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Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-81255
PROSPECTUS
EXCHANGE OFFER
FOR
ALL OUTSTANDING
7.96% SENIOR NOTES DUE 2005
AND
8.11% SENIOR NOTES DUE 2009
OF
LEAR CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JANUARY 17, 2000, UNLESS EXTENDED
TERMS OF THE EXCHANGE OFFER
- Lear is offering to exchange registered 7.96% Series B Senior Notes due
2005 for all of its original unregistered 7.96% Senior Notes due 2005
and registered 8.11% Series B Senior Notes due 2009 for all of its
original unregistered 8.11% Senior Notes due 2009.
- The terms of the exchange securities are identical in all respects to
the terms of the original securities for which they are being
exchanged, except that the registration rights and related liquidated
damages provisions, and the transfer restrictions, applicable to the
original securities are not applicable to the exchange securities.
- Subject to the satisfaction or waiver of specified conditions, Lear
will exchange the applicable exchange securities for all original
securities that are validly tendered and not withdrawn prior to the
expiration of the exchange offer.
- You may withdraw tenders of original securities at any time prior to
the expiration of the exchange offer.
- Lear will not receive any proceeds from the exchange offer.
See "Risk Factors," beginning on page 8, for a discussion of certain
factors that should be considered before tendering your original securities in
the exchange.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
THIS PROSPECTUS IS DATED DECEMBER 15, 1999.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
Where You Can Find More Information......................... 12
Incorporation of Documents by Reference..................... 12
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 13
Unaudited Pro Forma Financial Data.......................... 14
Selected Consolidated Financial Data........................ 17
Business.................................................... 19
The Exchange Offer.......................................... 31
Description of Other Material Indebtedness.................. 39
Description of Exchange Securities.......................... 42
United States Federal Income Tax Considerations............. 56
Plan of Distribution........................................ 60
Legal Matters............................................... 60
Experts..................................................... 60
</TABLE>
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PROSPECTUS SUMMARY
This brief summary highlights selected information from the prospectus. It
may not contain all of the information that is important to you. We urge you to
carefully read and review the entire prospectus and the other documents to which
it refers to fully understand the terms of the exchange securities and the
exchange offer.
LEAR
When we use the terms "Lear," "we," "us" and "our," unless otherwise
indicated or the context otherwise requires, we are referring to Lear
Corporation and its consolidated subsidiaries, including UT Automotive, which we
acquired in May 1999. When we use the term "UT Automotive," we are referring to
UT Automotive, Inc. together with its consolidated subsidiaries, unless
otherwise indicated or the context otherwise requires. When we use the term
"EMS," we are referring to the Electric Motor Systems business of UT Automotive.
Unless otherwise indicated, pro forma information included in this prospectus
gives effect to the following transactions as if they had occurred on January 1,
1998:
- the acquisition of Delphi's automotive seating business,
- the UT Automotive acquisition, the sale of EMS and the application of the
proceeds therefrom,
- the amendment and restatement of our prior senior credit facility in
connection with the UT Automotive acquisition,
- borrowings under our new credit facilities in connection with the UT
Automotive acquisition, and
- the offering of the original securities and the application of the
proceeds therefrom.
GENERAL
We are one of the ten largest independent automotive suppliers in the
world. We are:
- the leading supplier of automotive interior systems in the estimated $50
billion global automotive interior market;
- the third largest supplier in the estimated $20 billion global automotive
electrical distribution systems market;
- the largest supplier in the estimated $24 billion global seat systems
market; and
- one of the four largest suppliers worldwide in each of the other North
American automotive interior segments: door panels, headliners, floor and
acoustic systems and instrument panels.
We are the only supplier with the capability to integrate electronics and
electrical distribution systems into all five automotive interior systems,
providing us the opportunity to manufacture and supply fully integrated
automotive interior modules to our customers globally. As of October 2, 1999, we
employed approximately 115,000 people in 33 countries and operated 335
manufacturing, advanced technology, product engineering and administration
facilities.
ACQUISITIONS AND EMS SALE
Prior to August 1995, we primarily produced seat systems and components. In
1995 and 1996, we made three major acquisitions which provided us with
significant capabilities in the other four principal segments comprising a total
automotive interior. On May 4, 1999, we acquired UT Automotive for a purchase
price of approximately $2.3 billion. UT Automotive is a leading independent
supplier of automotive electrical distribution systems and produces a broad
portfolio of automotive interior products, including instrument panels,
headliners and door panels. With the acquisition of UT Automotive, we became the
third largest supplier of automotive electrical distribution systems in the
estimated $20 billion global automotive electrical distribution systems market.
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On June 25, 1999, we sold our recently acquired Electric Motor Systems
business to Johnson Electric Holdings Limited for $310 million, subject to
certain post-closing adjustments. The proceeds of the sale of EMS were used to
repay indebtedness under our primary credit facilities. We acquired EMS on May
4, 1999 in our acquisition of UT Automotive. EMS is a supplier of industrial and
automotive electric motors and starter motors for small gasoline engines. EMS
had 1998 sales of $351 million and has approximately 3,300 employees operating
at locations in 10 countries.
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Our principal executive offices are located at 21557 Telegraph Road,
Southfield, Michigan 48086-5008. Our telephone number at that location is (248)
447-1500.
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
General....................... On May 18, 1999, Lear completed a private
offering of the original securities, which
consist of $600,000,000 aggregate principal
amount of its 7.96% Senior Notes due 2005 and
$800,000,000 aggregate principal amount of its
8.11% Senior Notes due 2009. In connection with
the private offering, Lear entered into a
registration rights agreement in which it
agreed, among other things, to deliver this
prospectus to you and to complete an exchange
offer for the original securities.
The Exchange Offer............ Lear is offering to exchange up to $600,000,000
aggregate principal amount of its 7.96% Series
B Senior Notes due 2005 which have been
registered under the Securities Act for a like
aggregate principal amount of its original
unregistered 7.96% Senior Notes due 2005 and up
to $800,000,000 aggregate principal amount of
its 8.11% Series B Senior Notes due 2009 which
have been registered under the Securities Act
for a like aggregate principal amount of its
original unregistered 8.11% Senior Notes due
2009.
Original securities may be tendered only in
$1,000 increments. Subject to the satisfaction
or waiver of specified conditions, Lear will
exchange the applicable exchange securities for
all original securities that are validly
tendered and not withdrawn prior to the
expiration of the exchange offer. Lear will
cause the exchange to be effected promptly
after the expiration of the exchange offer.
Resales....................... Based on interpretations by the staff of the
Securities and Exchange Commission, Lear
believes that exchange securities issued in the
exchange offer may be offered for resale,
resold, or otherwise transferred by you,
without compliance with the registration and
prospectus delivery requirements of the
Securities Act, if:
- you acquire the exchange securities in the
ordinary course of your business;
- you are not engaging in and do not intend to
engage in a distribution of the exchange
securities;
- you do not have an arrangement or
understanding with any person to participate
in a distribution of the exchange securities;
and
- you are not an affiliate of Lear within the
meaning of Rule 405 under the Securities Act.
If you are an affiliate of Lear, or are
engaging in or intend to engage in, or have any
arrangement or understanding with any person to
participate in, a distribution of the exchange
securities:
- you cannot rely on the applicable
interpretations of the staff of the
Securities and Exchange Commission; and
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- you must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any resale
transaction.
If you are a broker or dealer seeking to
receive exchange securities for your own
account in exchange for original securities
that you acquired as a result of market-making
or other trading activities, you must
acknowledge that you will deliver this
prospectus in connection with any offer to
resell, resale, or other transfer of the
exchange securities that you receive in the
exchange offer.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on January 17, 2000, unless
extended by Lear.
Withdrawal.................... You may withdraw the tender of your original
securities at any time prior to the expiration
of the exchange offer. Lear will return to you
any of your original securities that are not
accepted for exchange for any reason, without
expense to you, promptly after the expiration
or termination of the exchange offer.
Interest on the Exchange
Securities and the Original
Securities.................. Each exchange note will accrue interest from
the date of the completion of the exchange
offer. Accrued and unpaid interest on the
original notes exchanged in the exchange offer
will be paid on the first interest payment date
for the exchange notes to the holders on the
relevant record date of the exchange notes
issued in respect of the original notes being
exchanged. Interest on the original notes being
exchanged in the exchange offer shall cease to
accrue on the date of the completion of the
exchange offer.
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary
conditions. Lear may assert or waive these
conditions in its sole discretion. See "The
Exchange Offer -- Conditions to the Exchange
Offer."
Exchange Agent................ The Bank of New York is serving as exchange
agent for the exchange offer.
Procedures for Tendering
Original Securities........... Any holder of original securities that wishes
to tender original securities must cause the
following to be transmitted to and received by
the exchange agent no later than 5:00 p.m., New
York City time, on the expiration date:
- The certificates representing the tendered
original securities or, in the case of a
book-entry tender, a confirmation of the
book-entry transfer of the tendered original
securities into the exchange agent's account
at The Depository Trust Company, as
book-entry transfer facility;
- A properly completed and duly executed letter
of transmittal in the form accompanying this
prospectus or, at the option of the tendering
holder in the case of a book-entry tender, an
agent's message in lieu of such letter of
transmittal; and
- Any other documents required by the letter of
transmittal.
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Guaranteed Delivery
Procedures.................... Any holder of original securities that cannot
cause the original securities or any other
required documents to be transmitted to and
received by the exchange agent before 5:00
p.m., New York City time, on the expiration
date, may tender original securities according
to the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Special Procedures for
Beneficial Owners............. If you are the beneficial owner of original
securities that are registered in the name of
your broker, dealer, commercial bank, trust
company, or other nominee, and you wish to
participate in the exchange offer, you should
promptly contact the person through which you
beneficially own your original securities and
instruct that person to tender original
securities on your behalf. See "The Exchange
Offer -- Procedures for Tendering."
Representations of Tendering
Holders....................... By tendering original securities pursuant to
the exchange offer, each holder will make the
representations to Lear described in "The
Exchange Offer -- Procedures for Tendering."
Acceptance of Original
Securities and Delivery of
Exchange Securities......... Subject to the satisfaction or waiver of the
conditions to the exchange offer, Lear will
accept for exchange any and all original
securities that are properly tendered and not
withdrawn prior to 5:00 p.m., New York City
time, on the expiration date. Lear will cause
the exchange to be effected promptly after the
expiration of the exchange offer.
U.S. Federal Income Tax
Considerations.............. The exchange of original securities for
exchange securities pursuant to the exchange
offer generally will not be a taxable event for
U.S. federal income tax purposes. See "United
States Federal Income Tax Considerations."
Use of Proceeds............... Lear will not receive any proceeds from the
issuance of exchange securities pursuant to the
exchange offer. Lear will pay all expenses
incident to the exchange offer.
CONSEQUENCES OF EXCHANGING OR FAILURE TO EXCHANGE ORIGINAL SECURITIES
PURSUANT TO THE EXCHANGE OFFER
Holders that are not
Broker-Dealers................ Generally, if you are not an "affiliate" of
Lear within the meaning of Rule 405 under the
Securities Act, upon the exchange of your
original securities for exchange securities
pursuant to the exchange offer, you will be
able to offer your exchange securities for
resale, resell your exchange securities and
otherwise transfer your exchange securities
without compliance with the registration and
prospectus delivery provisions of the
Securities Act.
This is true so long as you have acquired the
exchange securities in the ordinary course of
your business, you have no arrangement with any
person to participate in a distribution of the
exchange
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securities and neither you nor any other person
is engaging in or intends to engage in a
distribution of the exchange securities.
Holders that are
Broker-Dealers................ A broker-dealer who acquired original
securities directly from us cannot exchange
those original securities in the exchange
offer.
Otherwise, each broker-dealer that receives
exchange securities for its own account in
exchange for original securities must
acknowledge that it will deliver a prospectus
in connection with any resale of the exchange
securities. You should read "Plan of
Distribution" for a more detailed discussion of
these requirements.
Failure to Exchange........... Upon consummation of the exchange offer,
holders that were not prohibited from
participating in the exchange offer and did not
tender their original securities will not have
any registration rights under the registration
rights agreement with respect to such
nontendered original securities. Accordingly,
nontendered original securities will continue
to be subject to the significant restrictions
on transfer contained in the legend on them.
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SUMMARY OF THE TERMS OF THE EXCHANGE SECURITIES
The exchange securities will evidence the same debt as the original
securities for which they are being exchanged. The exchange securities and the
original securities will be governed by the same indenture. Except where the
context requires otherwise, references in this prospectus to "notes," or
"securities" are references to both original notes and exchange notes or both
original securities and exchange securities, as the case may be.
Securities Offered............ $600,000,000 principal amount of 7.96% Series B
Senior Notes due 2005. $800,000,000 principal
amount of 8.11% Series B Senior Notes due 2009.
Maturity Dates................ The 7.96% Series B Senior Notes due 2005 will
mature on May 15, 2005. The 8.11% Series B
Senior Notes due 2009 will mature on May 15,
2009.
Interest Payment Dates........ May 15 and November 15 of each year, commencing
November 15, 1999.
Ranking....................... The exchange notes will be senior unsecured
obligations and will rank equal in right of
payment with all of Lear's existing and future
unsubordinated unsecured indebtedness.
Indebtedness under our principal credit
facilities is secured by the pledge of all or a
portion of the capital stock of certain of our
subsidiaries. The exchange notes will not have
the benefit of such pledges. In addition, other
secured creditors of Lear will have a claim on
the assets which secure the related obligations
of Lear prior to any claims of holders of the
exchange notes against such assets.
Guarantees.................... The exchange notes will be guaranteed on a
senior unsecured basis by each of our domestic
subsidiaries that guarantee our principal
credit facilities. In the event that any such
subsidiary ceases to be a guarantor under our
principal credit facilities, such subsidiary
will be released as a guarantor of the exchange
notes.
Optional Redemption........... We may redeem all or part of each series of
exchange notes, at our option, at any time, at
the redemption price equal to the greater of:
- 100% of the principal amount of the exchange
notes to be redeemed, and
- the sum of the present values of the
remaining scheduled payments of principal and
interest thereon from the redemption date to
the maturity date discounted to the
redemption date on a semiannual basis at the
Treasury Rate plus 50 basis points,
in each case, together with any interest
accrued but not paid to the date of redemption.
See "Description of the Exchange
Securities -- Optional Redemption."
Certain Covenants............. The indenture governing the exchange securities
contains covenants that limit our ability and
the ability of our restricted subsidiaries to
create liens and engage in sale and lease-back
transactions. The indenture also limits Lear's
ability to engage in mergers and consolidations
or to transfer all or substantially all of our
assets. See "Description of the Exchange
Notes -- Certain Covenants."
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RISK FACTORS
Prospective participants in the exchange offer should consider carefully
all of the information contained in this prospectus in connection with the
exchange offer. The risk factors set forth below, with the exception of the
first risk factor, are generally applicable to the original notes as well as the
exchange notes.
FAILURE TO EXCHANGE -- IF YOU FAIL TO EXCHANGE YOUR ORIGINAL SECURITIES FOR
EXCHANGE SECURITIES YOU WILL NO LONGER HAVE ANY
REGISTRATION RIGHTS WITH RESPECT TO YOUR ORIGINAL
SECURITIES.
Upon the completion of the exchange offer, if you were not prohibited from
participating in the exchange offer and you did not tender your original
securities, you will no longer have any registration rights with respect to the
original securities you still hold. These original securities are privately
placed securities and will remain subject to the restrictions on transfer
contained in the legend on the notes. In general, you cannot sell or offer to
sell the original securities without complying with these restrictions, unless
the original securities are registered under the Securities Act and applicable
state securities laws. We do not intend to register the original securities
under the Securities Act.
LEVERAGE -- WE HAVE A SUBSTANTIAL AMOUNT OF DEBT, WHICH MAY HARM OUR FINANCIAL
CONDITION, REQUIRE US TO USE A SIGNIFICANT PORTION OF OUR CASH FLOW
TO SATISFY OUR DEBT OBLIGATIONS AND PREVENT US FROM MAKING PAYMENTS
UNDER THE EXCHANGE NOTES.
- WE HAVE DEBT THAT IS GREATER THAN OUR STOCKHOLDERS' EQUITY
A significant portion of the funds needed to finance our recent
acquisitions, including the UT Automotive acquisition, was raised through
borrowings. As a result, we have debt that is greater than our stockholders'
equity and a significant portion of our cash flow from operations will be used
to satisfy our debt obligations. Therefore, a downturn in our business could
limit our ability to make payments under the exchange notes. The following chart
sets forth certain important information regarding our capitalization and is
presented as of October 2, 1999 or, in the case of the ratio of earnings to
fixed charges on a pro forma basis assuming we had completed the transactions on
January 1, 1998:
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C>
Total indebtedness.......................... $3,881.4
Stockholders' equity........................ $1,413.3
Total capitalization........................ $5,294.7
Debt to equity ratio........................ 2.7x
Pro forma ratio of earnings to fixed charges
for the year ended December 31, 1998...... 1.2x
</TABLE>
- OUR INDEBTEDNESS MAY HARM OUR ABILITY TO MAKE PAYMENTS UNDER THE EXCHANGE
NOTES.
Our indebtedness could:
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
payments on our other indebtedness;
- limit our ability to obtain other financing to fund future working
capital, acquisitions, capital expenditures, research and development
costs and other general corporate requirements;
- limit our ability to take advantage of business opportunities as a result
of various restrictive covenants in our indebtedness; and
- place us at a competitive disadvantage compared to our main competitors
that have less debt.
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- WE ARE VULNERABLE TO CHANGES IN INTEREST RATES.
In addition, since a significant portion of our borrowings are at variable
rates of interest, we will be vulnerable to increases in interests rates, which
would reduce our profitability and make it more difficult for us to make
payments under the exchange notes.
See "Description of the Exchange Securities" and "Description of Other
Material Indebtedness."
ADDITIONAL BORROWINGS AVAILABLE -- DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND
OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER
EXACERBATE THE RISKS DESCRIBED ABOVE. SECURED
INDEBTEDNESS AND BORROWINGS BY SUBSIDIARIES
THAT ARE NOT GUARANTORS WILL BE EFFECTIVELY
SENIOR TO THE EXCHANGE NOTES.
