by a lessor on such property which does not interfere
in any material respect with the business of the Company and its Restricted
Subsidiaries; (x) Liens arising from filing UCC financing statements regarding
leases; (xi) Liens securing reimbursement Obligations with respect to Commercial
Letters of Credit which encumber documents and other property relating to such
Commercial Letters of Credit and the products and proceeds thereof; (xii) other
Liens existing on the date of the Indenture; (xiii) other Liens to secure
Obligations not in excess of $1,000,000 in the aggregate at any time
outstanding, except to secure Indebtedness; (xiv) Liens on accounts receivable
and any assets related thereto granted in connection with a Qualified
Receivables Program; and (xv) Liens securing Indebtedness permitted pursuant to
clauses (i), (vi), (vii), (viii), (xi) and (xii) of the definition of "Permitted
Indebtedness".
"principal" of a debt security means the principal of the security plus, if
such security has been called for redemption, the premium, if any, payable on
such security upon redemption of such security.
"Rating Decline" means the occurrence of the following on, or within 90
days after, the date of public notice of the occurrence of a Change of Control
or of the intention of the Company to effect a Change of Control (which period
shall be extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrading by either Moody's or S&P): (i) in the
event that the Notes are rated by either Moody's or S&P prior to the date of
such public notice as Investment Grade, the rating of the Notes by both such
rating agencies shall be decreased to below Investment Grade or (ii) in the
event the Notes are rated below Investment Grade by both such rating agencies
prior to the date of such public notice, the rating of the Notes by either
rating agency shall be decreased by one or more gradations (including gradations
within rating categories as well as between rating categories).
"Refinancing Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries, the net proceeds of which (after customary fees,
expenses and costs related to the incurrence of such Indebtedness) are applied
to repay, refund, prepay, repurchase, redeem, defease, retire or refinance
(collectively, "refinance") outstanding Indebtedness permitted to be incurred
under the terms of the Indenture; provided that Refinancing Indebtedness that
refinances any Permitted Indebtedness will be deemed to be incurred and to be
outstanding under the relevant clause in the definition of "Permitted
Indebtedness"; and provided further that (A) the original issue amount of the
Refinancing Indebtedness shall not exceed the maximum principal amount, accrued
interest and premium, if any, of the Indebtedness to be repaid or, if greater in
the case of clause (i) or (vii) of the definition of "Permitted Indebtedness,"
permitted to be outstanding under the
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agreements governing the Indebtedness being refinanced (or if such Indebtedness
was issued at an original issue discount, the original issue price plus
amortization of the original issue discount at the time of the incurrence of the
Refinancing Indebtedness) plus the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness, (B) Refinancing
Indebtedness incurred by any Restricted Subsidiary of the Company shall not be
used to refinance outstanding Indebtedness of the Company (other than Senior
Indebtedness) and (C) with respect to any Refinancing Indebtedness which
refinances Indebtedness which ranks pari passu or junior in right of payment to
the Notes, (1) the Refinancing Indebtedness has an average weighted life which
is equal to or greater than the then average weighted life of the Indebtedness
being refinanced, (2) if such Indebtedness being refinanced is pari passu in
right of payment to the Notes, such Refinancing Indebtedness does not rank
senior in right of payment to the payment of principal of and interest on the
Notes, and (3) if such Indebtedness being refinanced is subordinated to the
Notes, such Refinancing Indebtedness is subordinated to the Notes to the same
extent and on substantially the same terms.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value (collectively a "prepayment"), directly or
indirectly, by the Company or a Restricted Subsidiary of the Company (other than
to the Company or a Restricted Subsidiary of the Company), prior to the
scheduled maturity or prior to any scheduled repayment of principal or sinking
fund payment in respect of Indebtedness of the Company or such Restricted
Subsidiary which would rank subordinate in right of payment to the Notes
("Prepaid Debt"); provided, that (i) any such prepayment of any Prepaid Debt
shall not be deemed to be a Restricted Debt Prepayment to the extent such
prepayment is made (x) with the proceeds of the substantially concurrent sale
(other than to a subsidiary of the Company) of shares of the capital stock
(other than Disqualified Stock) of the Company or rights, warrants or options to
purchase such capital stock of the Company or (y) in exchange for or with the
proceeds from the substantially concurrent issuance of Refinancing Indebtedness
and (ii) no Default or Event of Default shall have occurred and be continuing at
the time or shall occur as a result of such sale of capital stock or issuance of
such Refinancing Indebtedness.
"Restricted Investment" means, with respect to any person, any Investments
by such person in any of its Affiliates (other than its Restricted Subsidiaries)
or in any person that becomes an Affiliate (unless it becomes a Restricted
Subsidiary) as a result of such Investment to the extent that the aggregate
amount of all such Investments made after the date of the Indenture, whether or
not outstanding, less the amount of cash received by such person upon the
disposition or satisfaction of any such Investment exceeds $100,000,000.
"Restricted Payment" means any (i) Restricted Stock Payment, (ii)
Restricted Debt Prepayment or (iii) Restricted Investment.
"Restricted Stock Payment" means (i) with respect to the Company, any
dividend, either in cash or in property (except dividends payable in Common
Stock), on, or the making by the Company of any other distribution in respect
of, its capital stock, now or hereafter outstanding, or the redemption,
repurchase, retirement or other acquisition for value by the Company or any
Restricted Subsidiary of the Company, directly or indirectly, of capital stock
of the Company or any warrants, rights (other than exchangeable or convertible
Indebtedness of the Company) or options to purchase or acquire shares of any
class of the Company's capital stock, now or hereafter outstanding, and (ii)
with respect to any subsidiary of the Company, any redemption, repurchase,
retirement or other acquisition for value by the Company or a Restricted
Subsidiary of the Company of capital stock of such subsidiary or any warrants,
rights (other than exchangeable or convertible Indebtedness of any subsidiary of
the Company), or options to purchase or acquire shares of any class of capital
stock of such subsidiary, now or hereafter outstanding, except with respect to
capital stock of such subsidiary or such warrants, rights or options owned by
(x) the Company or a Restricted Subsidiary of the Company or (y) any person
which is not an Affiliate of the Company.
"Restricted Subsidiary" means any subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation, or if it ceases to make a rating
of the Notes publicly available, a nationally recognized securities rating
agency selected by the Company.