We and our subsidiaries may be able to incur additional indebtedness in the
future. As of October 2, 1999, we had additional unused borrowing availability
under our primary credit facilities of $1.1 billion, and additional borrowing
availability under other working capital and revolving credit facilities of $274
million. If new debt is added to our current debt levels, the related risks that
we and they now face could intensify.
The exchange notes are unsecured and therefore will be effectively
subordinated to any existing or future secured indebtedness to the extent of the
value of the assets securing such indebtedness. In addition, the exchange notes
will be effectively subordinated to the obligations of any of our subsidiaries
that are not guarantors of the exchange notes. As of October 2, 1999,
subsidiaries that will not be guarantors of the exchange notes had $205 million
of indebtedness outstanding, including $117 million of indebtedness under our
primary credit facilities. See "Selected Consolidated Financial Data,"
"Description of Other Material Indebtedness -- Primary Credit Facilities," and
"Description of the Exchange Securities."
ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE SECURITIES -- YOU CANNOT BE SURE
THAT AN ACTIVE TRADING
MARKET WILL DEVELOP
FOR THE EXCHANGE
SECURITIES.
There is no established trading market for the exchange securities. We have
no plans to list the exchange securities on a securities exchange. We have been
advised by each of the initial purchasers in the private offering of the
original securities that it presently intends to make a market in the exchange
securities; however, none of them is obligated to do so. Any market-making
activity, if initiated, may be discontinued at any time, for any reason, without
notice. If any initial purchaser ceases to act as a market maker for the
exchange securities for any reason, we cannot assure you that another firm or
person will make a market in the exchange securities. The liquidity of any
market for the exchange securities will depend upon the number of holders of the
exchange securities, our results of operations and financial condition, the
market for similar securities, the interest of securities dealers in making a
market in the exchange securities and other factors. An active or liquid trading
market may not develop for the exchange securities.
FRAUDULENT CONVEYANCE -- A COURT MAY VOID THE GUARANTEES OF THE EXCHANGE NOTES
OR SUBORDINATE THE GUARANTEES TO OTHER OBLIGATIONS OF
THE SUBSIDIARY GUARANTORS.
Although standards may vary depending on the applicable law, generally
under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, if a court were to find that, among other things, at the time any
guarantor of the notes incurred the debt evidenced by its guarantee of the
notes, such guarantor:
either:
- was insolvent or rendered insolvent by reason of such incurrence;
- was engaged or about to engage in a business or transaction for which
that guarantor's remaining assets constituted unreasonably small
capital;
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- was a defendant in an action for money damages, or had a judgment for
money damages docketed against it, if in either case, after a final
judgment, the judgment were unsatisfied; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature;
and
- that guarantor received less than reasonably equivalent value or fair
consideration for the incurrence of such debt; or
- incurred such debt or made related distributions or payments with the
intent of hindering, delaying or defrauding creditors,
there is a risk that the guarantee of that guarantor could be voided by such
court, or claims by holders of the notes under that guarantee could be
subordinated to other debts of that guarantor. In addition, any payment by that
guarantor pursuant to its guarantee could be required to be returned to that
guarantor, or to a fund for the benefit of the creditors of that guarantor.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding. Generally, however,
a guarantor of the notes would be considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the saleable value of all of its assets at a fair valuation; or
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
NATURE OF AUTOMOTIVE INDUSTRY -- A DECLINE IN AUTOMOTIVE SALES WOULD REDUCE OUR
SALES AND COULD HARM OUR PROFITABILITY AND MAKE
IT MORE DIFFICULT FOR US TO MAKE PAYMENTS UNDER
THE EXCHANGE NOTES.
Our operations are directly related to automotive vehicle production.
Automotive sales and production are cyclical and can be affected by the strength
of a country's general economy. In addition, automotive sales and production 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 our business and profitability and, accordingly make it more
difficult for us to make payments under the exchange notes.
RELIANCE ON MAJOR CUSTOMERS AND SELECTED CAR MODELS -- THE LOSS IN BUSINESS FROM
A MAJOR CUSTOMER OR THE
DISCONTINUATION OF A
PARTICULAR CAR MODEL
COULD REDUCE OUR SALES
AND HARM OUR
PROFITABILITY, THEREBY
MAKING IT MORE DIFFICULT
FOR US TO MAKE PAYMENTS
UNDER THE EXCHANGE NOTES.
Ford and General Motors, the two largest automotive manufacturers in the
world, together accounted for approximately 50% of our pro forma net sales in
1998. A loss of significant business from Ford or General Motors could be
harmful to our business and our profitability, thereby making it more difficult
for us to make payments under the exchange notes. Although we have purchase
orders from many of our customers, these purchase orders generally provide for
the supply of a customer's annual requirements for a particular model or
assembly plant, renewable on a year-to-year basis, rather than for the purchase
of a specific quantity of products. The loss of business with respect to a
significant automobile model could have a material adverse effect on our
business and profitability.
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There is substantial and continuing pressure from automotive manufacturers
to reduce costs, including costs associated with outside suppliers such as our
company. We cannot assure you that we will be able to improve or maintain our
profitability in light of these substantial and continuing pressures.
INTEGRATION OF ACQUIRED COMPANIES -- WE MAY NOT BE SUCCESSFUL IN INTEGRATING
COMPANIES THAT WE ACQUIRE INTO OUR
OPERATIONS, WHICH COULD HARM OUR
PROFITABILITY AND FINANCIAL CONDITION.
Part of our strategy is to grow through selected acquisitions of
complementary businesses, such as the business acquired in the UT Automotive
acquisition. We have been able to increase our net sales and profitability, in
large part as a result of sixteen acquisitions completed during the last five
years. Acquisitions involve risks. Potential problems include:
- difficulties in integrating acquired businesses into our operations;
- unanticipated problems, delays, liabilities or expenses, including
potential environmental liabilities;
- anticipated benefits may not be realized; and
- a negative impact of acquired businesses on our operating results,
liquidity and financial condition.
If we are unable to successfully integrate acquired businesses in the future, we
may be less profitable which would make it more difficult for us to make
payments under the exchange notes.
INTERNATIONAL OPERATIONS -- OUR SUBSTANTIAL INTERNATIONAL OPERATIONS MAKE US
VULNERABLE TO RISKS ASSOCIATED WITH DOING BUSINESS
IN FOREIGN COUNTRIES.
As a result of recent acquisitions and our business strategy, which
includes plans for continued global expansion of operations, a significant
portion of our revenues and expenses are denominated in currencies other than
U.S. dollars. In addition, we have manufacturing and distribution facilities in
many foreign countries. International operations are subject to certain risks
inherent in doing business abroad, including:
- exposure to local economic conditions;
- expropriation and nationalization;
- currency exchange rate fluctuations and currency controls;
- withholding and other taxes on remittances and other payments by
subsidiaries;
- investment restrictions or requirements; and
- export and import restrictions.
The likelihood of such occurrences and their potential effect on us vary from
country to country and are unpredictable but may have a material adverse effect
on our business and our profitability, which would make it more difficult for us
to make payments under the exchange notes.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may inspect and
copy such material at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Securities and Exchange
Commission's regional offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. You may also obtain copies of such material from the Securities
and Exchange Commission at prescribed rates by writing to the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, reports, proxy statements and other
information concerning Lear can be inspected at the New York Stock Exchange, 20
Broad Street, New York, New York 10005, where Lear's common stock is listed.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
more information on the public reference rooms. You can also find our Securities
and Exchange Commission filings at the Securities and Exchange Commission's
website at http://www.sec.gov.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to incorporate by
reference the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede the information in this
prospectus. Accordingly, we incorporate by reference the following documents
filed by us:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
2. Current Report on Form 8-K/A dated September 1, 1998, and filed with
the Securities and Exchange Commission on November 17, 1998;
3. Current Report on Form 8-K dated March 16, 1999, and filed with the
Securities and Exchange Commission on March 19, 1999;
4. Current Report on Form 8-K dated May 4, 1999, and filed with the
Securities and Exchange Commission on May 6, 1999;
5. Current Report on Form 8-K dated May 7, 1999, and filed with the
Securities and Exchange Commission on May 11, 1999;
6. Quarterly Report on Form 10-Q for the fiscal quarter ended April 3,
1999;
7. Current Report on Form 8-K dated June 25, 1999, and filed with the
Securities and Exchange Commission on June 30, 1999;
8. Quarterly Report on Form 10-Q for the fiscal quarter ended July 3,
1999;
9. Current Report on Form 8-K/A dated September 1, 1998, and filed with
the Securities and Exchange Commission on October 19, 1999;
10. Quarterly Report on Form 10-Q for the fiscal quarter ended October 2,
1999; and
11. Quarterly Report on Form 10-Q/A for the fiscal quarter ended October 2,
1999, and filed with the Securities and Exchange Commission on December
15, 1999.
In addition, all reports and other documents we subsequently file pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act on or after
the date of this prospectus shall be deemed to be incorporated by reference in
this prospectus and to be part of this prospectus from the date of the filing of
such reports and documents. Any statement contained in this prospectus or in a
document incorporated or deemed to be incorporated in this prospectus by
reference shall be deemed to be modified or superseded
12
<PAGE> 15
for the 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 in this prospectus 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.
You may obtain, without charge, a copy of any of the documents incorporated
by reference in this prospectus, other than exhibits to those documents that are
not specifically incorporated by reference into those documents, by writing or
telephoning Lear Corporation, 21557 Telegraph Road, P.O. Box 5008, Southfield,
Michigan 48086-5008, Attention: Investor Relations (248) 447-1684.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated in this prospectus by
reference contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. We typically use words such as
"anticipate", "believe", "plan", "expect", "intend", "will", "may" and similar
expressions to identify forward-looking statements. You are cautioned that
actual results could differ materially from those anticipated in forward-looking
statements. Any forward-looking statements, including statements regarding the
intent, belief or current expectations of Lear or its management, are not
guarantees of future performance and involve risks, uncertainties and
assumptions about us and the industry in which we operate, including, among
other things:
- general economic conditions in the markets in which we operate;
- fluctuations in worldwide or regional automobile and light truck
production;
- labor disputes involving us or our significant customers;
- changes in practices and/or policies of our significant customers toward
outsourcing automotive components, systems and modules;
- fluctuations in currency exchange rates and other risks associated with
doing business in foreign countries;
- risks relating to the impact of the year 2000;
- other risks detailed from time to time in our Securities and Exchange
Commission filings; and
- those items identified in "Risk Factors."
All forward-looking statements in this prospectus are based on information
available to us on the date of this prospectus. We do not intend to update or
revise any forward-looking statements that we may make in this prospectus or
other documents, reports, filings or press releases, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
The exchange offer is intended to satisfy Lear's obligations under the
registration rights agreement that Lear entered into in connection with the
private offering of the original securities. Lear will not receive any cash
proceeds from the issuance of the exchange securities. The original securities
that are surrendered in exchange for the exchange securities will be retired and
canceled and cannot be reissued. As a result, the issuance of the exchange
securities will not result in any increase or decrease in Lear's indebtedness.
Lear used the net proceeds from the private offering of the original
securities to repay a $1.4 billion interim term loan under its primary credit
facilities, which was used to fund a portion of the UT Automotive acquisition
purchase price. At the time of such repayment, the interim term loan bore
interest at a rate of approximately 7.75% per annum.
13
<PAGE> 16
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated statements of operations of
Lear for the nine months ended October 2, 1999 and the year ended December 31,
1998 were prepared to illustrate the effects of the completion of the pro forma
transactions, as if such pro forma transactions had occurred on January 1, 1998.
The pro forma transactions are:
- the acquisition of Delphi's automotive seating business;
- the UT Automotive acquisition;
- the sale of EMS and the application of the proceeds therefrom;
- the amendment and restatement of our prior senior credit facility in
connection with the acquisition of UT Automotive;
- borrowings under our new credit facilities in connection with the
acquisition of UT Automotive; and
- the offering of the original securities and the application of the net
proceeds therefrom.
The pro forma adjustments are based upon available information and upon
certain assumptions that we believe are reasonable. We believe there are
adjustments that could affect pro forma net income and EBITDA for the year ended
December 31, 1998 related to the acquisition of Delphi's automotive seating
business which have not been reflected in the pro forma financial information,
as such adjustments represent adjustments to the historical operating results of
Delphi. These adjustments primarily relate to costs incurred as a result of
actions taken by the former owner prior to the date of acquisition and other
cost allocations which we believe will not have a continuing impact on our
results of operations. The adjustments were determined using allocation methods
consistent with those used in deriving Delphi's audited financial statements and
include:
- operating losses of approximately $27.3 million related to plants closed
by the former owner prior to the date of acquisition where Lear did not
acquire or assume any of the related obligations;
- a charge of approximately $15.3 million related to employee benefit
obligations which were not assumed by Lear; and
- charges of approximately $56.1 million related to a general corporate
allocation which had previously been allocated by the former owner. Based
upon our experience of operating Delphi Seating since September 1, 1998,
we believe that a reasonable estimate of Delphi Seating's general
corporate costs on a stand-alone basis would have been approximately
$15.4 million.
The Unaudited Pro Forma Financial Data and accompanying notes should be
read in conjunction with the historical financial statements of Lear, UT
Automotive and Delphi Seating, including the notes thereto, and the other
financial information pertaining to us included elsewhere or incorporated by
reference in this prospectus.
14
<PAGE> 17
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 2, 1999
<TABLE>
<CAPTION>
OPERATING AND ELIMINATION OPERATING AND
LEAR UT AUTOMOTIVE FINANCING OF EMS FINANCING
HISTORICAL HISTORICAL(1) ADJUSTMENTS HISTORICAL(10) ADJUSTMENTS PRO FORMA
---------- ------------- ------------- -------------- ------------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $8,967.5 $1,091.1 $ -- $(114.9) $ -- $9,943.7
Cost of sales........................... 8,104.7 891.6 -- (90.2) -- 8,906.1
-------- -------- ------ ------- ----- --------
Gross profit............................ 862.8 199.5 -- (24.7) -- 1,037.6
Selling, general and administrative
expenses.............................. 344.7 129.9 -- (12.2) -- 462.4
Amortization............................ 55.2 4.4 7.6(3) (1.1) -- 66.1
-------- -------- ------ ------- ----- --------
Operating income........................ 462.9 65.2 (7.6) (11.4) -- 509.1
Interest expense........................ 161.6 9.4 52.8(4) -- (9.4)(11) 214.4
Other (income)/expense, net............. 28.6 (2.6) -- -- -- 26.0
-------- -------- ------ ------- ----- --------
Income before income taxes.............. 272.7 58.4 (60.4) (11.4) 9.4 268.7
Income taxes............................ 108.3 22.0 (18.5)(5) (5.3) 3.3(12) 109.8
-------- -------- ------ ------- ----- --------
Net income.............................. $ 164.4 $ 36.4 $(41.9) $ (6.1) $ 6.1 $ 158.9
======== ======== ====== ======= ===== ========
Basic net income per share.............. $ 2.46 $ 2.38
Diluted net income per share............ $ 2.42 $ 2.34
Weighted average shares (in millions)... 66.9 66.9
Diluted shares outstanding (in
millions)............................. 67.8 67.8
OTHER DATA:
EBITDA (12)............................. $ 707.3 $ 111.0 $ -- $ (17.7) $ -- $ 800.6
Ratio of EBITDA to interest expense,
net................................... 3.7x
Ratio of earnings to fixed
charges(13)........................... 2.2x
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPERATING AND DELPHI
LEAR UT AUTOMOTIVE FINANCING SEATING
HISTORICAL HISTORICAL(1) ADJUSTMENTS HISTORICAL(2)
---------- ------------- ------------- -------------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C>
Net sales............ $9,059.4 $2,900.3 $ -- $ 777.3
Cost of sales........ 8,198.0 2,365.4 -- 818.3
-------- -------- ------- -------
Gross profit......... 861.4 534.9 -- (41.0)
Selling, general and
administrative
expenses........... 337.0 362.7 -- 97.6
Restructuring and
other charges...... 133.0 -- -- --
Amortization......... 49.2 13.0 23.1(3) --
-------- -------- ------- -------
Operating income..... 342.2 159.2 (23.1) (138.6)
Interest expense..... 110.5 22.2 161.0(4) --
Other (income)/
expense, net....... 22.3 (.6) -- (6.1)
-------- -------- ------- -------
Income before income
taxes.............. 209.4 137.6 (184.1) (132.5)
Income taxes......... 93.9 57.5 (56.3)(5) 1.4
-------- -------- ------- -------
Net income........... $ 115.5 $ 80.1 $(127.8) $(133.9)
======== ======== ======= =======
Basic net income per
share.............. $ 1.73
Diluted net income
per share.......... $ 1.70
Weighted average
shares outstanding
(in millions)...... 66.9
Diluted shares
outstanding (in
millions).......... 68.0
OTHER DATA:
EBITDA (13).......... $ 561.9 $ 283.5 $ -- $(138.6)
Ratio of EBITDA to
interest expense,
net................
Ratio of earnings to
fixed
charges(14)........
<CAPTION>
OPERATING AND ELIMINATION OPERATING AND
FINANCING OF EMS FINANCING
ADJUSTMENTS HISTORICAL(10) ADJUSTMENTS PRO FORMA
------------- -------------- ------------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C>
Net sales............ $(108.3) $(351.1) $ -- $12,277.6
Cost of sales........ (130.6)(6) (282.8) -- 10,968.3
------- ------- ------ ---------
Gross profit......... 22.3 (68.3) -- 1,309.3
Selling, general and
administrative
expenses........... -- (35.7) -- 761.6
Restructuring and
other charges...... -- -- -- 133.0
Amortization......... 3.2(7) (3.4) -- 85.1
------- ------- ------ ---------
Operating income..... 19.1 (29.2) -- 329.6
Interest expense..... 9.0(8) -- (19.4)(11) 283.3
Other (income)/
expense, net....... -- -- -- 15.6
------- ------- ------ ---------
Income before income
taxes.............. 10.1 (29.2) 19.4 30.7
Income taxes......... (49.7)(9) (13.0) 6.8(12) 40.6
------- ------- ------ ---------
Net income........... $ 59.8 $ (16.2) $ 12.6 $ (9.9)
======= ======= ====== =========
Basic net income per
share.............. $ (.15)
Diluted net income
per share.......... $ (.15)
Weighted average
shares outstanding
(in millions)...... 66.9
Diluted shares
outstanding (in
millions).......... 68.0
OTHER DATA:
EBITDA (13).......... $ 31.2 $ (47.5) $ -- $ 690.5
Ratio of EBITDA to
interest expense,
net................ 2.4x
Ratio of earnings to
fixed
charges(14)........ 1.2x
</TABLE>
- -------------------------
(1) The UT Automotive historical information represents amounts derived from
the audited results of operations for the year ended December 31, 1998 and
the unaudited results of operations for the period from January 1, 1999
through May 4, 1999, the date on which UT Automotive was acquired by Lear.
(2) The Delphi Seating historical information represents amounts derived from
the unaudited results of operations for the period from January 1, 1998
through September 1, 1998, the date on which Delphi Seating was acquired by
Lear.
15
<PAGE> 18
(3) The adjustment to goodwill amortization represents the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 OCTOBER 2, 1999
----------------- ---------------
(IN MILLIONS)
<S> <C> <C>
Amortization of goodwill from the acquisition of UT
Automotive (over 40 years).................................. $ 32.7 $10.9
Elimination of the historical goodwill amortization of UT
Automotive, excluding the historical goodwill amortization
of EMS.................................................... (9.6) (3.3)
------ -----
$ 23.1 $ 7.6
====== =====
</TABLE>
(4) The adjustment to interest expense represents the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 OCTOBER 2, 1999
----------------- ---------------
(IN MILLIONS)
<S> <C> <C>
Interest on the original securities at an average rate of
8.05%....................................................... $112.6 $37.5
Interest on borrowings under our primary credit facilities
to finance the portion of the UT Automotive acquisition
purchase price and expenses not refinanced through the
offering of the original securities. The effective
interest rate used to calculate interest expense is 6.25%,
which under the terms of the primary credit facilities is
computed as LIBOR plus 1.25%.............................. 58.6 19.5
Other changes in interest expense, commitment fees and
amortization of deferred finance fees due to the offering
of the original securities, the new credit facilities and
the amendment and restatement of our prior senior credit
facility.................................................. 10.1 4.3
Elimination of interest expense on UT Automotive
intercompany debt retired upon acquisition................ (20.3) (8.5)
------ -----
$161.0 $52.8
====== =====
</TABLE>
The impact of a 1/8% change in interest rates would be a change in interest
expense of approximately $1.2 million and $.6 million for the year ended
December 31, 1998 and the nine months ended October 2, 1999, respectively.
(5) Reflects the income tax effects of the operating and financing adjustments.
(6) The adjustment to cost of sales reflects the elimination of intercompany
sales of $108.3 million between Lear and Delphi Seating and the
capitalization of fixed asset purchases which were expensed by Delphi
Seating of $31.2 million, offset by the recognition of depreciation expense
on fixed assets which Delphi Seating had previously written off of $8.9
million.
(7) The adjustment to goodwill amortization represents additional goodwill
amortization resulting from the acquisition of Delphi Seating (over 40
years).
(8) The adjustment to interest expense represents estimated interest on
borrowings under our primary credit facilities to finance the Delphi
Seating acquisition. The effective interest rate used to calculate interest
expense is 6.25%, which under the terms of the primary credit facilities is
computed as LIBOR plus 1.25%.
(9) The adjustment reflects the income tax effects of the operating and
financing adjustments and an adjustment to reflect the utilization of
domestic Delphi losses against the Company's pre-tax income.
(10) The EMS historical information represents amounts derived from the
unaudited results of operations for the period from January 1, 1999 through
June 25, 1999, the date on which EMS was sold by Lear, and the fiscal year
ended December 31, 1998. The EMS business was sold for an amount that was
approximately equal to the fair value which had been allocated to the EMS
business at the date of acquisition. As such, no gain or loss on the sale
was recognized.
(11) The adjustment to interest expense represents the estimated reduction in
interest expense incurred as a result of the application of the proceeds
from the sale of EMS to reduce the borrowings under our primary credit
facilities. The effective interest rate used to calculate interest expense
is 6.25%, which under the terms of the primary credit facilities is
computed as LIBOR plus 1.25%.
(12) The adjustment reflects the income tax effects of the reduction in interest
expense incurred as a result of the sale of EMS.
(13) "EBITDA" is operating income plus depreciation and amortization. We believe
that the operating performance of companies in our industry are measured,
in part, by their ability to generate EBITDA. In addition, we use EBITDA as
an indicator of our operating performance and as a measure of our cash
generating capabilities. EBITDA does not represent and should not be
considered as an alternative to net income, operating income, net cash
provided by operating activities or any other measure for determining
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles. Further, EBITDA, as we calculate
it, may not be comparable to calculations of similarly-titled measures by
other companies. Excluding the $133.0 million restructuring and other
charges recorded in 1998, EBITDA would have been $694.9 million for Lear on
a historical basis and $823.5 on a pro forma basis.
(14) "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 before income taxes, fixed charges, undistributed earnings and
minority interests.
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are certain selected historical financial data. This
information should be read in conjunction with our financial statements and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included or incorporated by reference in this
prospectus. The financial data for, and as of the end of, each of the five
fiscal years ended December 31, 1998, 1997, 1996, 1995 and 1994 were derived
from our audited financial statements. Our audited consolidated financial
statements for each of the five fiscal years ended December 31, 1998, 1997,
1996, 1995 and 1994 have been audited by Arthur Andersen LLP. The financial data
for, and as of the end of, the nine months ended October 2, 1999 and September
26, 1998 are unaudited; however, in our opinion, they reflect all adjustments,
consisting only of normal recurring items, necessary for a fair presentation of
the financial position and results of operations of such periods. The results
for the nine months ended October 2, 1999 are not necessarily indicative of the
results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
AS OF OR FOR THE NINE
MONTHS ENDED
---------------------- AS OF OR FOR THE YEAR ENDED DECEMBER 31,
OCT. 2, SEPT. 26, --------------------------------------------------------
1999 1998 1998(1) 1997 1996 1995 1994
------- --------- ------- ---- ---- ---- ----
(IN MILLIONS(2))
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales......................... $ 8,967.5 $6,153.6 $9,059.4 $7,342.9 $6,249.1 $4,714.4 $3,147.5
Gross profit...................... 862.8 593.8 861.4 809.4 619.7 403.1 263.6
Selling, general and
administrative expenses......... 344.7 238.6 337.0 286.9 210.3 139.0 82.6
Restructuring and other charges... -- -- 133.0 -- -- -- --
Amortization of goodwill.......... 55.2 35.8 49.2 41.4 33.6 19.3 11.4
--------- -------- -------- -------- -------- -------- --------
Operating income.................. 462.9 319.4 342.2 481.1 375.8 244.8 169.6
Interest expense, net............. 161.6 79.2 110.5 101.0 102.8 75.5 46.7
Other expense, net(3)............. 28.6 18.0 22.3 28.8 19.6 12.0 8.1
--------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary items............. 272.7 222.2 209.4 351.3 253.4 157.3 114.8
Income taxes...................... 108.3 87.6 93.9 143.1 101.5 63.1 55.0
--------- -------- -------- -------- -------- -------- --------
Income before extraordinary
items........................... 164.4 134.6 115.5 208.2 151.9 94.2 59.8
Extraordinary items(4)............ -- -- -- 1.0 -- 2.6 --
--------- -------- -------- -------- -------- -------- --------
Net income........................ $ 164.4 $ 134.6 $ 115.5 $ 207.2 $ 151.9 $ 91.6 $ 59.8
BALANCE SHEET DATA:
Current assets.................... $ 3,435.6 $2,065.5 $2,198.0 $1,614.9 $1,347.4 $1,207.2 $ 818.3
Total assets...................... 9,025.7 5,479.3 5,677.3 4,459.1 3,816.8 3,061.3 1,715.1
Current liabilities............... 3,361.4 2,297.6 2,497.5 1,854.0 1,499.3 1,276.0 981.2
Long-term debt.................... 3,756.6 1,466.3 1,463.4 1,063.1 1,054.8 1,038.0 418.7
Stockholders' equity.............. 1,413.3 1,309.6 1,300.0 1,207.0 1,018.7 580.0 213.6
OTHER DATA:
EBITDA(5)......................... $ 707.3 $ 483.1 $ 561.9 $ 665.5 $ 518.1 $ 336.8 $ 225.7
Ratio of EBITDA to interest
expense, net.................... 4.4x 6.1x 5.1x 6.6x 5.0x 4.5x 4.8x
Ratio of earnings to fixed
charges(6)...................... 2.5x 3.4x 2.7x 4.1x 3.3x 2.9x 3.2x
Basic net income per share........ $ 2.46 $ 2.01 $ 1.73 $ 3.13 $ 2.51 $ 1.87 $ 1.40
Diluted net income per share...... $ 2.42 $ 1.97 $ 1.70 $ 3.04 $ 2.38 $ 1.74 $ 1.26
Cash flows from operating
activities...................... $ 89.8 $ 194.3 $ 285.4 $ 449.4 $ 462.6 $ 132.8 $ 155.7
Cash flows used in investing
activities...................... $(2,397.8) $ (542.6) $ (677.8) $ (519.7) $ (681.7) $ (985.8) $ (195.6)
Cash flows from financing
activities...................... $ 2,338.9 $ 391.0 $ 383.8 $ 39.0 $ 201.6 $ 841.9 $ 17.6
Number of facilities(7)........... 335 209 206 179 148 107 79
North American content per
vehicle(8)...................... $ 465 $ 437 $ 369 $ 320 $ 292 $ 227 $ 169
North American vehicle
production(9)................... 12.6 11.3 15.5 15.6 15.0 14.9 15.2
Western Europe content per
vehicle(10)..................... $ 213 $ 154 $ 176 $ 123 $ 109 $ 92 $ 44
Western Europe vehicle
production(11).................. 12.2 11.8 15.8 15.1 14.4 13.9 13.2
South American content per
vehicle(12)..................... $ 107 $ 139 $ 134 $ 129 $ 74 $ 1 N/A
South American vehicle
production(13).................. 1.2 1.6 2.0 2.4 2.1 1.8 1.4
</TABLE>
- ---------------
(1) Results include the effect of the $133 million restructuring and other
charges ($92.5 million after tax).
17
<PAGE> 20
(2) Except for ratios, per share data, number of facilities and content per
vehicle.
(3) Consists of foreign currency exchange gain or loss, minority interests in
consolidated subsidiaries, equity in net income of affiliates, state and
local taxes and other expense.
(4) The extraordinary items resulted from the prepayment of debt.
(5) "EBITDA" is operating income plus depreciation and amortization. We believe
that the operating performance of companies in our industry are measured,
in part, by their ability to generate EBITDA. In addition, we use EBITDA as
an indicator of our operating performance and as a measure of our cash
generating capabilities. EBITDA does not represent and should not be
considered as an alternative to net income, operating income, net cash
provided by operating activities or any other measure for determining
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles. Further, EBITDA, as we calculate
it, may not be comparable to calculations of similarly-titled measures by
other companies. Excluding the $133 million restructuring and other charges
recorded in 1998, EBITDA would have been $694.9 million.
(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 before income taxes, fixed charges, undistributed earnings and
minority interests.
(7) Includes facilities operated by Lear's less than majority-owned affiliates
and facilities under construction.
(8) "North American content per vehicle" is Lear's net sales in North America
divided by estimated total North American vehicle production.
(9) "North American vehicle production" includes car and light truck production
in the United States, Canada and Mexico estimated from industry sources.
(10) "Western Europe content per vehicle" is Lear's net sales in Western Europe
divided by estimated total Western Europe vehicle production.
(11) "Western Europe vehicle production" includes car and light truck production
in Austria, Belgium, France, Germany, Italy, The Netherlands, Portugal,
Spain, Sweden, and the United Kingdom estimated from industry sources.
(12) "South American content per vehicle" is Lear's net sales in South America
divided by estimated total South American vehicle production.
(13) "South American vehicle production" includes car and light truck production
in South America estimated from industry sources.
18
<PAGE> 21
BUSINESS
GENERAL
We are one of the ten largest independent automotive suppliers in the
world. We are also the leading supplier of automotive interior systems in the
estimated $50 billion global automotive interior market and the third largest
supplier in the estimated $20 billion global automotive electrical distribution
systems market. We have grown substantially over the last five years as a result
of both internal growth and acquisitions. Our sales have grown from $3.1 billion
in 1994 to $12.3 billion, on a pro forma basis, in 1998, a compound annual
growth rate of 41.1%. Excluding the $133 million restructuring and other charges
recorded in 1998, operating income and EBITDA have grown from $170 million and
$226 million in 1994 to $463 million and $824 million, on a pro forma basis, in
1998. Our present customers include every major automotive manufacturer in the
world. These customers include Ford, General Motors, DaimlerChrysler, Fiat,
Volkswagen, BMW, Saab, Peugeot, Renault and Toyota.
We have established in-house capabilities in all five principal segments of
the automotive interior market: seat systems; flooring and acoustic systems;
door panels; headliners; and instrument panels. We are the largest supplier in
the estimated $24 billion global seat systems market. In North America, we are
one of the two largest suppliers in each of the other principal automotive
interior markets, except the instrument panels market in which we are the fourth
largest supplier. With the acquisition of UT Automotive, we also are one of the
leading global suppliers of automotive electrical distribution systems. As a
result of these capabilities, we are able to offer our customers fully
integrated modules, as well as design, engineering and project management
support for the entire automotive interior, including electronics and electrical
distribution systems. We believe that our ability to offer automotive interiors
with integrated electrical distribution systems provides us with a competitive
advantage as automotive manufacturers continue to reduce their supplier bases
and cost structures and to demand improved quality and greater product
integration and enhanced technology.
We are focused on delivering high quality automotive interior systems and
components to our customers on a global basis. Due to the opportunity for
significant cost savings and improved product quality and consistency,
automotive manufacturers have increasingly required their suppliers to
manufacture automotive interior systems and components in multiple geographic
markets. In recent years, we have followed our customers and expanded our
operations significantly in Western Europe, as well as in Eastern Europe, South
America, South Africa and the Asia/Pacific Rim region. As a result of our
efforts to expand our worldwide operations, our sales outside the United States
have grown from $1.3 billion in 1994 to $5.6 billion, on a pro forma basis, in
1998.
STRATEGY
Our principal objective is to expand our position as the leading supplier
of automotive interior systems in the world with the goal of capturing at least
one-third of the principal markets in which we compete. We intend to build on
our full service capabilities, strong customer relationships and worldwide
presence to increase our share of the global automotive interior market. To this
end, our strategy is to capitalize on three significant trends in the automotive
industry:
- the increasing emphasis on the automotive interior by automotive
manufacturers as they seek to differentiate their vehicles in the
marketplace;
- the increasing demand for fully integrated modular assemblies, such as
cockpits, overhead and door panel modules; and
- the consolidation and globalization of the supply base of automotive
manufacturers.
These trends are rooted in the competitive pressures on automotive
manufacturers to improve quality and reduce time to market, capital needs, labor
costs, overhead and inventory. We believe that these trends will result in
automotive manufacturers outsourcing entire modules or "chunks" of the interior
and, ultimately, complete automotive interiors. We believe that the criteria for
selection of automotive interior
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suppliers will include not only cost, quality and responsiveness, but will
increasingly include worldwide presence and certain full-service capabilities,
such as the capability to supply fully integrated systems and modules.
Elements of our strategy include:
- Enhance Strong Relationships with our Customers. We have developed strong
relationships with our customers which allow us to identify business
opportunities and anticipate customer needs in the early stages of vehicle
design. We believe that working closely with our customers in the early stages
of designing and engineering vehicle interior systems gives us a competitive
advantage in securing new business. We maintain "Customer Focused Divisions" for
most of our major customers. This organizational structure consists of several
dedicated groups, most of which are focused on serving the needs of an
individual customer and supporting that customer's programs and product
development. Each division can provide all of the interior systems and
components the customer needs, allowing that customer's purchasing agents,
engineers and designers to have a single point of contact. We work to maintain
an excellent reputation with our customers for timely delivery and customer
service and for providing world class quality at competitive prices. As a result
of our service and performance record, many of our facilities have won awards
from automotive manufacturers with which we do business. For example, General
Motors named us its "Supplier of the Year" in 1997 and 1998 for seat systems.
- Capitalize on Module and Integration Opportunities. We believe that the
same competitive pressures that led automotive manufacturers to outsource the
individual interior components to independent suppliers, such as Lear, will
cause our customers to demand delivery of fully integrated modules for new
vehicle models. As automotive manufacturers continue to seek ways to improve
quality and reduce costs, we believe customers will increasingly look to
independent suppliers to:
- supply fully integrated modules of the automotive interior; and
- act as systems integrators, by managing the design, purchase and supply
of the total automotive interior.
Because electrical distribution systems and electrical/electronic products
are an increasingly important part of interior systems, we believe that we will
have a competitive advantage in securing new business and taking advantage of
integration opportunities as a result of our acquisition of UT Automotive. The
potential for integration opportunities can be seen in recent program awards:
- In 1997 and 1998, we were named the interior systems integrator for a
high profile Chrysler minivan program and we were awarded the total
interior program for two North American produced vehicles and for the
Mahindra & Mahindra Scorpio SUV program. In addition to designing and
producing interior components for these new programs, we will be
responsible for coordinating the activities of a number of the vehicle's
other interior suppliers.
- In 1998, UT Automotive was awarded the opportunity to supply the fully
integrated cockpit assembly in North America for a General Motor's small
car program. We will be responsible for the overall design, integration,
assembly and sequential delivery of the cockpit assemblies. In addition,
we will be responsible for supplying the basic instrument panel, the
structural cross vehicle beam, numerous molded parts and a variety of
electrical/electronic components.
- Continue Global Expansion. Global expansion will continue to be an
important element of our growth strategy. In 1998, approximately two-thirds of
automotive interior production was made outside of North America. In recent
years, automotive manufacturers in Western Europe have outsourced to a greater
number of automotive suppliers than automotive manufacturers in North America.
As a result, we believe that we have excellent opportunities for continued
growth through supplier consolidation in Western Europe. Markets such as South
America and the Asia/Pacific Rim region also present long-term growth
opportunities as demand for automotive vehicles increases and automotive
manufacturers expand production in these markets. As a result of our strong
customer relationships and worldwide presence, we
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believe that we are well positioned to continue to grow with our customers as
they expand their operations worldwide.