"Senior Credit Agreements" means, both individually and collectively, (i)
the Credit Agreement dated as of August 17, 1995, as amended, among the Company,
the several financial institutions parties thereto from
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time to time (the "Original Banks") and the Agent Bank and (ii) the Credit
Agreement dated June 27, 1996, among the Company, the several financial
institutions parties thereto (together with the Original Banks, the "Banks") and
the Agent Bank, as the same have been heretofore amended and may be amended
hereafter from time to time, and any subsequent credit agreement or agreements
constituting a refinancing, extension or modification thereof.
"Senior Indebtedness" means the Obligations of the Company with respect to
(i) any and all amounts payable by or on behalf of the Company or any of its
Restricted Subsidiaries under or in respect of its obligations (including
reimbursement obligations in respect of letters of credit) incurred and
outstanding from time to time under the Senior Credit Agreements, the security
documents entered into in connection therewith, or any refinancings thereof
(including interest accruing on or after filing of any petition in bankruptcy or
reorganization relating to the Company, at the rate specified in such Senior
Indebtedness whether or not a claim for post-filing interest is allowed in such
proceeding); (ii) Swap Obligations of the Company or any of its Restricted
Subsidiaries related to any of their payment Obligations on Senior Indebtedness
or the hedging of foreign currency translation risk entered into in the ordinary
course; (iii) any and all amounts payable by the Company under or in respect of
its Obligations incurred and outstanding from time to time under the Senior
Subordinated Notes or any refinancings thereof; and (iv) any other Indebtedness
of the Company, whether outstanding on the date of the Indenture or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness is not
senior in right of payment to the Notes; provided that notwithstanding the
foregoing, Senior Indebtedness shall not include (A) Indebtedness represented by
the Notes, (B) Indebtedness incurred in violation of the Indenture, (C)
Indebtedness which is represented by Disqualified Stock, (D) amounts payable or
any other Indebtedness to trade creditors created, incurred, assumed or
guaranteed by the Company or any subsidiary of the Company in the ordinary
course of business in connection with obtaining goods or services, (E) amounts
payable or any other Indebtedness to employees of the Company or any subsidiary
of the Company as compensation for services, (F) Indebtedness of the Company to
a subsidiary of the Company, (G) any liability for Federal, state, local or
other taxes owed or owing by the Company and (H) Indebtedness represented by the
Subordinated Notes.
"Senior Subordinated Indebtedness" means, with respect to any person, any
Indebtedness of a person that specifically provides that such Indebtedness is to
rank pari passu with other Senior Subordinated Indebtedness of such person and
is not subordinated by its terms to any Indebtedness of such person which is not
Senior Indebtedness.
"Senior Subordinated Notes" means the 11 1/4% Senior Subordinated Notes of
the Company due 2000, issued pursuant to an Indenture dated as of July 15, 1992
among the Company and The Bank of New York, as trustee.
"Significant Subsidiary" means one or more subsidiaries of the Company
which, in the aggregate, have (i) assets or in which the Company and its other
subsidiaries have Investments, equal to or greater than 5% or more of the total
assets of the Company and its subsidiaries consolidated at the end of the most
recently completed fiscal year of the Company or (ii) consolidated gross revenue
equal to or exceeding 5% of the consolidated gross revenue of the Company for
its most recently completed fiscal year.
"Specified Senior Indebtedness" means (i) Indebtedness under the Senior
Credit Agreements (or any refunding or refinancing thereof) and (ii) any other
single issue of Senior Indebtedness (other than the Senior Subordinated Notes)
having an initial principal amount of $30,000,000 or more. For purposes of this
definition, a refinancing of any Specified Senior Indebtedness shall be treated
as such only if it ranks or would rank on a pari passu basis with the
Indebtedness refinanced.
"Subordinated Notes" means the 8 1/4% Subordinated Notes of the Company due
2002, issued pursuant to an Indenture dated as of February 1, 1994 among the
Company and State Street Bank & Trust Company, as trustee.
"subsidiary" of any person means (i) a corporation a majority of whose
capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person or by
such person and a subsidiary or subsidiaries of such person or by a subsidiary
or subsidiaries of such person
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or (ii) any other person (other than a corporation) in which such person or such
person and a subsidiary or subsidiaries of such person or a subsidiary or
subsidiaries of such persons, at the time, directly or indirectly, owned at
least a majority ownership interest.
"Swap Obligations" of any person means the net Obligations of such person
pursuant to any agreement, cap, collar, swap or other financial agreement or
arrangement designed to protect such person against, in the case of Interest
Swap Obligations, fluctuations in interest rates and, in the case of Currency
Swap Obligations, fluctuations in currency exchange rates.
"Voting Stock" means all classes of capital stock then outstanding of a
person normally entitled to vote in elections of directors.
CERTAIN COVENANTS
Repurchase of Notes Upon a Change of Control Triggering Event. If a "Change
of Control Triggering Event" shall occur at any time, then each holder shall
have the right to require that the Company repurchase such holder's Notes in
whole or in part in integral multiples of $1,000, at a purchase price in cash in
an amount equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, which date shall be no earlier than
30 days nor more than 60 days from the date the Company notifies the holders of
the occurrence of a Change of Control Triggering Event. There can be no
assurance that sufficient funds will be available at the time of any Change of
Control Triggering Event to make any required repurchases. Under the Indenture,
the Company can only effect such repurchases either with the consent of the
lenders under the Senior Credit Agreements or by repaying amounts owed to such
lenders under the Senior Credit Agreements. The failure to satisfy either such
condition would constitute a default under the Indenture. The Senior Credit
Agreements also contain prohibitions of certain events that would constitute a
Change of Control Triggering Event. In addition, the Company's ability to
repurchase Notes following a Change of Control Triggering Event may be limited
by the terms of its then-existing Senior Indebtedness, including, without
limitation, the subordination provisions described above under "Subordination."
Therefore, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under the Senior Indebtedness
(including Specified Senior Indebtedness) even if the Change of Control
Triggering Event itself does not, due to the financial effect of such repurchase
on the Company. Failure of the Company to repurchase the Notes in the event of a
Change of Control Triggering Event will create an Event of Default with respect
to the Notes, whether or not such repurchase is permitted by the subordination
provisions. The Company agrees that it will comply with all applicable tender
offer rules, including Rule 14e-l under the Exchange Act, if the repurchase
option is triggered upon a Change of Control Triggering Event.