- Invest in Product Technology and Design Capability. We intend to continue
to make significant investments in technology and design capability to support
our products. We maintain 6 advanced technology centers and 22 customer focused
product engineering centers where we design and develop new products and conduct
extensive product testing. We also have state-of-the-art acoustics testing,
instrumentation and data analysis capabilities. With the acquisition of UT
Automotive, we acquired numerous engineering and design facilities in North
America, Europe and Asia.
We believe that in order to effectively develop total interior systems, it
is necessary to integrate the research, design, development, styling and
validation of all interior subsystems concurrently. We recently expanded our
advance technology center at our world headquarters in Southfield, Michigan. As
a result, we are the only automotive supplier with engineering, research,
development and validation capabilities for all five interior systems at one
location. The five systems consist of seat systems, flooring and acoustic
systems, door panels, headliners, and instrument panels. Our investments in
research and development are consumer-driven and customer-focused. We conduct
extensive analysis and testing of consumer responses to automotive interior
styling and innovations. Because automotive manufacturers increasingly view the
vehicle interior as a major selling point to their customers, the focus of our
research and development efforts is to identify new interior features that make
vehicles safer, more comfortable and attractive to consumers.
- Increase Use of "Just-in-Time" Facility Network. We have established
facilities that allow our customers to receive interior products on a
"just-in-time" basis. The "just-in-time" manufacturing process minimizes
inventories and fixed costs for both us and our customers and enables us to
deliver products on as little as 90 minutes notice. Most of our "just-in-time"
manufacturing facilities are dedicated to individual customers. In many cases,
by carefully managing floor space and overall efficiency, we can move the final
assembly and sequencing of other interior systems and components from centrally
located facilities to our existing "just-in-time" facilities. We believe that
combining our "just-in-time" manufacturing techniques with our systems
integration capabilities provides us with an important competitive advantage in
delivering total interior systems to automotive manufacturers. In addition, we
believe that our "just-in-time" and asset management techniques can be
instituted throughout the interior facilities acquired in the UT Automotive
acquisition, resulting in operational efficiencies and reduced working capital
requirements.
- Growth Through Strategic Acquisitions. Strategic acquisitions have been
an important element in our worldwide growth and in our efforts to capitalize on
the globalization, integration and supplier consolidation trends. We intend to
continue to review attractive acquisition opportunities that preserve our
financing flexibility. We will focus on acquisitions:
- that strengthen our relationships with automotive manufacturers;
- enhance our existing product, process and technological capabilities;
- lower our systems costs;
- provide us with growth opportunities in new markets; and
- provide attractive financial returns.
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ACQUISITIONS
To supplement our internal growth and implement our business strategy, we
have made several strategic acquisitions. As a result of internal growth and
acquisitions, our sales have grown from $3.1 billion in 1994 to $12.3 billion,
on a pro forma basis, in 1998, a compound annual growth rate of 41%. Our
acquisitions include the following:
UT Automotive Acquisition
On May 4, 1999, we acquired UT Automotive for a purchase price of
approximately $2.3 billion, subject to post-closing adjustments. UT Automotive
is a leading independent supplier of automotive electrical distribution systems
and produces a broad portfolio of automotive interior products, including
instrument panels, headliners and door panels. With the acquisition of UT
Automotive, we became the third largest supplier of automotive electrical
distribution systems in the estimated $20 billion global automotive electrical
distribution systems market. In addition, we significantly increased our
presence in the headliner and instrument panel segments of the global automotive
interiors market as a result of UT Automotive's position in North America as the
second largest headliner supplier and the fourth largest instrument panel
supplier. On June 25, 1999, we sold to Johnson Electric Holdings Limited the
Electric Motor Systems business we acquired in the UT Automotive acquisition for
$310 million, subject to certain post-closing adjustments. EMS is a supplier of
industrial and automotive electric motors and starter motors for small gasoline
engines. The EMS business had net sales, operating income and EBITDA of
approximately $351 million, $29 million and $48 million, respectively, for the
year ended December 31, 1998.
Consumers are demanding more electronics in their vehicles, such as
cellular phones, navigational equipment and keyless entry systems. At the same
time, automotive manufacturers are continuing to seek ways to reduce costs and
improve quality. As a result, we believe that we will be able to utilize UT
Automotive's technical capabilities and products to secure new business and
provide fully integrated interior systems and modules, thereby increasing our
content per vehicle and providing us with a strong platform for future growth.
In addition, we believe that the integration of UT Automotive's business into
our own will provide significant opportunities to improve the combined
business's operating performance. As we leverage our existing research and
development efforts and reduce duplicative overhead costs, we believe that we
will have the opportunity to realize significant operating synergies and cost
savings.
Delphi Seating Acquisition
In September 1998, we acquired the seating business of Delphi Automotive
Systems, formerly a division of General Motors Corporation. Delphi Seating was a
leading supplier of seat systems to General Motors with sixteen facilities
located in ten countries. The Delphi Seating acquisition strengthened our
relationship with General Motors and expanded our product lines, technological
capabilities and market share. The aggregate purchase price for the Delphi
Seating acquisition was approximately $247 million.
Borealis Acquisition
In December 1996, we acquired Borealis Industrier, a leading Western
European supplier of instrument panels, door panels and other automotive
components. The Borealis acquisition provided us with the technology and
facilities to manufacture instrument panels, giving us the ability to produce
complete interior systems. Borealis also produced door panels, climate systems,
exterior trim and various components for the Western European automotive, light
truck and heavy truck industries. In addition, the Borealis acquisition
increased our presence in Western Europe and strengthened our relationships with
Volvo, Saab and Scania.
Masland Acquisition
In July 1996, we acquired Masland Corporation. The Masland acquisition gave
us the manufacturing capabilities to produce flooring and acoustic systems. In
1998, primarily as a result of the Masland
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acquisition, we held a 38% share in the estimated $1.5 billion North American
flooring and acoustic systems market. Also as a result of the Masland
acquisition, we became a major supplier of interior and luggage trim components
and other acoustical products which are designed to minimize noise, vibration
and harshness for passenger cars and light trucks.
Automotive Industries Acquisition
In August 1995, we acquired Automotive Industries, a leading designer and
manufacturer of high quality interior systems and blow molded plastic parts for
automobile and light truck manufacturers. Prior to the Automotive Industries
acquisition, we had participated primarily in the seat systems segment of the
interior market. By providing us with substantial manufacturing capabilities to
produce door panels and headliners, the Automotive Industries acquisition made
us one of the largest independent direct suppliers of automotive interior
systems in the North American light vehicle interior market.
Other Acquisitions
Since January 1, 1994, we have completed eleven acquisitions in addition to
the five described above. Most significantly, in terms of size, geographic
presence and contribution to our product offerings, we acquired:
- the Italian automotive interiors manufacturers Pianfei and Strapazzini in
1998;
- Keiper Car Seating in 1997; and
- the primary automotive seat systems supplier to Fiat in 1994.
PRODUCTS
Our products have evolved as a result of our many years of manufacturing
experience in the automotive seat frame market, where we have been a supplier to
Ford and General Motors since our 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 our emergence as a premier supplier of
entire seat systems and seat components. Through the acquisitions discussed
above, we have expanded our product offerings and can now manufacture and supply
our customers with completely integrated interiors, including flooring and
acoustic systems, door panels, headliners, instrument panels and electrical
distribution systems. We also produce a variety of blow molded products and
other automotive components. We believe that automotive manufacturers will
continue to seek ways to improve vehicle quality while reducing the costs of
vehicle components. As automotive manufacturers pursue these objectives, we
expect that they will increasingly look to suppliers such as Lear, with the
capability to test, design, engineer and deliver products for a complete vehicle
interior. We believe that we will be able to design fully integrated modules of
the automotive interior to:
- reduce the number and complexity of parts used;
- improve quality and warranty performance; and
- reduce automotive manufacturer's installation costs.
We also believe that automotive manufacturers will continue their move to
modular production by sourcing to key suppliers, such as Lear, the development
and manufacture of complete interior modules.
With the acquisition of UT Automotive, we strengthened our position in
certain of our existing product categories, particularly in the headliner and
instrument panel markets. In addition, the UT Automotive acquisition provided us
with extensive capabilities in automotive electrical distribution systems and
electrical/electronic automotive products. We believe that this broadened
product portfolio substantially enhances our ability to supply complete
automotive interiors. Specifically, we believe that we will be able to combine
UT Automotive's electrical distribution system capabilities with our existing
interior capabilities to design, develop and supply fully integrated modular
assemblies, such as fully integrated instrument panels or "cockpits," overhead
systems and door panels.
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Our products fall into the following categories:
- Seat Systems. The seat systems business consists of the manufacture,
assembly and supply of vehicle seating requirements. Seat systems typically
represent approximately 50% of the cost of the total automotive interior. We
produce 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 our product technology and product design strengths, we have
been a leader in incorporating convenience features and safety improvements into
seat designs. In 1998, we adopted a new methodology for developing automotive
interiors, "People-Vehicle-Interface" or PVI Method(TM). PVI Method(TM) is the
innovation development discipline that we use to understand what consumers
really want inside their vehicles, while developing automotive interiors that
meet both federal safety standards and customer requirements. We have also
developed methods to reduce our customer's costs throughout the automotive
interior. For example, in 1997, we showcased the Revolution(TM) Seat Module. The
Revolution(TM) Seat Module utilizes a unique seat frame that can be fitted with
a wide variety of our seat backs and cushions to meet the needs of a range of
different vehicles. The Revolution(TM) Seat Module simplifies and standardizes
seat system assembly, enhances interior room and lowers total vehicle costs.
Additionally, we are producing a ventilated seat for Saab, which draws heat and
moisture away from the seat with fans that are embedded in the seat cushions. We
have also increased production of our new integrated restraint seat system that
increases occupant comfort and convenience. Licensed exclusively to Lear, this
patented seating concept uses a special ultra high-strength steel tower, a
blow-molded seat back frame and a split-frame design to improve occupant comfort
and convenience.
Our position as a market leader in seat systems is largely attributable to
seating programs on new vehicle models launched in the past ten years. We are
currently working with customers in the development of a number of seat systems
products to be introduced by automotive manufacturers in the future.
- Electrical Distribution Systems and Electrical/Electronic Products. The
function of a basic automotive electrical distribution system is to provide the
electrical interconnections necessary to convey or distribute electrical power
and signals. The distribution of such power and signals is essential for
activating, controlling, operating and/or monitoring electric devices and
systems throughout the vehicle. Primarily, electrical distribution systems
consist of wire harness assemblies, terminal and connector products, fuse boxes
and junction boxes. This electrical network extends to virtually every part of a
vehicle, including powered comfort/convenience accessories, lighting and
signaling, heating and cooling systems, powertrain, chassis, safety restraints
systems, audio systems and other devices. With the acquisition of UT Automotive,
we have the capability to design and supply complete electrical distribution
systems on a global basis.
The electrical/electronic products group consists of two related groups of
products: automotive electrical switches and automotive electronic controls. The
switches group includes products for activation and control of lighting,
wiper/washers, turn signals, ignition, powered accessories including windows,
door locks, seats and mirrors, heating, ventilation, and air conditioning and
keypad entry. The switch products include designs for both low- and high-current
using a variety of activation methods, including rotary, slide, push-pull,
momentary, and latching, and increasingly focus on ergonomic and aesthetic
considerations. The electronic controls group includes a variety of body
controllers for electronic control of many comfort and convenience features,
including memory functions and timer units. With the acquisition of UT
Automotive, we also acquired a significant industry presence in remote keyless
entry products employing advanced encryption technology.
Electrical and electronic content per vehicle continues to grow as
installation of powered accessories and new features such as on-board phones and
navigation systems increases. At the same time, many vehicle functions which had
previously been hydraulically or mechanically activated are being replaced by
electrical/electronic actuation. This has resulted in a higher number of
circuits and electromechanical and electronic controls and switches per vehicle.
For example, the 1993 top-of-the-line Ford Explorer had 963
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electrical circuits, while a comparable model in 1997 had more than 1,800. With
the acquisition of UT Automotive, we believe that we will be well positioned to
capitalize on this trend by integrating UT Automotive's broad range of
electrical/electronic products into our line of interior products and systems.
The automotive electrical distribution systems and electrical/electronic
automotive products businesses have been rapidly evolving in recent years as
electronic functionality is added to traditional wiring systems. This
progression has involved the integration of existing products and the
development of new products, competencies and technologies. We believe that the
progressive increase in the content and complexity of electrical and electronic
components requires a broader, overall design perspective. This shift in design
philosophy is described as "moving from the wire itself to the wire ends,"
reflecting a view that design should include both wiring systems and the
electromechanical and electronic devices to which they are connected. We believe
that the migration from electrical distribution systems to electrical and
electronic distribution systems will both facilitate integration of wiring,
electronics, and switching/control products within the overall electrical
architecture of a vehicle and generate significant design benefits for
customers. For example, we expect this integrated approach to help designers
optimize the number of circuits and electronic control modules/microprocessors,
and help program managers validate the performance of all of the individual
components in a vehicle's electronic systems.
The migration from electrical distribution systems to electrical and
electronic distribution systems can be seen in a number of new and next
generation products. For example, our smart junction box combines traditional
junction box function with electronics capabilities. Unlike earlier junction box
designs which provided the mechanical interconnection of electrical wire
harnesses, smart junction boxes can incorporate electronic control functions
traditionally located elsewhere in the vehicle. We are also positioned to
participate in the development of advanced vehicle operating systems. Advanced
vehicle operating systems will combine technologies ranging from computer-based
communication to entertainment and traffic management.
- Flooring and Acoustic Systems. Flooring 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 maintenance characteristics, are used primarily in commercial
and fleet vehicles. We are one of the largest independent suppliers of vinyl
automotive flooring systems in North America and one of the few suppliers of
both carpet and vinyl automotive flooring systems. With the Masland acquisition,
we acquired Maslite(TM), a material that is 40% lighter than vinyl, which has
replaced vinyl accessory mats on selected applications.
The automotive flooring system is multi-purpose. Performance is based on
the correct selection of materials to achieve an attractive, quiet and durable
interior compartment. Automotive carpet requirements are more stringent than the
requirements for carpet used in homes and offices. For example, automotive
carpet must provide higher resistance to fading and improved resistance to wear
despite being lighter in weight than carpet found in homes and offices.
Masland's significant experience has enabled us to meet these specialized needs.
Carpet flooring systems generally consist of tufted carpet with a thermoplastic
backcoating which, when heated, allows the carpet to be fitted precisely to the
interior of the vehicle. Additional insulation materials are added to provide
noise, vibration and harshness resistance. Flooring 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.
Our primary acoustic product, after flooring systems, is the dash
insulator. The dash insulator separates the passenger compartment from the
engine compartment, and is the primary component for preventing engine noise and
heat from entering the passenger compartment. Our ability to produce both the
dash insulator and the flooring system enables us to accelerate the design
process and supply an integrated system. We believe that automotive
manufacturers, recognizing the cost and quality advantages of producing the dash
insulator and the flooring system as an integrated system, will increasingly
seek suppliers to coordinate the design, development and manufacture of the
entire floor and acoustic system.
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- Door Panels. Door panels consist of several component parts that are
attached to a base molded substrate by various methods. Specific components
include vinyl or cloth-covered appliques, armrests, radio speaker grilles, map
pocket compartments, carpet and sound-reducing insulation. In addition, door
panels often incorporate electrical distribution systems and
electrical/electronic products, including switches and wire harnesses for the
control of power seats, windows, mirrors and door locks. Upon assembly, each
component must fit precisely and must match the color of the base substrate. In
1997, we introduced the One-Step(TM) door and One-Step(TM) liftgate which
consolidate all internal mechanisms, including glass, window regulators and
latches, providing customers with a fully assembled higher quality product at a
lower price. The One-Step(TM) door and One-Step(TM) liftgate can be shipped to
automotive manufacturers fully assembled, tested and ready to install. We
believe that both the One-Step(TM) door and One-Step(TM) liftgate, while not yet
in production, offer us significant opportunities to capture a major share of
the estimated $9 billion modular door market.
- Instrument Panels. The instrument panel is a complex system of foil
coverings, foams, plastics and metals designed to house various components and
act as a safety device for the vehicle occupants. Specific components of the
instrument panel include the heating, venting and air conditioning module, air
distribution ducts, air vents, cross car structure, glove compartment
assemblies, electrical/electronic components, wiring harness, radio system and
passenger airbag units. As the primary occupant focal point of the vehicle
interior, the instrument panel is designed to be aesthetically pleasing while
also housing various components.
Over the past several years, the automotive industry has seen a rapid
increase in the complexity of instrument panels. We believe automotive
manufacturers will begin to require that suppliers produce integrated instrument
panels that combine electrical/electronic products with other traditional
instrument panel components. This movement will provide suppliers with the
opportunity to capitalize on the ability of instrument panels to incorporate
more higher margin, value-added components, such as telecommunications and
navigational equipment. In July 1998, UT Automotive was awarded the opportunity
to supply General Motors a fully integrated cockpit assembly in North America
for a small car program beginning in 2002. This was one of the first integrated
cockpit programs awarded by an automotive manufacturer. In addition to being
responsible for the overall design, integration and assembly of the cockpit
system, we will supply the basic instrument panel, the structural cross vehicle
beam, numerous molded parts and a variety of electrical/electronic components.
We believe that UT Automotive's strength in designing and manufacturing
electrical distribution systems and electrical/electronic products will enhance
our position as a leading supplier of instrument panels and better position us
as automotive manufacturers continue to demand more complex instrument panels
with progressively higher levels of integration.
Another on-going trend in the instrument panel segment concerns safety
issues surrounding air bag technologies. We intend to increase our presence in
this area through our research and development efforts, resulting in innovations
such as the introduction of cost effective, integrated, seamless airbag covers,
which increase occupant safety. Future trends in the instrument panel segment
will continue to focus on safety with the introduction of low-mounted airbags as
knee restraint components.
- Headliners. Headliners consist of a substrate as well as a finished
interior layer made of a variety of fabrics and materials. While headliners are
an important contributor to interior aesthetics, they also provide insulation
from road noise and can serve as carriers for a variety of other components,
such as visors, overhead consoles, grab handles, coat hooks, electrical wiring,
speakers, lighting and other electrical/electronic products. As electrical and
electronic content available in vehicles has increased, headliners have emerged
as an important carrier of technology since electronic features ranging from
garage door openers to lighting systems are often optimally situated in the
headliner system. The UT Automotive acquisition provided us with the technical
capabilities and electrical distribution products to take advantage of the
significant integration opportunities that exist in the headliner market.