Under the Indenture, the Company is obligated to give notice to holders of
Notes and the Trustee within 30 days following a Change of Control Triggering
Event specifying, among other things, the purchase price, the purchase date, the
place at which Notes shall be presented and surrendered for purchase, that
interest accrued to the purchase date will be paid upon such presentation and
surrender and that interest will cease to accrue on Notes surrendered for
purchase as of such purchase date. In order for a holder of Notes properly to
put its Notes to the Company for purchase, the holder must give notice and
present and surrender its Notes to the Paying Agent at the place specified in
the Company's aforementioned notice at least 15 days prior to the purchase date.
Any such tender by a holder of Notes shall be irrevocable. The Company is not
obligated to notify holders of or to purchase Notes with respect to more than
one Change of Control Triggering Event.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Change of Control purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of antitakeover provisions. Instead, the Change of
Control purchase feature is a result of negotiations between the Company and the
Underwriters. Management has no present intention to engage in a transaction
involving a Change of Control Triggering Event, although it is possible that the
Company would decide to do so in the future. Subject to the limitations
discussed below, including the limitation on incurrence of additional
indebtedness and the issuance of certain securities, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control
Triggering Event under
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the Indenture, but that could increase the amount of Senior Indebtedness of the
Company (or any other indebtedness) outstanding at such time or otherwise affect
the Company's capital structure or credit ratings.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary of the Company to,
directly or indirectly, make any Restricted Payment unless (a) no Default or
Event of Default has occurred and is continuing at the time or will occur as a
consequence of such Restricted Payment and (b) after giving effect to such
Restricted Payment, the aggregate amount expended for all Restricted Payments
subsequent to December 31, 1993 (the amount so expended, if other than in cash,
to be determined by the Board of Directors, whose reasonable determination shall
be conclusive and evidenced by a Board Resolution), does not exceed the sum of
(i) 50% of Consolidated Net Income of the Company (or in the case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit) during
the period (treated as one accounting period) subsequent to December 31, 1993
and ending on the last day of the fiscal quarter immediately preceding such
Restricted Payment, (ii) the aggregate net proceeds, including cash and the fair
market value of property other than cash (as determined in good faith by the
Board of Directors of the Company and evidenced by a Board Resolution), received
by the Company during such period from any person other than a Restricted
Subsidiary of the Company, as a result of the issuance of capital stock of the
Company (other than any Disqualified Stock) or warrants, rights or options to
purchase or acquire such capital stock, including such capital stock issued upon
conversion or exchange of Indebtedness or upon exercise of warrants or options
and any contributions to the capital of the Company received by the Company from
any such person less the amount of such net proceeds actually applied as
permitted by clause (ii) of the next paragraph or by the proviso to the
definition of "Restricted Debt Prepayment," (iii) in the case of the
redesignation of an Unrestricted Subsidiary to a Restricted Subsidiary, the
amount by which Restricted Payments permitted hereunder would have increased if
such Unrestricted Subsidiary had never been designated as an Unrestricted
Subsidiary, determined at the time of such redesignation and (iv) without
duplication to clause (iii), the net reduction in Restricted Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets or amounts received upon the disposition
of any Restricted Investments; provided that, at the time of such Restricted
Payment and after giving effect thereto, the Company or any Restricted
Subsidiary of the Company shall be able to incur an additional $1.00 of
Indebtedness pursuant to clauses (a) and (b) of the provisions described under
"Limitation on Indebtedness". For purposes of any calculation pursuant to the
preceding sentence which is required to be made within 60 days after the
declaration of a dividend by the Company, such dividend shall be deemed to be
paid at the date of declaration. As of March 30, 1996, after giving pro forma
effect to the Common Stock Offering, the amount available for Restricted
Payments based on the formula described in clause (b) would have been
approximately $710 million.
This provision will not be violated by reason of (i) the payment of any
dividend within 60 days after the date of declaration thereof if, at such date
of declaration such payment complied with the provisions hereof; (ii) the
purchase, redemption, acquisition or retirement of any shares of the Company's
capital stock in exchange for, or out of the proceeds of the substantially
concurrent sale (other than to a subsidiary of the Company) of, other shares of
capital stock (other than Disqualified Stock) of the Company or rights, warrants
or options to purchase or acquire such capital stock of the Company or (iii)
payments by the Company (A) for the mandatory repurchase of shares of Common
Stock or other capital stock of the Company (or scheduled payments of principal
of or interest on notes issued to finance the repurchase of such shares) from
employees of the Company or its subsidiaries under employment agreements or in
connection with employment termination agreements; (B) to satisfy any
Obligations under the terms of the Stockholders Agreement or (C) for the
purchase, redemption or retirement of any shares of any capital stock of the
Company or options to purchase capital stock of the Company in connection with
the exercise of outstanding stock options, provided that no Default or Event of
Default has occurred and is continuing at the time, or shall occur as a result,
of such Restricted Payment. For purposes of determining the aggregate amount of
Restricted Payments in accordance with clause (b) of the preceding paragraph,
all amounts expended pursuant to clause (i) or (ii) (except to the extent deemed
to have been paid pursuant to the immediately preceding paragraph) of this
paragraph shall be included.
Limitation on Indebtedness. The Indenture provides that, except for
Permitted Indebtedness and Refinancing Indebtedness, the Company will not, and
will not permit any Restricted Subsidiary of the
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Company to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become liable for, contingently or otherwise, extend the maturity of
or become responsible for the payment of (collectively, an "incurrence"), any
Obligations in respect of any Indebtedness including Acquired Indebtedness
unless (a) no Default or Event of Default shall have occurred and be continuing
at the time or as a consequence of the incurrence of such Indebtedness and (b)
after giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof on a pro forma basis, the Consolidated
Interest Expense Coverage Ratio of the Company is greater than 2 to 1; provided,
however, that in no event shall the Company or any Restricted Subsidiary of the
Company incur any Obligations in respect of any Indebtedness of an Unrestricted
Subsidiary of the Company except in compliance with "Limitation on Restricted
Payments."
Limitation on Payment Restrictions Affecting Subsidiaries. The Indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary of the Company to, create or otherwise cause or suffer to exist or
become effective any consensual restriction which by its terms expressly
restricts any such Restricted Subsidiary from (i) paying dividends or making any
other distributions on such Restricted Subsidiary's capital stock or paying any
Indebtedness owed to the Company or any Restricted Subsidiary of the Company,
(ii) making any loans or advances to the Company or any Restricted Subsidiary of
the Company or (iii) transferring any of its property or assets to the Company
or any Restricted Subsidiary of the Company, except (a) any restrictions
existing under agreements in effect at the issuance of the Notes, (b) any
restrictions under agreements evidencing the Senior Credit Agreements and Swap
Obligations, (c) any restrictions under any agreement evidencing any Acquired
Indebtedness of a Restricted Subsidiary of the Company incurred pursuant to the
provisions described under "Limitation on Indebtedness," provided that such
restrictions shall not restrict or encumber any assets of the Company or its
Restricted Subsidiaries other than such Restricted Subsidiary and its
subsidiaries, (d) in the case of clause (iii) above, customary nonassignment
provisions entered into in the ordinary course of business consistent with past
practice in leases and other contracts to the extent such provisions restrict
the transfer or subletting of any such lease or the assignment of rights under
such contract, (e) any restriction with respect to a Restricted Subsidiary of
the Company imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all of the capital stock or assets
of such Restricted Subsidiary, provided that consummation of such transaction
would not result in a Default or Event of Default, that such restriction
terminates if such transaction is closed or abandoned and that the closing or
abandonment of such transaction occurs within one year of the date such
agreement was entered into, (f) any encumbrance or restriction with respect to a
Restricted Subsidiary that is a Foreign Subsidiary pursuant to an agreement
relating to Indebtedness incurred by such Foreign Subsidiary if the incurrence
of such Indebtedness is permitted under the provisions described under
"Limitation on Indebtedness" and, at the time of incurrence of such
Indebtedness, and after giving effect thereto, the aggregate principal amount of
the Indebtedness being incurred, together with all other outstanding
Indebtedness of such Foreign Subsidiary incurred pursuant to this clause (f),
does not exceed an amount equal to the sum of (x) 80% of the consolidated book
value of the accounts receivable of such Foreign Subsidiary, and (y) 60% of the
consolidated book value of the inventories of such Foreign Subsidiary, or (g)
any restrictions existing under any agreement which refinances any Indebtedness
in accordance with the definition of Refinancing Indebtedness, provided that the
terms and conditions of any such agreement are not materially less favorable
than those under the agreement creating or evidencing the Indebtedness being
refinanced.
Limitation on Creation of Liens. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary of the Company to,
create, incur, assume or suffer to exist any Liens upon any of their respective
assets unless the Notes are secured by such assets on an equal and ratable basis
with the obligation so secured until such time as such obligation is no longer
secured by a Lien (provided that if the obligation secured by such Lien is
subordinated to the Notes, the Lien securing such obligation will be subordinate
and junior to the Lien securing the Notes with the same relative priority as
such subordinated obligations have with respect to the Notes), except for (i)
Liens securing Senior Indebtedness that would be permitted to be incurred under
clauses (a) and (b) of the provisions described under "Limitation on
Indebtedness" if such Indebtedness were incurred on the date such Lien is
granted; (ii) Liens with respect to Acquired Indebtedness, provided that such
Liens do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary of the Company other than the property or assets of the
entity acquired, and provided further that such Liens were not incurred in
connection with, or in contemplation of,
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the transactions giving rise to such Acquired Indebtedness; (iii) Liens securing
Indebtedness which is incurred to refinance secured Indebtedness and which is
permitted to be incurred under the provisions described under "Limitation on
Indebtedness", provided that such Liens do not extend to or cover any property
or assets of the Company or any Restricted Subsidiary of the Company other than
the property or assets securing the Indebtedness being refinanced; and (iv)
Permitted Liens.
Limitation on Senior Subordinated Indebtedness. The Indenture provides that
the Company will not issue, incur, create, assume, guarantee or otherwise become
liable for any Indebtedness in an aggregate principal amount in excess of $250
million at any one time outstanding which is subordinate or junior in right of
payment to any Indebtedness of the Company, including, without limitation,
Indebtedness that refinances the Senior Subordinated Notes, unless such
Indebtedness is pari passu with or subordinate in right of payment to the Notes.
Transactions with Shareholders and Affiliates. The Indenture provides that
the Company will not, and will not permit any Restricted Subsidiary of the
Company to, directly or indirectly, enter into or suffer to exist any
transaction (an "Affiliate Transaction") (including, without limitation, the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder of more than 10% of any class of equity securities of
the Company or with any Affiliate of the Company or of any such holder (other
than a Restricted Subsidiary of the Company or the Company), on terms that are
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than would be available in a comparable transaction with an unrelated person. In
addition, neither the Company nor any Restricted Subsidiary of the Company shall
enter into any Affiliate Transaction or series of related Affiliate Transactions
involving or having a value of more than $5,000,000, unless a majority of
Disinterested Directors (or, if there are no Disinterested Directors, a majority
of the Board of Directors) of the Company or such Restricted Subsidiary, as the
case may be, determines in good faith pursuant to a Board Resolution that such
Affiliate Transaction or series of related Affiliate Transactions is fair to the
Company or such Restricted Subsidiary, as the case may be.
The foregoing provisions will not apply to (i) any Restricted Payment
permitted to be paid pursuant to "Limitation on Restricted Payments" above and
(ii) payments of investment banking and financial advisory or consulting fees
and other fees to Lehman Brothers Inc., The Cypress Group L.L.C. or any of their
respective subsidiaries or Affiliates in connection with the sale of the Notes
(or any refunding, refinancing or conversion thereof) and other customary
investment banking and financial advisory or consulting fees.