The headliner market is highly fragmented, with no dominant independent
supplier. As automotive manufacturers continue to seek ways to improve vehicle
quality and simultaneously reduce costs, we believe that headliners will
increasingly be outsourced to suppliers, such as Lear, with extensive
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technological and systems integration capabilities. In addition, as with door
panels and instrument panels, the ability of headliners to incorporate more
components, provides us with the opportunity to increase the number of high
margin, value added products we supply to automotive manufacturers.
- Component Products. In addition to the interior systems and other
products described above, we are able to supply a variety of interior trim, blow
molded plastic parts and other automotive components.
We produce seat covers for integration into our own seat systems and for
delivery to external customers. Our major external customers for seat covers are
other independent seat systems suppliers as well as automotive manufacturers.
The expansion of our seat cover business gives us 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.
We produce steel and aluminum seat frames for passenger cars and light
trucks. Seat frames are primarily manufactured using precision stamped, tubular
steel and aluminum components joined together by highly automated,
state-of-the-art welding and assembly techniques. The manufacture of seat frames
must meet strict customer and government specified safety standards. Our seat
frames are either delivered to our own plants, where they become part of a
complete seat system that is sold to the automotive manufacturer customer, or
are delivered to other independent seating suppliers for use in the manufacture
of assembled seating systems.
We also produce 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.
CUSTOMERS
We serve the worldwide automobile and light truck market, which produces
approximately 50 million vehicles annually. Our automotive manufacturer
customers currently include:
<TABLE>
<S> <C> <C> <C>
- - Ford - General Motors - DaimlerChrysler - Fiat
- - Volkswagen - BMW - Volvo - Saab
- - Toyota - Honda USA - Mitsubishi - Mazda
- - Subaru - Nissan - Isuzu - Peugeot
- - Porsche - Renault - Gaz - Mahindra & Mahindra
- - Suzuki - Hyundai - Daewoo
</TABLE>
During the year ended December 31, 1998, on a pro forma basis, Ford and
General Motors, the two largest automobile and light truck manufacturers in the
world, each accounted for approximately 25% of our net sales.
In the past ten years, in the course of retooling and reconfiguring plants
for new models and model changeovers, certain automotive manufacturers have
eliminated the production of seat systems and other interior systems and
components from certain of their facilities, thereby committing themselves to
purchasing these items from outside suppliers. During this period, we became a
supplier of these products for a significant number of new models, many on a
"just-in-time" basis.
The purchase of seat systems and other interior systems and components from
full-service independent suppliers like Lear has allowed our customers to
realize a competitive advantage as a result of:
- a reduction in net overhead expenses and capital investment due to the
availability of significant floor space for the expansion of other
manufacturing operations;
- the elimination of working capital and personnel costs associated with
the production of interior systems by the automotive manufacturer;
- a reduction in labor costs since suppliers like Lear generally have lower
direct labor and benefit rates; and
- a reduction in transaction costs by utilizing a limited number of
sophisticated system suppliers instead of numerous individual component
suppliers.
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In addition, we offer improved quality and on-going cost reductions to our
customers through continuous, Lear-initiated design improvements.
We maintain "Customer Focused Divisions" for most of our major customers.
This organizational structure consists of several dedicated groups, each of
which is primarily focused on serving the needs of a single customer and
supporting that customer's programs and product development. Each division is
capable of providing fully integrated interior systems or whatever interior
component the customer needs, thereby providing that customer's purchasing
agents, engineers and designers with a single point of contact for their total
automotive interior needs.
We receive blanket purchase orders from our 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, we do not believe that any of our customers have
terminated a material purchase order prior to the end of the life of a model.
Our primary risk is that an automotive manufacturer will produce fewer units of
a model than anticipated. In order to reduce our reliance on any one model, we
produce interior systems and components for a broad cross-section of both new
and more established models.
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, we
believe that automotive manufacturers' commitment to purchasing seat systems and
other interior systems and components from outside suppliers, particularly on a
"just-in-time" basis, will increase. However, under the contracts currently in
effect in the United States and Canada between each of General Motors, Ford and
DaimlerChrysler with the United Auto Workers ("UAW") and the Canadian Auto
Workers ("CAW"), in order for any of such manufacturers to obtain from external
sources components that it currently produces, it must first notify the UAW or
the CAW of such intention. If the UAW or the CAW objects to the proposed
outsourcing, some agreement will have to be reached between the UAW or the CAW
and the automotive manufacturer. Factors that will normally be taken into
account by the UAW, the CAW and the automotive manufacturer include:
- whether the proposed new supplier is technologically more advanced than
the automotive manufacturer;
- whether the new supplier is unionized;
- whether cost benefits exist; and
- whether the automotive manufacturer will be able to reassign union
members whose jobs are being displaced to other jobs within the same
factories.
As part of our agreement with General Motors, we operate our Rochester Hills,
Michigan and Wentzville, Missouri facilities with General Motors' employees and
reimburse General Motors for the wages of such employees on the basis of our
employee wage structure. We enter into these arrangements to enhance our
relationship with customers. As of January 1, 1998, the General Motors'
employees working at our Lordstown, Ohio facility under this agreement became
Lear employees.
General Motors and DaimlerChrysler have experienced work stoppages over the
past few years, primarily relating to the outsourcing of automotive components.
These work stoppages halted the production of certain vehicle models and
adversely affected our operations.
Our contracts with 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. These price reductions have generally
been offset by cost reduction through design changes, increased productivity and
similar productivity price reduction programs with our suppliers. Our cost
structure is comprised of a high percentage of variable costs. We believe that
this structure provides us with additional flexibility during economic cycles.
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MARKETING AND SALES
We market our products by maintaining strong customer relationships. We
have developed these relationships over our 80-year history through:
- extensive technical and product development capabilities;
- reliable delivery of high quality products;
- strong customer service;
- innovative new products; and
- a competitive cost structure.
Close personal communications with automotive manufacturers is an integral part
of our marketing strategy. Recognizing this, we are organized into independent
divisions, each with the ability to focus on its customers and programs and each
having complete responsibility for the product, from design to installation. By
moving the decision-making process closer to the customer and by instilling a
philosophy of "cooperative autonomy," we are more responsive to, and have
strengthened our relationships with, our customers. Automotive manufacturers
have generally continued to reduce the number of their suppliers as part of a
strategy to purchase interior systems rather than individual components. This
process favors suppliers like Lear with established ties to automotive
manufacturers and the demonstrated ability to adapt to the new competitive
environment in the automotive industry.
Our sales are originated almost entirely by our sales staff. This marketing
effort is augmented by design and manufacturing engineers who work closely with
automotive manufacturers from the preliminary design to the manufacture and
supply of interior systems or components. Manufacturers have increasingly looked
to suppliers like Lear 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 we are engaged to develop the design for the interior system or component
of a specific vehicle model, we are also generally engaged to supply these items
when the vehicle goes into production. We have devoted substantial resources
toward improving our engineering and technical capabilities and developing
advanced technology centers in the United States and in Europe. We have also
developed full-scope engineering capabilities, including all aspects of safety
and functional testing, acoustics testing and comfort assessment. In addition,
we have established numerous product engineering sites in close proximity to our
automotive manufacturer customers to enhance customer relationships and design
activity. Finally, we have 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 our
customers and help avoid duplication of sales and engineering efforts.
COMPETITION
We are the leading supplier of automotive interior products with
manufacturing capabilities in all five automotive interior product groups: seat
systems; flooring and acoustic systems; door panels; headliners; and instrument
panels. Within each segment, we compete with a variety of independent suppliers
and automotive manufacturer in-house operations. Set forth below is a summary of
our primary independent competitors.
- Seat Systems. We are one of two primary independent suppliers in the
outsourced North American seat systems market. Our main independent competitor
in North America is Johnson Controls, Inc. Our major independent competitors in
Western Europe are Johnson Controls, Inc. and Faurecia (headquartered in
France).
- Electrical Distribution Systems and Electrical/Electronic Products. With
the acquisition of UT Automotive, we became one of the leading independent
suppliers of automotive electrical distribution systems in North America and
Europe. Our major independent competitors in the electrical distribution
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systems market include Delphi, Yazaki and Sumitomo. The electrical/electronic
automotive products industry remains highly fragmented. Other participants in
the electrical/electronic products industry include Eaton, Tokai Rika, Kostal,
Methode, Pollack, Cherry, Niles, Omron and others.
- Flooring and Acoustic Systems. We are one of the three primary
independent suppliers in the outsourced North American flooring and acoustic
systems market. Our primary independent competitors are Collins & Aikman Corp.
and the Magee Carpet Company. Our major independent competitors in Western
Europe include Sommer Alibert Industrie, Emfisint Automotive SA, Radici, Treves
ETS and Rieter Automotive.
- Other Interior Systems and Components. Our major independent competitors
in the headliner, door panel and instrument panel segments include Johnson
Controls, Inc., Magna International, Inc., Davidson Interior Trim (a division of
Textron, Inc.), Delphi, Plastic Omnium, Sommer Alibert Industrie and a large
number of smaller operations. Visteon also competes in these markets.
SEASONALITY
Our principal operations are directly related to the automotive industry.
Consequently, we 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, our sales and operating
profit have been the strongest in the second and fourth calendar quarters.
EMPLOYEES
As of October 2, 1999, we employed approximately 34,000 persons in the
United States and Canada, 35,000 in Mexico, 34,000 in Europe and 12,000 in other
regions of the world. A substantial number of our employees are members of
unions. We have collective bargaining agreements with several unions including:
the UAW; the CAW; the Textile Workers of Canada; the International Brotherhood
of Teamsters, Chauffeurs, Warehousemen, and Helpers of America; the
International Association of Machinists and Aerospace Workers; and the AFL-CIO.
Each of our 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 our other labor
contracts. The majority of our 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. We have
experienced some labor disputes at our plants, none of which has significantly
disrupted production or had a materially adverse effect on our operations. We
have been able to resolve all such labor disputes and believe our relations with
our employees are generally good.
In addition, as part of our long-term agreements with General Motors, we
currently operate two facilities with an aggregate of approximately 600 General
Motors' employees and reimburse General Motors for the wages of such employees
on the basis of our wage structure.
PROPERTIES
As of October 2, 1999, our operations were conducted through 335
facilities, some of which are used for multiple purposes, including 231
manufacturing facilities, 27 product engineering centers and 5 advanced
technology centers, in 33 countries. Our world headquarters is located in
Southfield, Michigan.
No facility is materially underutilized. Of the 335 facilities, which
include facilities owned by our less than majority-owned affiliates, 164 are
owned and 171 are leased with expiration dates ranging from 1999 through 2017.
We believe substantially all of our property and equipment is in good condition
and that we have sufficient capacity to meet our current and expected
manufacturing and distribution needs.
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THE EXCHANGE OFFER
INTRODUCTION
Lear hereby offers to exchange its 7.96% Series B Senior Notes due 2005,
which have been registered under the Securities Act, for a like principal amount
of its original unregistered 7.96% Series B Senior Notes due 2005. Lear hereby
also offers to exchange its 8.11% Series B Senior Notes due 2009, which have
been registered under the Securities Act, for a like principal amount of its
original unregistered 8.11% Series B Senior Notes due 2009. The exchange offer
is subject to terms and conditions set forth in this prospectus and the
accompanying letter of transmittal. Holders may tender some or all of their
original securities pursuant to the exchange offer. However, original securities
tendered in the exchange offer must be in denominations of $1,000 or any
integral multiple of $1,000.
As of the date of this prospectus, $600,000,000 aggregate principal amount
of the original unregistered 7.96% Senior Notes due 2005 and $800,000,000
aggregate principal amount of original unregistered 8.11% Senior Notes due 2009
are outstanding. This prospectus, together with the letter of transmittal, is
first being sent to holders of original securities on or about December 16,
1999.
TERMS OF THE EXCHANGE OFFER
On the terms and subject to the conditions set forth in this prospectus and
in the accompanying letter of transmittal, Lear will accept for exchange
pursuant to the exchange offer original securities that are validly tendered and
not withdrawn prior to the expiration date. As used in this prospectus, the term
"expiration date" means 5:00 p.m., New York City time, on January 17, 2000.
However, if Lear, in its sole discretion, extends the period of time for which
the exchange offer is open, the term "expiration date" will mean the latest time
and date to which Lear shall have extended the expiration of the exchange offer.
The exchange offer is subject to the conditions set forth in "-- Conditions
to the Exchange Offer." Lear reserves the right, but will not be obligated, to
waive any or all of the conditions to the exchange offer.
Lear reserves the right, at any time or from time to time, to extend the
period of time during which the exchange offer is open by giving written notice
of such extension to the exchange agent and by making a public announcement of
such extension. There can be no assurance that Lear will exercise its right to
extend the exchange offer. During any extension period, all original securities
previously tendered will remain subject to the exchange offer and may be
accepted for exchange by Lear. Assuming the prior satisfaction or waiver of the
conditions to the exchange offer, Lear will accept for exchange, and exchange,
promptly after the expiration date, in accordance with the terms of the exchange
offer, all original securities validly tendered pursuant to the exchange offer
and not withdrawn prior to the expiration date. Any original securities not
accepted by Lear for exchange for any reason will be returned without expense to
the tendering holder promptly after the expiration or termination of the
exchange offer.
Lear reserves the right, at any time or from time to time, to:
(1) terminate the exchange offer, and not to accept for exchange any
original securities not previously accepted for exchange, upon the
occurrence of any of the events set forth in "-- Conditions to the Exchange
Offer," by giving written notice of such termination to the exchange agent,
and
(2) waive any conditions or otherwise amend the exchange offer in any
respect, by giving written notice to the exchange agent.
An extension, termination, or amendment of the exchange offer will be
followed as promptly as practicable by public announcement, the announcement in
the case of an extension to be issued no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
Without limiting the manner in which Lear may choose to make any public
announcement, Lear will have no obligation to make or communicate any such
announcement otherwise than by issuing a release to the Dow Jones News Service
or as otherwise may be required by law.
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Holders of original securities do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware, the
indenture, or the supplemental indenture in connection with the exchange offer.
Lear intends to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act, the Exchange Act, and the rules and
regulations of the Securities and Exchange Commission promulgated under those
Acts.
PROCEDURES FOR TENDERING
Except as set forth below, any holder of original securities that wishes to
tender original securities must cause the following to be transmitted to and
received by The Bank of New York, the exchange agent, at the address set forth
below under "-- Exchange Agent" no later than 5:00 p.m., New York City time, on
the expiration date:
- The certificates representing the tendered original securities or, in the
case of a book-entry tender as described below, a confirmation of the
book-entry transfer of the tendered original securities into the exchange
agent's account at DTC, as book-entry transfer facility;
- A properly completed and duly executed letter of transmittal in the form
accompanying this prospectus or, at the option of the tendering holder in
the case of a book-entry tender, an agent's message in lieu of such
letter of transmittal; and
- Any other documents required by the letter of transmittal.
The method of delivery of original securities, letters of transmittal, and
all other required documents is at your election and risk. If the delivery is by
mail, Lear recommends that you use registered mail, properly insured, with
return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. You should not send letters of transmittal or
certificates representing original securities to Lear.
Any beneficial owner of original securities that are registered in the name
of a broker, dealer, commercial bank, trust company, or other nominee who wishes
to participate in the exchange offer should promptly contact the person through
which it beneficially owns such original securities and instruct that person to
tender original securities on behalf of such beneficial owner.
Any registered holder of original securities that is a participant in DTC's
Book-Entry Transfer Facility system may tender original securities by book-entry
delivery by causing DTC to transfer the original securities into the exchange
agent's account at DTC in accordance with DTC's procedures for such transfer.
However, a properly completed and duly executed letter of transmittal in the
form accompanying this prospectus or an agent's message, and any other required
documents, must nonetheless be transmitted to and received by the exchange agent
at the address set forth below under "-- Exchange Agent" prior to the expiration
date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "agent's message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of a confirmation of the
book-entry tender of their original securities into the exchange agent's account
at DTC which states that DTC has received an express acknowledgment from each
participant tendering through DTC's automated Tender Offer Program that the
participant has received and agrees to be bound by, and makes the
representations and warranties contained in, the letter of transmittal and that
Lear may enforce the letter of transmittal against the participant.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the original securities surrendered for
exchange are tendered:
- by a registered holder of the original securities who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal; or
- for the account of an eligible institution.
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In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantees
must be made by a firm that is an eligible institution -- including most banks,
savings and loan associations, and brokerage houses -- that is a participant in
the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program, or the Stock Exchanges Medallion Program.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of the original securities, the letter of
transmittal must be accompanied by a written instrument or instruments of
transfer or exchange in a form satisfactory to Lear, in its sole discretion, and
duly executed by the registered holder or holders with the signature guaranteed
by an eligible institution. Certificates representing the original securities
must be endorsed or accompanied by appropriate powers of attorney, in either
case signed exactly as the name or names of the registered holder or holders
appear on the certificates representing the original securities.
If the letter of transmittal or any certificates representing original
securities, instruments of transfer or exchange, or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, the persons should so indicate when signing, and, unless waived by
Lear, proper evidence satisfactory to Lear of their authority to so act must be
submitted.
By tendering original securities pursuant to the exchange offer, each
holder will represent to Lear that, among other things:
- the holder has full power and authority to tender, sell, assign,
transfer, and exchange the original securities tendered;
- when such original securities are accepted by Lear for exchange, Lear
will acquire good and unencumbered title to the original securities, free
and clear of all liens, restrictions, charges, encumbrances, and adverse
claims;
- the exchange securities acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the person receiving the
exchange securities, whether or not the person is the holder of the
original securities;
- neither the holder nor any such other person is engaging in or intends to
engage in a distribution of the exchange securities;
- neither the holder nor any such other person has an arrangement or
understanding with any person to participate in a distribution of the
exchange securities; and
- neither the holder nor any such other person is an affiliate of Lear, or
if either is an affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act.
In addition, each broker-dealer that is to receive exchange securities for
its own account in exchange for original securities must represent that such
original securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities, and must acknowledge that
it will deliver a prospectus that meets the requirements of the Securities Act
in connection with any resale of the exchange securities. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. See "Plan of Distribution."