Sales of Assets. The Indenture provides that subject to the provisions
described under "Mergers or Consolidations", the Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company
(or such Restricted Subsidiary, as the case may be) receives consideration at
the time of such sale at least equal to the fair market value of the shares or
assets included in such Asset Sale (as determined in good faith by the Board of
Directors, including valuation of all noncash consideration) and (ii) (x) either
(A) the Net Cash Proceeds are reinvested within 12 months (or, pursuant to a
determination of the Board of Directors, held pending reinvestment) in
replacement assets or assets used in the Automotive Interior Business or used to
purchase all of the issued and outstanding capital stock of a person engaged in
such business or used to fund research and development costs or (B) if the Net
Cash Proceeds are not applied or are not required to be applied as set forth in
clause (ii)(x)(A) or if after applying such Net Cash Proceeds as set forth in
clause (ii)(x)(A) there remain Net Cash Proceeds, such Net Cash Proceeds are
applied within 12 months of the original receipt thereof to the permanent
prepayment, repayment, retirement or purchase of Senior Indebtedness, the
Subordinated Notes or Indebtedness of a Restricted Subsidiary, (y) if and to the
extent that the gross proceeds from such Asset Sale (after giving effect to the
application of clauses (ii)(x)(A) and (B), when added to the gross proceeds from
all prior Asset Sales (not applied as set forth in clauses (ii)(x)(A) or (B)))
exceeds $25,000,000, such proceeds are applied first to a repurchase offer to
repurchase the Subordinated Notes pursuant to the indenture governing the
Subordinated Notes and then to a Repurchase Offer (as defined in the Indenture)
to repurchase the Notes (on a pro rata basis with all other Indebtedness ranking
pari passu in right of payment to the Notes (other than the Subordinated Notes))
at a purchase price equal to 100% of the principal amount thereof plus accrued
interest to the date of prepayment and (z) if the principal amount tendered
pursuant to a Repurchase Offer is less than the Repurchase Offer Amount (as
defined in the Indenture), such excess amount is applied for general corporate
purposes; provided
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that when any noncash consideration is converted into cash, such cash will then
constitute Net Cash Proceeds and will be subject to clause (ii) of this
sentence.
Limitation on Issuance of Preferred Stock. The Indenture provides that the
Company will not permit any of its Restricted Subsidiaries to issue any
preferred or preference stock (except to the Company or a wholly owned
Restricted Subsidiary of the Company) or permit any person (other than the
Company or any wholly owned Restricted Subsidiary of the Company) to hold any
such preferred or preference stock unless the Company would be entitled to
create, incur or assume Indebtedness pursuant to the provisions described under
"Limitation on Indebtedness" in the aggregate principal amount equal to the
aggregate liquidation value of the preferred or preference stock to be issued.
Unrestricted Subsidiaries
The Company may designate any Foreign Subsidiary of the Company to be an
"Unrestricted Subsidiary" as provided below in which event such subsidiary and
each other person that is then or thereafter becomes a subsidiary of such
subsidiary will be deemed to be an Unrestricted Subsidiary. "Unrestricted
Subsidiary" means (1) any subsidiary designated as such by the Board of
Directors as set forth below and (2) any subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any subsidiary of the Company
(including any newly acquired or newly formed subsidiary) to be an Unrestricted
Subsidiary unless such subsidiary owns any capital stock of, or owns or holds
any Lien on any property of, any other subsidiary of the Company which is not a
subsidiary of the subsidiary to be so designated or otherwise an Unrestricted
Subsidiary, provided that either (A) the subsidiary to be so designated has
total assets of $5,000 or less or (B) if such subsidiary has assets greater than
$5,000, the Investment resulting from such designation would be permitted under
the covenant entitled "Limitation on Restricted Payments." The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could incur $1.00 of additional Indebtedness under
the covenant described under "Limitation on Indebtedness" and (y) no Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
MERGERS OR CONSOLIDATIONS
Under the Indenture, the Company will not consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to any person unless: (1) the person formed by
or surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or disposition has been
made, is a corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia; (ii) the
corporation formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or disposition has been made, assumes by supplemental indenture
satisfactory in form to the Trustee all the obligations of the Company under the
Indenture; (iii) immediately after such transaction, and giving effect thereto,
no Default or Event of Default has occurred and is continuing; (iv) the Company
or any corporation formed by or surviving any such consolidation or merger, or
to which such sale, assignment, transfer, lease, conveyance or disposition has
been made, has Consolidated Adjusted Net Worth (immediately after the
transaction and giving effect thereto, excluding any write-ups of assets
resulting from such consolidation or merger) at least equal to the Consolidated
Adjusted Net Worth of the Company immediately preceding the transaction; (v)
immediately after such transaction and giving effect thereto, the Company or any
corporation formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or disposition shall have
been made, shall be able to incur an additional $1.00 of Indebtedness pursuant
to clause (b) of the provisions described under "Limitation on Indebtedness";
and (vi) the Company has delivered to the Trustee (A) an Officers' Certificate
(attaching the calculation to demonstrate compliance with clauses (iv) and (v)
above) and an Opinion of Counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture comply with the above provisions and
that all conditions precedent relating to such transaction have been
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complied with, and (B) a certificate from the Company's independent certified
public accountants, stating that the Company has made the calculations required
by clauses (iv) and (v) above.
EVENTS OF DEFAULT
The Indenture defines an Event of Default as: (i) default by the Company
for 30 days in the payment of interest on the Notes; (ii) default by the Company
in the payment when due of principal of the Notes; (iii) failure by the Company
for 30 days after notice to comply with any of its other agreements in the
Indenture or the Notes; (iv) any Indebtedness of the Company or a Significant
Subsidiary of the Company for borrowed money (or the payment of which is
guaranteed by the Company or any Significant Subsidiary) having an outstanding
principal amount of $25,000,000 or more in the aggregate, is declared to be due
and payable prior to its stated maturity or failure by the Company or any
Significant Subsidiary to pay the final scheduled principal installment in an
amount of at least $25,000,000 in respect of any such Indebtedness on its stated
maturity date unless such Indebtedness which has been declared due and payable
prior to its stated maturity is Indebtedness of a Subsidiary the payment of
which is guaranteed by the Letters of Credit; (v) failure by the Company or any
subsidiary of the Company to pay certain final judgments aggregating in excess
of $25,000,000; and (vi) certain events of bankruptcy or insolvency.
A Default under the provisions of the Indenture described hereunder is not
an Event of Default until the Trustee notifies the Company in writing, or the
holders of at least 25% in principal amount of the Notes then outstanding notify
the Company and the Trustee in writing of the Default, and the Company does not
cure the Default within 30 days after receipt of the notice; provided that a
Default by the Company with respect to the provisions of the Indenture described
under "Mergers or Consolidations" and "Repurchase of Notes upon a Change of
Control Triggering Event" will constitute an Event of Default immediately upon
such notification and without passage of time.
Subject to the provisions under "Subordination", if an Event of Default
(other than as a result of certain events of bankruptcy or insolvency) occurs
and is continuing, the Trustee or the holders of at least 25% of the principal
amount of the Notes then outstanding, by written notice to the Company (and the
Agent Bank, so long as the Indebtedness under the Senior Credit Agreements is
outstanding) (and the Senior Subordinated Notes Trustee, so long as the
Indebtedness under the Senior Subordinated Notes is outstanding) may declare to
be due and payable all unpaid principal of and accrued interest on the Notes.
Upon a declaration of acceleration, such principal and accrued interest to
the date of such acceleration shall be due and payable upon the first to occur
of (i) an acceleration under the Senior Credit Agreements (or any refunding or
refinancing thereof), or (ii) five Business Days after notice of such
declaration is given to the Company (and the Agent Bank, so long as the
Indebtedness under the Senior Credit Agreements is outstanding) (and the Senior
Subordinated Notes Trustee, so long as the Indebtedness under the Senior
Subordinated Notes is outstanding); provided that, if the Event of Default
giving rise to such acceleration is cured before the earlier to occur of (i) or
(ii), such notice of acceleration and its consequences shall be deemed rescinded
and annulled. In the event of a declaration of acceleration under the Indenture
because an Event of Default described in clause (iv) of the third preceding
paragraph has occurred and is continuing, such declaration of acceleration shall
be automatically annulled if the holders of the Indebtedness which is the
subject of such Event of Default have rescinded their declaration of
acceleration in respect of such Indebtedness within 90 days thereof or all
amounts payable in respect of such Indebtedness have been paid and such
Indebtedness has been discharged during such 90-day period and if (i) the
annulment of such acceleration would not conflict with any judgment or decree of
a court of competent jurisdiction, (ii) all existing Events of Default, except
nonpayment of principal or interest that has been due solely because of the
acceleration, have been cured or waived, and (iii) the Company has delivered an
Officers' Certificate to the Trustee to the effect of clauses (i) and (ii) of
this sentence. If an Event of Default described in clause (vi) of the third
preceding paragraph with respect to the Company occurs, all unpaid principal and
accrued interest on the Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder.
The holders of a majority of the outstanding principal amount of the Notes
by written notice to the Trustee may rescind an acceleration and its
consequences if (i) all existing Events of Default other than the
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<PAGE> 68
nonpayment of principal of or interest on the Notes which have become due solely
because of the acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default in payment of principal or interest) if it determines that
withholding notice is in their interest. The Company is required to deliver to
the Trustee annually a statement regarding compliance with the Indenture, and
upon becoming aware of any Default or Event of Default, a statement specifying
such Default or Event of Default.
DISCHARGE OF INDENTURE AND DEFEASANCE
Except as otherwise limited by the provisions of the Senior Credit
Agreements, the Company may terminate its obligations under the Notes and the
Indenture when (i) all outstanding Notes have been delivered (other than
destroyed, lost or stolen Notes which have not been replaced or paid) to the
Trustee for cancellation or (ii) all outstanding Notes have become due and
payable, and the Company irrevocably deposits with the Trustee funds or U.S.
Government Obligations sufficient (without reinvestment thereof) to pay at
maturity all outstanding Notes, including all interest thereon (other than
destroyed, lost or stolen Notes which have not been replaced or paid), and in
either case the Company has paid all other sums payable under the Indenture. In
addition, the Company may terminate substantially all its obligations under the
Notes and the Indenture if the Company (a) irrevocably deposits in trust for the
benefit of the holders money or U.S. Government Obligations maturing as to
principal and interest in such amounts and at such times as are sufficient to
pay principal of and interest on the then outstanding Notes to maturity or
redemption, as the case may be, (b) delivers to the Trustee an Opinion of
Counsel to the effect that, based on Federal income tax laws then in effect, the
holders of the Notes will not recognize income, gain or loss for Federal income
tax purposes as a result of the Company's exercise of such option and shall be
subject to Federal income tax on the same amounts and in the same manner and at
the same times as would have been the case if such option had not been exercised
or a ruling to that effect has been received from or published by the Internal
Revenue Service and (c) certain other conditions are met.
The Company shall be released from its obligations with respect to the
covenants described under "Certain Covenants" and any Event of Default occurring
because of a default with respect to such covenants if (a) the Company deposits
or causes to be deposited with the Trustee in trust an amount of cash or U.S.
Government Obligations sufficient to pay and discharge when due the entire
unpaid principal of and interest on all outstanding Notes and (b) certain other
conditions are met. The obligations of the Company under the Indenture with
respect to the Notes, other than with respect to the covenants and Events of
Default referred to above, shall remain in full force and effect.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar is not required to transfer or
exchange any Note selected for redemption or any Note for a period of 15 days
before the mailing of a notice of redemption of Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented by the Company and the Trustee with the consent of the holders of
at least a majority in principal amount of such then outstanding Notes and any
existing default may be waived with the consent of the holders of at least a
majority in principal amount of the then outstanding Notes. Without the consent
of any holder of the Notes, the Company and the Trustee may amend the Indenture
or the Notes to cure any ambiguity, defect or
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<PAGE> 69
inconsistency, to provide for the assumption of the Company's obligations to
holders of the Notes by a successor corporation, to provide for uncertificated
Notes in addition to certificated Notes or to make any change that does not
adversely affect the rights of any holder of the Notes. Without the consent of
each holder of Notes affected, the Company may not reduce the principal amount
of Notes the holders of which must consent to an amendment of the Indenture;
reduce the rate or change the interest payment time of any Note; reduce the
principal of or change the fixed maturity of any Notes or alter the redemption
provisions with respect thereto; make any Note payable in money other than that
stated in the Note; make any change in the provisions concerning waiver of
Defaults or Events of Default by holders of the Notes or rights of holders to
receive payment of principal or interest; make any change in the subordination
provisions in the Indenture that affects the right of any holder; or release the
Company from any of its obligations under the Indenture or the Notes.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture.
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<PAGE> 70
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENTS
The following is a summary of certain provisions of the Credit Agreement
and the New Credit Agreement (collectively, the "Credit Agreements"). The Credit
Agreement and the New Credit Agreement contain substantially the same terms. The
following summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the Credit
Agreement and the New Credit Agreement, including all of the definitions therein
of terms not defined in this Prospectus. The Credit Agreement and the New Credit
Agreement have been filed as exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and its Current Report on Form 8-K
dated June 27, 1996, respectively, and are incorporated herein by reference.