Lear will interpret the terms and conditions of the exchange offer,
including the letter of transmittal and the instructions to the letter of
transmittal, and will resolve all questions as to the validity, form,
eligibility, including time of receipt, and acceptance of original securities
tendered for exchange. Lear's determinations in this regard will be final and
binding on all parties. Lear reserves the absolute right to reject any and all
tenders of any particular original securities not properly tendered or to not
accept any particular original securities if the acceptance might, in Lear's or
its counsel's judgment, be unlawful. Lear also reserves the absolute right to
waive any defects or irregularities or conditions of the exchange offer as to
any particular original securities either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks to tender
original securities in the exchange offer.
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Unless waived, any defects or irregularities in connection with tenders of
original securities for exchange must be cured within such reasonable period of
time as Lear determines. Neither Lear, the exchange agent, nor any other person
will be under any duty to give notification of any defect or irregularity with
respect to any tender of original securities for exchange, nor will any of them
incur any liability for any failure to give notification. Any original
securities received by the exchange agent that are not properly tendered and as
to which the irregularities have not been cured or waived will be returned by
the exchange agent to the tendering holder, unless otherwise provided in the
letter of transmittal, promptly after the expiration date.
ACCEPTANCE OF ORIGINAL SECURITIES FOR EXCHANGE; DELIVERY OF EXCHANGE SECURITIES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
Lear will accept, promptly after the expiration date, all original securities
that have been validly tendered and not withdrawn, and will issue the applicable
exchange securities in exchange for such original securities promptly after its
acceptance of such original securities. See "-- Conditions to the Exchange
Offer" below.
For purposes of the exchange offer, Lear will be deemed to have accepted
validly tendered original securities for exchange when, as, and if Lear has
given written notice of such acceptance to the exchange agent.
For each original note accepted for exchange, the holder of the original
note will receive an exchange note having a principal amount equal to that of
the surrendered original note. The exchange notes will accrue interest from the
date of completion of the exchange offer. Holders of original notes that are
accepted for exchange will receive accrued and unpaid interest on such original
notes to, but not including, the date of completion of the exchange offer. Such
interest will be paid on the first interest payment date for the exchange notes
and will be paid to the holders on the relevant record date of the exchange
notes issued in respect of the original notes being exchanged. Interest on the
original notes being exchanged in the exchange offer will cease to accrue on the
date of completion of the exchange offer.
In all cases, issuance of exchange securities for original securities that
are accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of:
- the certificates representing the original securities, or a timely
confirmation of book-entry transfer of the original securities into the
exchange agent's account at the book-entry transfer facility;
- a properly completed and duly executed letter of transmittal, or, in the
case of a book-entry tender, an agent's message; and
- all other required documents.
If any tendered original securities are not accepted for any reason or if
original securities are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or non-exchanged original securities will
be returned without expense to the tendering holder of the original securities
or, if the original securities were tendered by book-entry transfer, the
non-exchanged original securities will be credited to an account maintained with
the book-entry transfer facility. In either case, the return of such original
securities will be effected promptly after the expiration or termination of the
exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent has advised Lear that it will establish an account with
respect to the original securities at The DTC, as book-entry transfer facility,
for purposes of the exchange offer within two business days after the date of
this prospectus. Any financial institution that is a participant in the book-
entry transfer facility's system may make book-entry delivery of original
securities by causing the book-entry transfer facility to transfer the original
securities into the exchange agent's account at the facility in accordance with
the facility's procedures for transfer. However, although delivery of original
securities may be effected through book-entry transfer at the facility, a
properly completed and duly executed letter of
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transmittal or an agent's message, and any other required documents, must
nonetheless be transmitted to, and received by, the exchange agent at the
address set forth below under "-- Exchange Agent" prior to the expiration date,
unless the holder has strictly complied with the guaranteed delivery procedures
described below.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of original securities desires to tender its
original securities, and the original securities are not immediately available,
or time will not permit the holder's original securities or other required
documents to reach the exchange agent before the expiration date, or the
procedure for book-entry transfer described above cannot be completed on a
timely basis, a tender may nonetheless be effected if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from an
eligible institution a properly completed and duly executed letter of
transmittal, or, in the case of a book-entry tender, an agent's message,
and notice of guaranteed delivery, substantially in the form provided by
Lear, by facsimile transmission, mail, or hand delivery, (a) setting
forth the name and address of the holder of original securities and the
amount of original securities tendered, (b) stating that the tender is
being made thereby, and (c) guaranteeing that, within three NYSE trading
days after the expiration date, the certificates for all physically
tendered original securities, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
- the certificates for all physically tendered original securities, in
proper form for transfer, or a book-entry confirmation, as the case may
be, and all other documents required by the letter of transmittal, are
received by the exchange agent within three NYSE trading days after the
expiration date.
WITHDRAWAL RIGHTS
You may withdraw tenders of original securities at any time prior to 5:00
p.m., New York City time, on the expiration date. Withdrawals may be made of any
portion of such original securities in integral multiples of $1,000 principal
amount.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at the address or, in the case of eligible
institutions, at the facsimile number, set forth below under "-- Exchange Agent"
prior to 5:00 p.m., New York City time, on the expiration date. Any such notice
of withdrawal must:
- specify the name of the person who tendered the original securities to be
withdrawn;
- identify the original securities to be withdrawn, including the
certificate number or numbers and principal amount of the original
securities;
- contain a statement that the holder is withdrawing his election to have
the original securities exchanged;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original securities were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the registrar with respect to the original
securities (i.e., the trustee) register the transfer of such original
securities in the name of the person withdrawing the tender; and
- specify the name in which such original securities are registered, if
different from that of the person who tendered the original securities.
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If original securities have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn original securities and otherwise comply with the
procedures of the facility. All questions as to the validity, form, and
eligibility, including time of receipt, of notices of withdrawal will be
determined by Lear, whose determination will be final and binding on all
parties. Any original securities so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Properly
withdrawn original securities may be retendered by following the procedures
described under "-- Procedures for Tendering" above at any time prior to 5:00
p.m., New York City time, on the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Lear need not exchange any original securities, may terminate the exchange
offer or may waive any conditions to the exchange offer or amend the exchange
offer, if any of the following conditions have occurred:
- the Securities and Exchange Commission's staff no longer allows the
exchange securities to be offered for resale, resold and otherwise
transferred by certain holders without compliance with the registration
and prospectus delivery provisions of the Securities Act;
- a government body passes any law, statute, rule or regulation which, in
Lear's opinion, prohibits or prevents the exchange offer; or
- the Securities and Exchange Commission or any state securities authority
issues a stop order suspending the effectiveness of the registration
statement or initiates or threatens to initiate a proceeding to suspend
the effectiveness of the registration statement.
If Lear reasonably believes that any of the above conditions has occurred,
it may (1) terminate the exchange offer, whether or not any original securities
have been accepted for exchange, (2) waive any condition to the exchange offer
or (3) amend the terms of the exchange offer in any respect. Lear's failure at
any time to exercise any of these rights will not waive such rights, and each
right will be deemed an ongoing right which may be asserted at any time or from
time to time. However, Lear does not intend to terminate the exchange offer if
none of the preceding conditions has occurred.
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EXCHANGE AGENT
The Bank of New York has been appointed as the exchange agent for the
exchange offer. The Bank of New York also acts as trustee under the indenture.
All executed letters of transmittal should be directed to the exchange agent at
the address set forth below. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal, and
requests for notices of guaranteed delivery should be directed to the exchange
agent addressed as follows:
DELIVERY TO: THE BANK OF NEW YORK, EXCHANGE AGENT
<TABLE>
<CAPTION>
Facsimile Transmissions:
By Hand or Overnight Delivery (Eligible Institutions Only) By Registered or Certified Mail:
<S> <C> <C>
The Bank of New York (212) 815-4699 The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services Window To Confirm by Telephone New York, New York 10286
Ground Level or for Information Call: Attention: Tolutope Adeyujo
Attention: Tolutope Adeyujo (212) 815-2824 Reorganization Section
Reorganization Section
</TABLE>
---------------------
IF YOU DELIVER THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, SUCH DELIVERY OR INSTRUCTIONS WILL NOT BE EFFECTIVE.
FEES AND EXPENSES
Lear will not make any payment to brokers, dealers, or others for
soliciting acceptances of the exchange offer. Lear will pay the estimated cash
expenses to be incurred in connection with the exchange offer. Lear estimates
these expenses, excluding the registration fee paid to the Securities and
Exchange Commission, will be approximately $1 million.
ACCOUNTING TREATMENT
Lear will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. Lear will amortize the expense of the
exchange offer over the term of the exchange securities under generally accepted
accounting principles.
TRANSFER TAXES
Holders who tender their original securities for exchange will not be
obligated to pay any related transfer taxes, except that holders who instruct
Lear to register exchange securities in the name of, or request that original
securities not tendered or not accepted in the exchange offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer taxes on such transfer.
RESTRICTIONS ON TRANSFER OF ORIGINAL SECURITIES
The original securities were originally issued in a transaction exempt from
registration under the Securities Act, and may be offered, sold, pledged, or
otherwise transferred only:
- in the United States to a person whom the seller reasonably believes is a
qualified institutional buyer, as defined in Rule 144A under the
Securities Act;
- outside the United States in an offshore transaction in accordance with
Rule 904 under the Securities Act;
- pursuant to an exemption from registration under the Securities Act
provided by Rule 144, if available; or
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- pursuant to an effective registration statement under the Securities Act.
The offer, sale, pledge, or other transfer of original securities must also
be made in accordance with any applicable securities laws of any state of the
United States, and the seller must notify any purchaser of the original
securities of the restrictions on transfer described above. Holders of original
securities who do not exchange their original securities for exchange securities
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of such original securities. Lear does not currently anticipate that
it will register original securities under the Securities Act. See "Risk Factors
- -- Failure to Exchange."
TRANSFERABILITY OF EXCHANGE SECURITIES
Based on interpretations by the staff of the Securities and Exchange
Commission, as set forth in no-action letters issued to third parties, Lear
believes that exchange securities issued pursuant to the exchange offer may be
offered for resale, resold, or otherwise transferred by holders that are not
affiliates of Lear within the meaning of Rule 405 under the Securities Act,
without compliance with the registration and prospectus delivery provisions of
the Securities Act if such exchange securities are acquired in the ordinary
course of such holders' business and such holders do not engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of such exchange securities. However, the Securities and Exchange Commission has
not considered the exchange offer in the context of a no-action letter. Lear
cannot assure that the staff of the Securities and Exchange Commission would
make a similar determination with respect to the exchange offer. If any holder
of original securities is an affiliate of Lear or is engaged in or intends to
engage in, or has any arrangement or understanding with any person to
participate in a distribution of the exchange securities to be acquired pursuant
to the exchange offer, such holder:
- cannot rely on the interpretations of the staff of the Securities
and Exchange Commission set forth in the no-action letters referred
to above; and
- must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or
transfer of the original securities or the exchange securities.
Each broker-dealer that is to receive exchange securities for its own
account in exchange for original securities must represent that such original
securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities and must acknowledge that it will deliver
a prospectus in connection with any resale of the exchange securities. In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the exchange securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification, with which there has been compliance, is
available. See "Plan of Distribution."
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DESCRIPTION OF OTHER MATERIAL INDEBTEDNESS
PRIMARY CREDIT FACILITIES
The following is a summary of the material provisions of our primary credit
facilities. For further information regarding the terms and provisions of our
primary credit facilities, including the definitions of terms that are not
defined in this prospectus, please refer to the agreements relating to our
primary credit facilities which we filed with the Securities and Exchange
Commission on May 6, 1999 as exhibits to our Current Report on Form 8-K dated
May 4, 1999.
Amended and Restated Revolving Credit Facility. Our amended and restated
revolving credit facility currently provides for:
- borrowings in a principal amount of up to $2.1 billion outstanding at any
one time;
- swing line loans in a maximum aggregate amount of $150 million, the
commitment for which is part of the aggregate amended and restated
revolving credit facility commitment;
- letters of credit in an aggregate face amount of up to $250 million, the
commitment for which is part of the aggregate amended and restated
revolving credit facility commitment; and
- multicurrency borrowings in a maximum aggregate amount of up to $500
million, the commitment for which is part of the aggregate amended and
restated revolving credit facility commitment.
The entire unpaid balance under our amended and restated revolving credit
facility will be payable on September 30, 2001.
New Credit Facilities. In addition to our amended and restated revolving
credit facility, our primary credit facilities are comprised of:
- a new revolving credit facility providing for borrowings of up to $500
million and maturing on May 4, 2004;
- a new $500 million term loan having scheduled amortization beginning in
October 31, 2000 and a final maturity of May 4, 2004; and
- multicurrency borrowings in a maximum aggregate amount of up to $165
million, the commitment for which is part of the aggregate new revolving
credit facility commitment.
The loans under our amended and restated revolving credit facility, our new
revolving loans and our new term loan are collectively referred to in this
prospectus as the "Loans."
Interest. For purposes of calculating interest, the U.S. dollar Loans can
be, at our election, ABR Loans or Eurodollar Loans or a combination thereof. ABR
Loans bear interest at the higher of (a) The Chase Manhattan Bank's, or any
replacement agent's, prime rate and (b) the federal funds rate plus 0.50%.
Eurodollar Loans bear interest at the relevant Eurodollar Rate plus a margin
based on the level of a specified financial ratio or Lear's credit ratings on
its long-term senior unsecured debt.
Repayment. Subject to the provisions of our primary credit facilities, we
may, from time to time, borrow, repay and reborrow under our amended and
restated revolving credit facility and our new revolving credit facility. Our
new term loan provides for scheduled repayments of $50 million in 2000, $100
million in 2001, $125 million in 2002, $150 million in 2003 and $75 million in
2004. Amounts repaid under our new term loan may not be reborrowed. We can
prepay our new term loan at any time prior to maturity.
Security and Guarantees. With certain exceptions, the Loans are guaranteed
by our direct and indirect domestic subsidiaries that account for 10% or more of
our consolidated assets or revenues, on a pro forma basis. With certain
exceptions, the Loans are secured by a pledge to the Agent for the ratable
benefit of the banks party to our primary credit facilities of all or a portion
of the capital stock of our subsidiaries comprising 10% or more of our
consolidated assets or revenues, on a pro forma basis. The stock pledges also
equally and ratably secure our obligations under term loans having an aggregate
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principal amount of $75 million. Pursuant to the terms of our primary credit
facilities, the guarantees and the stock pledges shall be released when and if:
- Lear attains "Release Status" or achieves a leverage ratio, as calculated
pursuant to our primary credit facilities, of less than 2.50 to 1.00;
- the agent has no actual knowledge of the existence of a default;
- Lear delivers an officer's certificate that such officer has obtained no
knowledge of a default or an event or default; and
- the guarantees of the notes shall have been released or shall be released
simultaneously with the guarantees of our primary credit facilities.
Under our primary credit facilities, "Release Status" is generally defined to
exist at any time when the actual or implied rating of our senior long-term
unsecured debt is at or above "BBB-" from Standard & Poor's Ratings Group or at
or above "Baa3" from Moody's Investors Service, Inc.
Covenants. Our primary credit facilities contain financial covenants
relating to ratios of consolidated operating profit to consolidated interest
expense and of consolidated indebtedness to consolidated operating profit. Our
primary credit facilities also contain restrictive covenants pertaining to the
management and operation of Lear. The covenants include, among others,
limitations on indebtedness, guarantees, mergers, acquisitions, fundamental
corporate changes, asset sales, investments, loans and advances, liens,
dividends and other stock payments, transactions with affiliates and optional
payments and modification of debt instruments.
Events of Default. Our primary credit facilities provide for events of
default customary in facilities of these types, including:
- failure to make payments when due;
- breach of certain covenants;
- breach of representations or warranties in any material respect when
made;
- default under any agreement relating to debt for borrowed money in excess
of $40 million in the aggregate;
- bankruptcy defaults;
- unsatisfied judgments in excess of $40 million;
- ERISA defaults;
- any security document or guarantee ceasing to be in full force and effect
other than as otherwise contemplated by the relevant primary credit
facility;
- the subordination provisions in the instruments under 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
- a change of control of Lear.
SUBORDINATED NOTES
We currently have outstanding $136 million of 8 1/4% subordinated notes due
2002 and $200 million of 9 1/2% subordinated notes due 2006 which will remain
outstanding. The subordinated notes are subordinated in right of payment to all
of our existing and future senior indebtedness, including the exchange notes and
obligations arising under our primary credit facilities. Interest on the
subordinated notes is payable in arrears semi-annually.
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The indentures governing the subordinated notes limit, among other things:
- the making of any Restricted Payment, as defined in the subordinated note
indentures;
- the incurrence of indebtedness unless we satisfy a specified cash flow to
interest expense coverage ratio;
- the creation of liens;
- the incurrence of payment restrictions affecting subsidiaries;
- entering into transactions with stockholders and affiliates;
- the sale of assets;
- the issuance of preferred stock; and
- the merger, consolidation or sale of all or substantially all of our
assets.
The subordinated note indentures also provide that a holder of the subordinated
notes may, under certain circumstances, have the right to require that we
repurchase such holder's securities upon a change of control of Lear at 101% of
their principal amount plus accrued and unpaid interest, if any, to the date of
repurchase.
The 8 1/4% subordinated notes mature on February 1, 2002 and may, at our
option, be redeemed in whole or in part, on at least 30 days' but not more then
60 days' notice to each holder of the notes to be redeemed at 100% of their
principal amount together with accrued and unpaid interest, if any, to the
redemption date. The 9 1/2% subordinated notes mature on July 15, 2006 and may,
at our option, be redeemed in whole or in part at any time on or after July 15,
2001, on at least 30 days' but not more than 60 days' notice to each holder of
the notes to be redeemed at specified redemption prices.
OTHER DEBT
As of October 2, 1999, we had outstanding approximately $269 million of
debt other than the debt under our primary credit facilities, our subordinated
notes and the original notes. This debt consisted primarily of U.S. term loans,
foreign subsidiary working capital indebtedness, industrial revenue bonds and
capital leases. The U.S. term loans, having an aggregate principal amount of $75
million, are secured by an equal and ratable pledge of the subsidiary stock
securing our primary credit facilities and are guaranteed by the same domestic
subsidiaries that guarantee the Loans under our primary credit facilities. The
stock pledge shall be released when and if the stock pledge securing our primary
credit facilities is released. Approximately $98 million of the remaining debt
was incurred by subsidiaries and, in certain cases, is guaranteed by Lear.