General. The Credit Agreement currently provides for (i) borrowings in a
principal amount of up to $1.475 billion at any one time outstanding, (ii) swing
line loans in a maximum aggregate amount of $65.0 million, the commitment for
which is part of the aggregate Credit Agreement commitment, and (iii) Letters of
Credit in an aggregate face amount of up to $175.0 million, the commitment for
which is a part of the aggregate Credit Agreement commitment. The New Credit
Agreement provides for borrowings of up to $300 million. Amounts available to be
borrowed under the Credit Agreements will be reduced by $30 million on September
30, 1996, $120 million in the aggregate during 1997, $150 million in the
aggregate during 1998, $150 million in the aggregate during 1999, $180 million
in the aggregate during 2000 and $120 million on March 30, 2001. The entire
unpaid balance under the Credit Agreements will be payable on September 30,
2001. Commitments under the Credit Agreement and the New Credit Agreement will
also be permanently reduced by a percentage of the fair market value of certain
accounts receivable sold pursuant to a permitted receivables financing program.
Borrowings under the Credit Agreement and the New Credit Agreement, including
the swing line loans, are collectively referred to herein as the "Loans." See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company."
Interest. For purposes of calculating interest, the Loans can be, at the
election of Lear, ABR Loans or Eurodollar Loans or a combination thereof. ABR
Loans bear interest at the higher of (a) Chemical Bank's prime rate and (b) the
federal funds rate plus 0.50%. Eurodollar Loans bear interest at the Eurodollar
Rate plus between 0.50% and 1.00%, depending on the level of specified financial
ratio.
Repayment. Subject to the provisions of the Credit Agreements, Lear may,
from time to time, borrow, repay and reborrow under the Credit Agreements. The
entire unpaid balance under the Credit Agreements is payable on September 30,
2001.
Security and Guarantees. The Loans are guaranteed by substantially all of
the Company's direct and indirect domestic subsidiaries. The Loans and such
guarantees are variously secured by (i) a pledge to the Agent for the ratable
benefit of the banks party to the Credit Agreements of all of the capital stock
of substantially all of the Company's domestic subsidiaries, and a pledge of
certain stock of the Company's foreign subsidiaries; (ii) a grant of a security
interest in substantially all of the assets of the Company and its domestic
subsidiaries, other than certain assets of certain recently acquired domestic
subsidiaries; and (iii) the mortgages of certain of the real property of the
Company and its domestic subsidiaries.
Covenants. The Credit Agreements contain financial covenants relating to
maintenance of consolidated net worth, of ratios of consolidated operating
profit to consolidated cash interest expense and of consolidated operating
profit. The Credit Agreements also contain restrictive covenants pertaining to
the management and operation of the Company. The covenants include, among
others, significant limitations on indebtedness, guarantees, mergers,
acquisitions, fundamental corporate changes, capital expenditures, asset sales,
leases, investments, loans and advances, liens, dividends and other stock
payments, transactions with affiliates, optional payments and modification of
debt instruments, issuance of stock and sale and leaseback transactions.
Events of Default. The Credit Agreements provide for events of default
customary in facilities of these type, including: (i) failure to make payments
when due; (ii) breach of covenants; (iii) breach of representations or
warranties in any material respect when made; (iv) default under any agreement
relating to debt for borrowed money in excess of $20.0 million in the aggregate;
(v) bankruptcy defaults; (vi) judgments
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in excess of $5.0 million; (vii) ERISA defaults; (viii) any security document or
guarantee ceasing to be in full force and effect; (ix) the subordination
provisions in the instruments pursuant to which subordinated debt (or any
refinancings thereof) were created ceasing to be in full force and effect or
enforceable to the same extent purported to be created thereby; and (x) a change
of control of the Company.
FOREIGN CREDIT FACILITIES
Certain of the Company's foreign subsidiaries have outstanding credit
facilities. Lear's principal Canadian subsidiary expects to enter into a
revolving credit facility (the "Canadian Credit Facility") providing borrowing
availability of up to 50 million Canadian dollars (or the approximate equivalent
of U.S. $36.5 million). Canadian dollar advances under the Canadian Credit
Facility are expected to bear interest at the prime lending rate, determined by
reference to the rate of interest for loans made by The Bank of Nova Scotia in
Canadian dollars. United States dollar advances under the Canadian Credit
Facility are expected to bear interest, at the election of Lear's principal
Canadian subsidiary, at a floating rate of interest equal to (i) the higher of
the annual interest rate announced by The Bank of Nova Scotia as its "Base Rate
Canada" or the federal funds rate plus .5% or (ii) LIBOR plus a borrowing margin
of .5% to 1.0%. The Canadian Credit Facility is expected to mature on March 31,
1998.
In Germany, there is an outstanding term loan (the "German Term Loan") of
8.5 million German marks (or the approximate equivalent of U.S. $5.5 million),
which bears interest at an effective annual rate of 9.125%, is payable in German
marks in quarterly installments of 500,000 German marks through March 2000, and
is collateralized by certain assets held by a German subsidiary. The agreements
relating to the Canadian Credit Facility and the German Term Loan also contain
or will contain certain covenants.
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 a fixed rate per annum of 11% to the
current LIBOR rate plus .4%. The amount of such factored receivables, at March
30, 1996, was approximately $96.4 million.
In addition, certain of the Company's other foreign subsidiaries are
parties to informal lines of credit. As of March 30, 1996, the outstanding
indebtedness of the Company's foreign subsidiaries was approximately $32.6
million.
SENIOR SUBORDINATED NOTES AND SUBORDINATED NOTES
After consummation of the Offerings, the Senior Subordinated Notes and the
Subordinated Notes will be outstanding. The Senior Subordinated Notes are
subordinated in right of payment to all existing and future senior indebtedness
of Lear and will be senior in right of payment to the Notes. Interest is payable
in arrears on January 15 and July 15. The Subordinated Notes are subordinated in
right of payment to all existing and future senior indebtedness of Lear and will
be pari passu with the Notes. Interest on the Subordinated Notes is payable in
arrears on February 1 and August 1.
The Indentures governing the Senior Subordinated Notes and the Subordinated
Notes (the "Indentures") limit, among other things: (i) the making of any
Restricted Payment (as defined in the Indentures); (ii) the incurrence of
indebtedness unless the Company satisfies a specified cash flow to interest
expense coverage ratio; (iii) the creation of liens; (iv) the incurrence of
payment restrictions affecting subsidiaries; (v) entering into transactions with
stockholders and affiliates; (vi) the sale of assets; (vii) the issuance of
preferred stock; and (viii) the merger, consolidation or sale of substantially
all of the assets of the Company. The Indentures also provide that a holder of
the Senior Subordinated Notes or the Subordinated Notes may, under certain
circumstances, have the right to require that Lear repurchase such holder's
securities upon a change of control of the Company.
The Senior Subordinated Notes mature on July 15, 2000 and may not be
redeemed prior to July 15, 1997. On or after July 15, 1997, Lear may, at its
option, redeem the Senior Subordinated Notes in whole or in part, on at least 30
days' but not more than 60 days' notice to each holder of the Senior
Subordinated Notes to be redeemed, at 100% of their principal amount together
with accrued and unpaid interest (if any) to the redemption date. The Senior
Subordinated Notes are not subject to mandatory redemption prior to maturity.
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The Subordinated Notes mature on February 1, 2002, and may not be redeemed
prior to February 1, 1998. On or after February 1, 1998, Lear may, at its
option, redeem the Subordinated Notes in whole or in part, on at least 15 days'
but not more than 60 days' notice to each holder of the Subordinated Notes to be
redeemed, at 101.65% of their principal amount together with accrued and unpaid
interest (if any) to the redemption. On or after February 1, 1999, the
Subordinated Notes become redeemable at 100% of their principal amount together
with accrued and unpaid interest (if any) to the redemption date. The
Subordinated Notes are not subject to mandatory redemption prior to maturity.
UNDERWRITING
The underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company and the Underwriters, to purchase
the respective principal amount of Notes set forth opposite their respective
names below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITERS OF NOTES
------------
<S> <C>
BT Securities Corporation............................................ $125,000,000
Chase Securities Inc. ............................................... 25,000,000
Morgan Stanley & Co. Incorporated ................................... 25,000,000
Schroder Wertheim & Co. Incorporated ................................ 25,000,000
------------
Total......................................................... $200,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Notes are subject to certain conditions and that,
if any Notes are purchased by the Underwriters pursuant to the Underwriting
Agreement, all of the Notes agreed to be purchased by the Underwriters pursuant
to the Underwriting Agreement must be so purchased.
Lear has been advised by the Underwriters that they propose to offer the
Notes offered hereby initially at the public offering price set forth on the
cover page of this Prospectus and to certain selected dealers (who may include
Underwriters) at such public offering price less a concession not to exceed .25%
of the principal amount of the Notes. After the initial offering of the Notes,
the public offering price and the concession to selected dealers may be changed
by the Underwriters.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.
In the ordinary course of their respective businesses, affiliates of BT
Securities Corporation and Chase Securities Inc. have engaged in general
financing and banking transactions with the Company for which customary
compensation has been received. Chase Securities Inc. is an affiliate of
Chemical Bank, which is Agent and a lender to Lear under the Credit Agreement
and the New Credit Agreement. BT Securities Corporation is an affiliate of
Bankers Trust Company, which is a lender to Lear under the Credit Agreements.
Chemical Bank and Bankers Trust Company will receive their proportionate shares
of any repayment by Lear of amounts outstanding under the Credit Agreements from
the proceeds of the Note Offering.
Lear has no plans to list the Notes on a securities exchange. Lear has been
advised by each Underwriter that it presently intends to make a market in the
Notes; however, the Underwriters are not obligated to do so. Any such
market-making activity, if initiated, may be discontinued at any time, for any
reason, without notice. There can be no assurance that an active market for the
Notes will develop or, if a market does develop, at what prices the Notes will
trade.
71
<PAGE> 73
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Winston &
Strawn, New York, New York. Certain legal matters in connection with the Notes
will be passed upon for the Underwriters by Cravath, Swaine & Moore, New York,
New York.
EXPERTS
The audited financial statements and schedule of the Company incorporated
by reference into this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon authority of said firm as
experts in giving said reports.
The audited financial statements of AI incorporated by reference into this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon authority of said firm as experts in giving said report.
The audited historical consolidated financial statements of Masland
Corporation as of June 30, 1995 and July 1, 1994 and for each of the three years
in the period ended June 30, 1995 included on pages 2 through 22 of the
Company's Form 8-K dated June 27, 1996, which is incorporated herein by
reference, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
72
<PAGE> 74
[INSIDE BACK COVER]
LEAR CORPORATION LOGO [framed by flags of the countries in which the
Company operates.]
Lear Corporation is the world's largest independent supplier of
automotive interior systems - with approximately 40,000 quality - dedicated,
customer - focused people throughout 131 facilities in 19 countries around the
globe.
Lear Interior Systems Capabilities
[A picture of the interior of an automobile depicting the automotive
interior products listed below which the Company produces]
<TABLE>
<CAPTION>
<C> <S>
Trunk Liners/Luggage Compartment Trim Spare Tire Covers
Load Floors Fuel Tank Shields
Package Trays Seat Systems
Seat Backs Quarter Panels
C-Pillars/Trim Arm Rests
Appliques/Bolsters Scuff Plates
Headliners Accessory Mats
B-Pillars/Trim Door Panels/Trim
Headrests SEAT COMPONENTS
Sunvisors - Frames
A-Pillars/Trim - Covers
Brake Pedal Insulator - Foam
Cowl Panels/Trim - Hardware
HVAC Ducts Carpet/Vinyl/Floor Systems
Hood Insulators/Liners Consoles
Engine Shrounds Inner/Outer Dash
Coolant Reservoirs Interior Insulators/Acoustic Stuffers
Grille Assemblies Air Intake Ducts
Vapor Canisters
Windshield Washer Reservoirs
Exterior Air Dams
</TABLE>
<PAGE> 75
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
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Page
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Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 11
Cautionary Statements for Purposes of
the "Safe Harbor" Provisions of the
Private Securities Litigation Reform
Act of 1995......................... 13
Use of Proceeds....................... 13
Capitalization........................ 14
Pro Forma Financial Data.............. 15
Selected Financial Data of the
Company............................. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Company........ 20
Selected Financial Data of Masland
Corporation......................... 27
Management's Discussion and Analysis
of Results of Operations of Masland
Corporation......................... 28
Business of the Company............... 31
Management............................ 48
Description of the Notes.............. 50
Description of Certain Indebtedness... 69
Underwriting.......................... 71
Legal Matters......................... 72
Experts............................... 72
</TABLE>
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--------------------
PROSPECTUS
--------------------
LEAR CORP. LOGO
$200,000,000
9 1/2% SUBORDINATED NOTES
DUE 2006
BT SECURITIES CORPORATION
CHASE SECURITIES INC.
MORGAN STANLEY & CO.
INCORPORATED
SCHRODER WERTHEIM & CO.
JULY 9, 1996
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