Several of our European subsidiaries factor their accounts receivable with
financial institutions subject to limited recourse provisions and are charged a
discount fee. The amount of such factored receivables, at October 2, 1999, was
approximately $133 million.
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DESCRIPTION OF EXCHANGE SECURITIES
GENERAL
The forms and terms of the exchange securities and the original securities
are identical in all respects except that the registration rights and related
liquidated damages provisions, and the transfer restrictions, applicable to the
original securities do not apply to the exchange securities. Except where the
context otherwise requires, references below to "notes" or "securities" are
references to both original notes and exchange notes or both original securities
and exchange securities, as the case may be.
The exchange securities will be issued under the indenture dated as of May
15, 1999, among Lear, the Guarantors and The Bank of New York, as trustee. The
following discussion includes a summary of the material provisions of the
indenture and the exchange securities. For further information regarding the
terms and provisions of the indenture and exchange securities, including the
definitions of certain terms and those terms made part of the indenture by the
Trust Indenture Act, please refer to the indenture and form of exchange
securities which we have filed as exhibits to the registration statement of
which this prospectus is part.
The exchange notes will be limited to an aggregate principal amount of up
to $1,400,000,000, consisting of $600,000,000 aggregate principal amount of
7.96% Series B Senior Notes due 2005 (the "Exchange Notes Due 2005") and
$800,000,000 aggregate principal amount of 8.11% Series B Senior Notes due 2009
(the "Exchange Notes Due 2009").
Exchange Notes Due 2005. The Exchange Notes Due 2005 will mature on May
15, 2005. The Exchange Notes Due 2005 will bear interest from the date of
issuance, at 7.96% per annum, payable semiannually on May 15 and November 15 of
each year, commencing on November 15, 1999. Interest will be payable to the
person in whose name an Exchange Note Due 2005, or any predecessor Exchange Note
Due 2005, is registered, subject to certain exceptions set forth in the
indenture, at the close of business on May 1 or November 1, as the case may be,
immediately preceding such May 15 or November 15. Interest on the Exchange Notes
Due 2005 will be calculated on the basis of a 360-day year consisting of 12
months of 30 days each.
Exchange Notes Due 2009. The Exchange Notes Due 2009 will mature on May
15, 2009. The Exchange Notes Due 2009 will bear interest from the date of
issuance, at 8.11% per annum, payable semiannually on May 15 and November 15 of
each year, commencing on November 15, 1999. Interest will be payable to the
person in whose name an Exchange Note Due 2009, or any predecessor Exchange Note
Due 2009, is registered, subject to certain exceptions set forth in the
indenture, at the close of business on May 1 or November 1, as the case may be,
immediately preceding such May 15 or November 15. Interest on the Exchange Notes
Due 2009 will be calculated on the basis of a 360-day year consisting of 12
months of 30 days each.
Principal of and premium, if any, and interest on the exchange notes will
be payable, and the exchange notes will be exchangeable and transfers thereof
will be registrable, at an office or agency of Lear, one of which will be
maintained for such purpose in New York, New York, which initially will be the
corporate trust office of the trustee, or such other office or agency permitted
under the Indenture. So long as the exchange notes are represented by global
notes, the interest payable on such exchange notes will be paid to Cede & Co.,
the nominee of the DTC, or its registered assigns as the registered owner of
such global notes, by wire transfer of immediately available funds on each
applicable interest payment date. If any of the exchange notes are no longer
represented by global notes, payment of interest thereon may, at our option, be
made by check mailed to the address of the person entitled thereto.
The original notes and the exchange notes of each tranche constitute a
single class of securities and will vote and consent together on all matters as
one series, and neither the original notes nor the exchange notes of the same
tranche will have the right to vote or consent as a class or series separate
from one another on any matter.
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The exchange notes will be issued only in registered form without coupons,
in denominations of $1,000 or integral multiples thereof. To the extent
described under "-- Book Entry; Delivery and Form" below, the principal of and
interest on the exchange notes will be payable and transfer of the exchange
notes will be registrable through DTC. No service charge will be made for any
registration of transfer or exchange of exchange notes, but we may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
The indenture does not contain any provisions that would limit the ability
of Lear or the Guarantors to incur indebtedness or that would require the
maintenance of financial ratios or specified levels of net worth or liquidity.
In addition, the indenture does not contain any provisions that would require
Lear to repurchase or redeem or otherwise modify the terms of any of the
exchange securities upon a change in control or other events involving Lear that
may adversely affect the creditworthiness of the exchange securities. However,
the indenture does:
- provide that, subject to certain exceptions, neither Lear nor any
Restricted Subsidiary will subject its property or assets to any mortgage
or other encumbrance unless the exchange notes are secured equally and
ratably with such other indebtedness thereby secured; and
- contain certain limitations on the ability of Lear and its Restricted
Subsidiaries to enter into certain sale and lease-back arrangements.
See "-- Certain Covenants."
OPTIONAL REDEMPTION
The Exchange Notes Due 2005 and the Exchange Notes Due 2009 will be
redeemable as a whole at any time or in part from time to time, at our option,
at a redemption price equal to the greater of:
(1) 100% of the principal amount of such exchange notes, and
(2) the sum of the present values of the remaining scheduled payments
of principal and interest thereon from the redemption date to the maturity
date discounted, to the redemption date on a semiannual basis, assuming a
360-day year consisting of 12 months of 30 days each, at the Treasury Rate
plus 50 basis points, in each case, together with any interest accrued but
not paid to the date of redemption.
"Treasury Rate" means, with respect to any redemption date for the Exchange
Notes Due 2005 and the Exchange Notes Due 2009, as the case may be,
(1) the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication
which is published weekly by the Board of Governors of the Federal Reserve
System and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the
Comparable Treasury Issue, if no maturity is within three months before or
after the maturity date for the Exchange Notes Due 2005 or the Exchange
Notes Due 2009, as the case may be, yields for the two published maturities
most closely corresponding to the Comparable Treasury Issue shall be
determined and the Treasury Rate shall be interpolated or extrapolated from
such yields on a straight line basis, rounding to the nearest month, or
(2) if such release, or any successor release, is not published during
the week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semi-annual equivalent yield to maturity of
the Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue, expressed as a percentage of its principal amount, equal to
the Comparable Treasury Price for such redemption date.
The Treasury Rate shall be calculated on the third business day preceding
the redemption date.
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"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Exchange Notes Due 2005 or the Exchange Notes Due
2009, as the case may be, to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of such Notes.
"Comparable Treasury Price" means with respect to any redemption date for
the Exchange Notes Due 2005 or the Exchange Notes Due 2009, as the case may be:
(1) the average of four Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest of such Reference
Treasury Dealer Quotations, or
(2) if the trustee obtains fewer than four such Reference Treasury
Dealer Quotations, the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the trustee after consultation with us.
"Reference Treasury Dealer" means Morgan Stanley & Co. Incorporated and
three other primary U.S. Government securities dealers in New York City (each, a
"Primary Treasury Dealer") appointed by the trustee after consultation with us;
provided, however, that if any of the foregoing shall cease to be a Primary
Treasury Dealer, we shall substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue,
expressed in each case as a percentage of its principal amount, quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. (New York
City time) on the third business day preceding such redemption date.
Notice of redemption will be mailed at least 30 days but no more than 60
days before the redemption date to each holder of exchange notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the exchange notes or portions
thereof called for redemption.
STATUS OF EXCHANGE NOTES
The exchange notes will be unsecured obligations of Lear, ranking equal in
right of payment with all other unsecured and unsubordinated indebtedness of
Lear, and ranking senior in right of payment to the outstanding subordinated
indebtedness of Lear and any future subordinated indebtedness of Lear. As of
October 2, 1999, we had outstanding approximately $3,545 million of senior
indebtedness and approximately $336 million of subordinated indebtedness. In
addition, the exchange notes will be structurally subordinated to indebtedness
of our subsidiaries other than indebtedness of the Guarantors. As of October 2,
1999, the Guarantors had outstanding approximately $11 million of indebtedness,
excluding indebtedness represented by guarantees of our Principal Credit
Facilities and the exchange notes and intercompany debt, and our subsidiaries
other than the Guarantors had outstanding approximately $205 million of
indebtedness, including $117 million under our primary credit facilities.
Indebtedness under our Principal Credit Facilities is secured by pledges of
all or a portion of the stock of certain of our subsidiaries, including the
Guarantors. The exchange notes will not have the benefit of such pledges and the
indenture does not contain any restriction upon indebtedness, whether secured or
unsecured, that Lear and its subsidiaries may incur in the future. The total
amount of secured indebtedness as of October 2, 1999 was approximately $41
million, excluding indebtedness under the Principal Credit Facilities. Secured
creditors of Lear will have a claim on the assets which secure the obligations
of Lear prior to any claims of holders of the exchange notes against such
assets.
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GUARANTEES
Each of certain of our domestic subsidiaries (the "Guarantors") will
irrevocably and unconditionally guarantee on a joint and several basis the
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, all of our obligations under the indenture and the exchange notes,
including our obligations to pay principal, premium, if any, and interest with
respect to the exchange notes. Each of the Guarantees shall be a guarantee of
payment and not of collection. The obligations of each Guarantor under its
guarantee (each a "Guarantee") are limited to the maximum amount which, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payment made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee can be guaranteed by such Guarantor without resulting in the
obligations of such Guarantor under its Guarantee constituting a fraudulent
conveyance or fraudulent transfer under applicable federal or state law.
Notwithstanding the foregoing, there is a risk that the Guarantees will involve
a fraudulent conveyance or transfer or otherwise be void, and thus will be
unenforceable.
The Guarantors on the date of the indenture were Lear Operations
Corporation and Lear Corporation Automotive Holdings, formerly known as UT
Automotive. The indenture provides that each subsidiary of Lear that becomes a
guarantor under our Principal Credit Facilities after the date of the indenture
will become a Guarantor.
In the event that a subsidiary that is a Guarantor ceases to be a guarantor
under our Principal Credit Facilities, such subsidiary will also cease to be a
Guarantor, whether or not a Default or Event of Default is then outstanding,
subject to reinstatement as a Guarantor in the event that such subsidiary should
thereafter become a guarantor under our Principal Credit Facilities. A
subsidiary may cease to be a Guarantor upon sale or other disposal of such
subsidiary or otherwise. We are not restricted from selling or otherwise
disposing of any of the Guarantors or any or all of the assets of any of the
Guarantors.
The indenture provides that if the exchange notes are defeased in
accordance with the terms of the indenture, including pursuant to a covenant
defeasance, then the Guarantors shall be released and discharged of their
obligations under the Guarantees. See "Description of Other Material
Indebtedness -- Primary Credit Facilities -- Security and Guarantees."
CERTAIN COVENANTS
Limitation on Liens
The indenture provides that Lear will not, nor will it permit any of its
Restricted Subsidiaries to, create, incur, assume or permit to exist any Lien on
any of their respective properties or assets, whether now owned or hereafter
acquired, or upon any income or profits therefrom, without effectively providing
that the notes shall be equally and ratably secured until such time as such
Indebtedness is no longer secured by such Lien, except:
(1) Permitted Liens;
(2) Liens on shares of capital stock of Subsidiaries of Lear, and the
proceeds thereof, securing obligations under the Principal Credit
Facilities;
(3) Liens on receivables subject to a Receivable Financing
Transaction;
(4) Liens arising in connection with industrial development bonds or
other industrial development, pollution control or other tax-favored or
government-sponsored financing transactions, provided that such Liens do
not at any time encumber any property other than the property financed by
such transaction and other property, assets or revenues related to the
property so financed on which Liens are customarily granted in connection
with such transactions, in each case, together with improvements and
attachments thereto;
(5) Liens granted after the Closing Date on any assets or properties
of Lear or any of its Restricted Subsidiaries to secure obligations under
the exchange notes;
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(6) Extensions, renewals and replacements of any Lien described in
subsections (1) through (5) above; and
(7) Other Liens in respect of Indebtedness of Lear and its Restricted
Subsidiaries in an aggregate principal amount at any time not exceeding 5%
of Consolidated Assets at such time.
Limitation on Sale and Lease-Back Transactions
The indenture provides that Lear will not, nor will it permit any of its
Restricted Subsidiaries to, enter into any sale and lease-back transaction for
the sale and leasing back of any property or asset, whether now owned or
hereafter acquired, of Lear or any of its Restricted Subsidiaries, except such
transactions (1) entered into prior to the Closing Date, (2) for the sale and
leasing back of any property or asset by a Restricted Subsidiary of Lear to Lear
or any other Restricted Subsidiary of Lear, (3) involving leases for less than
three years or (4) in which the lease for the property or asset is entered into
within 120 days after the later of the date of acquisition, completion of
construction or commencement of full operations of such property or asset,
unless:
(a) Lear or such Restricted Subsidiary would be entitled under the
"Limitation on Liens" covenant above to create, incur, assume or permit to
exist a Lien on the assets to be leased in an amount at least equal to the
Attributable Value in respect of such transaction without equally and
ratably securing the exchange notes, or
(b) the proceeds of the sale of the assets to be leased are at least
equal to their fair market value and the proceeds are applied to the
purchase, acquisition, construction or refurbishment of assets or to the
repayment of Indebtedness of Lear or any of its Restricted Subsidiaries
which on the date of original incurrence had a maturity of more than one
year.
CERTAIN DEFINITIONS
The following terms shall have the meanings set forth below.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Restricted Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of Lear or assumed in connection with the acquisition of assets from
such Person and not incurred by such Person in contemplation of such Person
becoming a Restricted Subsidiary of Lear or such acquisition, and any
refinancings thereof.
"Attributable Value" means, in connection with a sale and lease-back
transaction, the lesser of (1) the fair market value of the assets subject to
such transaction and (2) the present value, discounted at a rate per annum equal
to the rate of interest implicit in the lease involved in such sale and
lease-back transaction, as determined in good faith by us, of the obligations of
the lessee for rental payments during the term of the related lease.
"Closing Date" means the date on which the original notes were issued.
"Consolidated Assets" means at a particular date, all amounts which would
be included under total assets on a consolidated balance sheet of Lear and its
Restricted Subsidiaries as at such date, determined in accordance with GAAP.
"Financing Lease" means (a) any lease of property, real or personal, the
obligations under which are capitalized on a consolidated balance sheet of Lear
and its Restricted Subsidiaries and (b) any other such lease to the extent that
the then present value of the minimum rental commitment thereunder should, in
accordance with GAAP, be capitalized on a balance sheet of the lessee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are applicable from time to time.
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"Indebtedness" of a Person means all obligations which would be treated as
liabilities upon a balance sheet of such Person prepared on a consolidated basis
in accordance with GAAP.
"Investment" by any Person means:
(1) all investments by such Person in any other Person in the form of
loans, advances or capital contributions,
(2) all guarantees of Indebtedness or other obligations of any other
Person by such Person,
(3) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, capital stock or other securities of any other
Person, and
(4) 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.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement or any Financing Lease having substantially the same
economic effect as any of the foregoing.
"Permitted Liens" means:
(1) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings; provided that adequate reserves with
respect thereto are maintained on the books of Lear or its Restricted
Subsidiaries, as the case may be, in accordance with GAAP, or, in the case
of Restricted Subsidiaries organized outside the United States, generally
accepted accounting principles in effect from time to time in their
respective jurisdictions of organization;
(2) statutory Liens of landlords, carriers, warehousemen, mechanics,
materialmen, repairmen, suppliers or other like Liens arising in the
ordinary course of business relating to obligations not overdue for a
period of more than 60 days or which are bonded or being contested in good
faith by appropriate proceedings;
(3) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation, including any
Lien securing letters of credit issued in the ordinary course of business
in connection therewith and deposits securing liabilities to insurance
carriers under insurance and self-insurance programs;
(4) Liens, other than any Lien imposed by ERISA, incurred on deposits
to secure the performance of bids, trade contracts, other than for borrowed
money, leases, statutory obligations, surety and appeal bonds, performance
bonds, utility payments and other obligations of a like nature incurred in
the ordinary course of business;
(5) easements, rights-of-way, restrictions and other similar
encumbrances incurred which, in the aggregate, do not materially interfere
with the ordinary conduct of the business of Lear and its Restricted
Subsidiaries taken as a whole;
(6) attachment, judgment or other similar Liens arising in connection
with court or arbitration proceedings fully covered by insurance or
involving, individually or in the aggregate, no more than $40,000,000 at
any one time, provided that the same are discharged, or that execution or
enforcement thereof is stayed pending appeal, within 60 days or, in the
case of any stay of execution or enforcement pending appeal, within such
lesser time during which such appeal may be taken;
(7) Liens securing obligations, other than obligations representing
indebtedness for borrowed money, under operating, reciprocal easement or
similar agreements entered into in the ordinary course of business;
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(8) statutory Liens and rights of offset arising in the ordinary
course of business of Lear and its Restricted Subsidiaries;
(9) Liens in connection with leases or subleases granted to others and
the interest or title of a lessor or sublessor, other than Lear or any of
its Subsidiaries, under any lease; and
(10) Liens securing indebtedness in respect of interest rate agreement
obligations or currency agreement obligations entered into to protect
against fluctuations in interest rates or exchange rates and not for
speculative reasons.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Principal Credit Facilities" means
(1) the Second Amended and Restated Credit and Guarantee Agreement,
dated as of May 4, 1999, among Lear, Lear Corporation Canada Ltd., the
Foreign Subsidiary Borrowers (as defined therein), the Lenders Party
thereto, Bankers Trust Company and Bank of America National Trust & Savings
Association, as Co-Syndication Agents, The Bank of Nova Scotia, as
Documentation Agent and Canadian Administrative Agent, and The Chase
Manhattan Bank, as General Administrative Agent;
(2) the Interim Term Loan Agreement, dated as of May 4, 1999, among
Lear, the Lenders parties thereto, Citicorp USA, Inc. and Credit Suisse
First Boston, as Co-Syndication Agents, Deutsche Bank AG New York Branch,
as Documentation Agent, the other Agents named therein, and The Chase
Manhattan Bank, as Administrative Agent;
(3) the Revolving Credit and Term Loan Agreement, dated as of May 4,
1999, among Lear, certain of its Foreign Subsidiaries, the Lenders parties
thereto, Citicorp USA, Inc. and Morgan Stanley Senior Funding, Inc., as
Co-Syndication Agents, Toronto Dominion (Texas), Inc., as Documentation
Agent, the other Agents named therein, and The Chase Manhattan Bank, as
Administrative Agent;
(4) the Term Loan Agreement, dated November 17, 1998, between Lear and
Toronto Dominion (Texas), Inc., as amended by that certain amendment dated
as of May 4, 1999; and
(5) the Term Loan Agreement, dated as of December 3, 1998, between
Lear and Deutsche Bank AG, New York Branch and/or Cayman Islands Branch, as
amended by that certain amendment dated as of May 4, 1999,
in each case, including any related notes, collateral documents, security
documents, instruments and agreements entered into in connection therewith and,
in each case, as the same may be amended, supplemented or otherwise modified,
including any agreement extending the maturity of, increasing the total
commitment under or otherwise restructuring all or any portion of the
Indebtedness under any such agreement or any successor or replacement agreement,
renewed, refunded, replaced, restated or refinanced from time to time.
"Receivable Financing Transaction" means any transaction or series of
transactions involving a sale for cash of accounts receivable, without recourse
based upon the collectibility of the receivables sold, by Lear or any of its
Restricted Subsidiaries to a Special Purpose Subsidiary and a subsequent sale or
pledge of such accounts receivable, or an interest therein, by such Special
Purpose Subsidiary, in each case without any guarantee by Lear or any of its
Restricted Subsidiaries, other than the Special Purpose Subsidiary.
"Restricted Subsidiary" means any Subsidiary other than a Unrestricted
Subsidiary.
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"Significant Subsidiary" means any Subsidiary which has:
(1) consolidated assets or in which Lear and its other Subsidiaries
have Investments, equal to or greater than 5% of the total consolidated
assets of Lear at the end of its most recently completed fiscal year, or
(2) consolidated gross revenue equal to or greater than 5% of the
consolidated gross revenue of Lear for its most recently completed fiscal
year.
"Special Purpose Subsidiary" means any wholly owned Restricted Subsidiary
of Lear created by Lear for the sole purpose of facilitating a Receivable
Financing Transaction.
"Subsidiary" of any Person means:
(1) 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 or
(2) 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, owns at least a majority voting interest under ordinary
circumstances.
"Unrestricted Subsidiary" means any Subsidiary designated as such by the
Board of Directors of Lear; provided, however, that at the time of any such
designation by the Board of Directors, such Subsidiary does not constitute a
Significant Subsidiary; and provided, further, that at the time that any
Unrestricted Subsidiary becomes a Significant Subsidiary it shall cease to be an
Unrestricted Subsidiary.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The indenture provides that Lear 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 Lear, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have 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;
(2) the Person formed by or surviving any such consolidation or
merger, if other than Lear, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made, assumes all
our obligations under the exchange notes and the indenture; and
(3) immediately after such transaction, and giving effect thereto, no
Default, as defined in the indenture, or Event of Default shall have
occurred and be continuing. Notwithstanding the foregoing, we may merge
with another Person or acquire by purchase or otherwise all or any part of
the property or assets of any other corporation or Person in a transaction
in which we are the surviving entity.
EVENTS OF DEFAULT
The indenture provides that the following events will constitute Events of
Default with respect to the notes of each series:
- failure to pay principal of any note of such series when due and payable
at stated maturity, upon acceleration, redemption or otherwise;
- failure to pay any interest on any note of such series when due, and the
Default continues for 30 days;
- failure to comply with any of our other agreements of the notes of such
series or in the indenture, other than covenants or agreements included
in the indenture solely for the benefit of the other
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series of notes, and the Default continues for the period of 30 days
after either the trustee or the holders of at least 25% in principal
amount of the then outstanding notes of such series have given written
notice as provided in the indenture;
- any Guarantee of the notes of such series ceases to be in full force and
effect or any Guarantor denies or disaffirms its obligations under its
Guarantee of the notes of such series, except, in each case, in
connection with a release of a Guarantee in accordance with the terms of
the indenture;
- the nonpayment at maturity or other default, beyond any applicable grace
period, under any agreement or instrument relating to any other
indebtedness of Lear or its Subsidiaries, the unpaid principal amount of
which is not less than $40 million, which default results in the
acceleration of the maturity of such indebtedness prior to its stated
maturity or occurs at the final maturity thereof;
- the entry of any final judgment or orders against Lear or its
Subsidiaries in excess of $40 million individually or in the aggregate,
not covered by insurance, that is not paid, discharged or otherwise
stayed, by appeal or otherwise, within 60 days after the entry of such
judgments or orders; and
- certain events of bankruptcy, insolvency or reorganization of Lear or any
Significant Subsidiary.
If an Event of Default with respect to outstanding notes of any series,
other than an Event or Default relating to certain events of bankruptcy,
insolvency or reorganization, in which case the unpaid principal amount of, and
any accrued and unpaid interest on, all notes of that series are due and payable
immediately, shall occur and be continuing, either the trustee or the holders of
at least 25% in principal amount of the outstanding notes of such series by
notice, as provided in the indenture, may declare the unpaid principal amount
of, and any accrued and unpaid interest on, all notes of that series to be due
and payable immediately. However, at any time after a declaration of
acceleration with respect to notes of such series has been made, but before a
judgment or decree based on such acceleration has been obtained, the holders of
a majority in principal amount of the outstanding notes of that series may,
under certain circumstances, rescind and annul such acceleration. For
information as to waiver of defaults, see "Amendment, Supplement and Waiver"
below.
The indenture provides that, subject to the duty of the trustee during an
Event of Default to act with the required standard of care, the trustee will be
under no obligation to exercise any of its rights or powers under the applicable
indenture at the request or direction of any of the holders, unless such holders
shall have offered to the trustee reasonable security or indemnity. Subject to
certain provisions, including those requiring security or indemnification of the
trustee, the holders of a majority in principal amount of the outstanding notes
of each series have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the trustee, or exercising any trust
or power conferred on the trustee, with respect to the notes of such series.
We will be required to furnish to the trustee under the indenture annually
a statement as to the performance by us of our obligations under the indenture
and as to any default in such performance.
DISCHARGE OF INDENTURE AND DEFEASANCE
We may terminate our obligations under the notes of any series, and the
corresponding obligations under the indenture, when we irrevocably deposit with
the trustee funds or U.S. government obligations in an amount certified to be
sufficient (without reinvestment thereof) to pay at maturity all outstanding
notes of such series, including all interest thereon, other than destroyed, lost
or stolen notes of such series which have not been replaced or paid, and
(1) all outstanding notes of such series have been delivered, other
than destroyed, lost or stolen notes of such series which have not been
replaced or paid, to the trustee for cancellation; or
(2) all outstanding notes of such series have become due and payable,
whether at stated maturity, early redemption or otherwise,
and, in either case, we have paid all other sums payable under the indenture.
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In addition, we may terminate substantially all our obligations under the
notes of any series, and the corresponding obligations under the indenture, if
we deposit, or cause to be deposited with the trustee, in trust an amount of
cash or U.S. government obligations maturing as to principal and interest in
such amounts and at such times as are certified to be sufficient to pay
principal of and interest on the then outstanding notes of such series to
maturity or redemption, as the case may be, and
(1) such deposit will not result in a breach of, or constitute a
Default under, the indenture;
(2) no Default or Event of Default shall have occurred and be
continuing on the date of deposit and no bankruptcy Event of Default or
event which with the giving of notice or the lapse of time would become a
bankruptcy Event of Default shall have occurred and be continuing on the
91st day after such date;
(3) we deliver to the trustee an opinion of counsel to the effect that
we have received from, or there has been published by, the United States
Internal Revenue Service a ruling, or there has been a change in tax law,
in either case to the effect that the holders of the notes will not
recognize income, gain or loss for Federal income tax purposes as a result
of our 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; and
(4) certain other conditions are met.
We shall be released from our obligations with respect to the covenants
described under "-- Certain Covenants" and certain other covenants contained in
the indenture and any Event of Default occurring because of a Default with
respect to such covenants as they related to any series of notes if we deposit,
or cause to be deposited with the trustee, in trust an amount of cash or U.S.
government obligations certified to be sufficient to pay and discharge when due
the entire unpaid principal of and interest on all outstanding notes of such
series, and
(1) such deposit will not result in a breach of, or constitute a
Default under, the indenture;
(2) no Default or Event of Default shall have occurred and be
continuing on the date of deposit and no bankruptcy Event of Default or
event which with the giving of notice or the lapse of time would become a
bankruptcy Event of Default shall have occurred and be continuing on the
91st day after such date;
(3) we deliver to the trustee an opinion of counsel to the effect that
the holders of the notes will not recognize income, gain or loss for
Federal income tax purposes as a result of our 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; and
(4) certain other conditions are met.
Upon satisfaction of such conditions, our obligations under the indenture with
respect to the notes of such series, other than with respect to the covenants
and Events of Default referred to above, shall remain in full force and effect.
Notwithstanding the foregoing, no discharge or defeasance described above
shall affect the following obligations to or rights of the holders of the notes
of the series subject to such discharge or defeasance:
(1) rights of registration of transfer and exchange of notes of such
series,
(2) rights of substitution of mutilated, defaced, destroyed, lost or
stolen notes of such series,
(3) rights of holders of notes of such series to receive payments of
principal thereof and premium, if any, and interest thereon when due,
(4) the rights, obligations, duties and immunities of the trustee,
(5) rights of holders of notes of such series as beneficiaries with
respect to property deposited with the trustee and payable to all or any of
them, and
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(6) our obligations to maintain an office or agency in respect of the
notes of such series.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar for the notes 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 a selection 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 terms of the indenture or the notes may
be amended or supplemented by us and the trustee with the written consent of the
holders of at least a majority in principal amount of such then outstanding
notes of each series affected thereby by the amendment 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 of the series affected thereby.
Without the consent of any holder of the notes, we and the trustee may amend the
terms of the indenture or the notes to:
- cure any ambiguity, defect or inconsistency,
- provide for the assumption of our obligations to holders of the notes by
a successor corporation,
- provide for uncertificated notes in addition to certificated notes,
- make any change that does not adversely affect the rights of any holder
of the notes in any material respect,
- add to our covenants or take any other action for the benefit of the
holders of the notes or
- comply with any requirement of the Securities and Exchange Commission in
connection with the qualification of the indenture under the Trust
Indenture Act.
Without the consent of each holder of notes of the series affected, we may
not:
- reduce the principal amount of notes the holders of which must consent to
an amendment, supplement or waiver of any provision of the indenture;
- reduce the rate or extend the time for payment of interest on any note;
- reduce the principal of or change the stated maturity of any notes;
- change the date on which any note may be subject to redemption, or reduce
the redemption price therefor;
- make any note payable in currency other than that stated in the note;
- modify or change any provision of the indenture affecting the ranking of
the notes in a manner which adversely affects the holders thereof;
- impair the right of any holder to institute suit for the enforcement of
any payment in or with respect to any note;
- modify or change any provision of any Guarantee in a manner which
adversely affects the holders of the notes; or
- make any change in the foregoing amendment provisions which require each
holder's consent.
The consent of the holders of notes is not necessary to approve the
particular form of any proposed amendment to any indenture. It is sufficient if
any consent approves the substance of the proposed amendment.
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REPLACEMENT SECURITIES
Any mutilated certificate representing a note will be replaced by us at the
expense of the holder thereof upon surrender of such certificate to the trustee.
Certificates representing notes that become destroyed, stolen or lost will be
replaced by us at the expense of the holder upon delivery to us and the trustee
of evidence of any destruction, loss or theft thereof satisfactory to us and the
trustee, provided that neither we nor the trustee has been notified that such
certificate has been acquired by a bona fide purchaser. In the case of a
destroyed, lost or stolen certificate representing the note, an indemnity
satisfactory to the trustee and us may be required at the expense of the holder
of such note before a replacement certificate will be issued.
GOVERNING LAW
The indenture, the notes and the Guarantees will be governed by, and will
be construed in accordance with the laws of, the State of New York.
REGARDING THE TRUSTEE
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain certain limitations on the rights of the trustee,
should it become a creditor of Lear, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim,
as security or otherwise. The trustee and its affiliates may engage in, and will
be permitted to continue to engage in, other transactions with us and our
affiliates; provided, however, that if it acquires any conflicting interest, as
defined in the Trust Indenture Act, it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding notes
of each series will have the right to direct, the time, method and place of
conducting any proceeding for exercising any remedy available to the trustee.
The Trust Indenture Act and the indenture provide that in case an Event of
Default shall occur, and be continuing, the trustee will be required, in the
exercise of its rights and powers, to use the degree of care and skill of a
prudent man in the conduct of his own affairs. Subject to such provision, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request of any of the holders of the notes issued
thereunder, unless they have offered to the trustee indemnity satisfactory to
it.
BOOK-ENTRY; DELIVERY AND FORM
Book-Entry System
Lear will initially issue the exchange notes in respect of original notes
held in global form in the form of one or more global notes. The global notes
will be deposited with, or on behalf of, DTC and registered in the name of DTC
or its nominee. Except as set forth below, the global notes may be transferred,
in whole but not in part, only to DTC or another nominee of DTC. You may hold
your beneficial interests in the global notes directly through DTC if you have
an account with DTC or indirectly through organizations which have accounts with
DTC.
DTC has advised us that it is:
(1) a limited purpose trust company organized under the laws of the
State of New York,
(2) a "banking organization" within the meaning of the New York
Banking Law,
(3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and
(5) a "clearing agency" registered pursuant to Section 17A of the
Exchange Act.
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DTC was created to hold securities for its participants (collectively,
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. DTC's Participants include securities brokers and
dealers, banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively,
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Investors who are not
Participants may beneficially own securities held by or on behalf of DTC only
through Participants or Indirect Participants.
We expect that pursuant to procedures established by DTC:
(1) upon deposit of each global note with DTC, DTC will credit, on its
book-entry registration and transfer system, the principal amount of
exchange notes represented by such global notes to the accounts of
Participants, and
(2) ownership of the exchange notes will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by
DTC, with respect to the interests of Participants, and the records of
Participants and the Indirect Participants, with respect to the interests
of persons other than Participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the exchange notes represented
by a global note to such persons may be limited. In addition, because DTC can
act only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in exchange notes represented by a global note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the lack
of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the securities represented by such global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note will not be entitled to have exchange notes represented by such global note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated exchange notes, except in connection with a transfer to
an Institutional Accredited Investor, and will not be considered the owners or
holders thereof under the indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global note must rely
on the procedures of DTC and, if such holder is not a Participant or an Indirect
Participant, on the procedures of the Participant through which such holder owns
its interest, to exercise any rights of a holder of notes under the applicable
indenture or such global note. We understand that under existing industry
practice, in the event that the owner of a beneficial interest in a global note
desires to give any notice or take any action that DTC, as the holder of such
global note, is entitled to give or take, DTC would authorize the Participants
to give such notice or take such action and the Participants would authorize
holders owning through such Participants to give such notice or take such action
or would otherwise act upon the instruction of such holders. Neither we nor the
trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such notes.
Payments with respect to the principal of, and premium, if any, and
interest on, any exchange notes represented by a global note registered in the
name of DTC or its nominee on the applicable record date will be payable by the
trustee to or at the direction of DTC or its nominee in its capacity as the
registered holder of such global note representing such exchange notes under the
indenture. Under the terms of the indenture, we and the trustee may treat the
persons in whose names the exchange notes, including the global notes, are
registered as the owners thereof for the purpose of receiving payment thereon
and for any and all other purposes whatsoever. Accordingly, neither we nor the
trustee has or will have any
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responsibility or liability for the payment of such amounts to owners of
beneficial interests in a global note including principal, premium, if any, and
interest. Payments by Participants and Indirect Participants to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of such
Participants or Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the global notes among Participants of DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the trustee will have
any responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
DTC and Year 2000 Problems. DTC's management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on and after January 1,
2000, may encounter "Year 2000 problems." DTC has informed Participants and
other members of the financial community that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions, including principal and income payments, to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames. However, DTC's ability to perform its
services properly is also dependent upon other parties, including but not
limited to issuers and their agents, as well as third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
financial community that it is contacting, and will continue to contact, third
party vendors from whom DTC acquires services to impress upon them the
importance of such services being Year 2000 compliant, and to determine the
extent of their efforts for Year 2000 remediation and, as appropriate, testing
of their services. In addition, DTC is in the process of developing such
contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
Certificated Exchange Notes
Upon the occurrence of any of the following:
- we notify the trustee in writing that DTC is no longer willing or able to
act as a depositary or DTC ceases to be registered as clearing agency
under the Securities Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation,
- we, at our option, notify the trustee in writing that we elect to cause
the issuance of the applicable notes in definitive form under the
indenture or
- certain other events as provided in the indenture,
then, upon surrender by DTC of such global note, certificated notes will be
issued to each person that DTC identifies as the beneficial owner of the notes
represented by such global note. Upon any such issuance, the trustee is required
to register such certificated notes in the name of such person or persons, or
the nominee of any thereof, and cause the same to be delivered thereto.
Neither we nor the trustee shall be liable for any delay by DTC or any
Participant or Indirect Participant in identifying the beneficial owners of the
related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the notes to be issued).
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of United States federal income tax
consequences associated with the exchange of the original securities for the
exchange securities pursuant to the exchange offer and the ownership and
disposition of the exchange securities. This summary applies only to a holder of
an exchange security who acquired an original security from an Initial Purchaser
and who acquires the exchange security pursuant to the exchange offer. This
discussion is based on provisions of the Internal Revenue Code of 1986 ("Code"),
Treasury regulations promulgated thereunder, and administrative and judicial
interpretations of the foregoing, all as in effect on the date hereof and all of
which are subject to change, possibly with retroactive effect. This discussion
does not address tax consequences (1) of the purchase, ownership, or disposition
(other than pursuant to the exchange offer) of the original securities to any
holder of the original securities, or (2) of the purchase, ownership, or
disposition of the exchange securities to subsequent purchasers of the exchange
securities, and is limited to investors who hold the original securities and the
exchange securities as capital assets. The tax treatment of the holders of the
securities may vary depending upon their particular situations. In addition,
certain holders (including insurance companies, tax exempt organizations,
financial institutions, broker-dealers, and Non-U.S. Holders (as defined below)
that are engaged in a trade or business in the United States or that have ceased
to be United States citizens or to be taxed as resident aliens) may be subject
to special rules not discussed below. ALTHOUGH THE FOLLOWING IS A GENERAL
DISCUSSION OF TAX CONSEQUENCES, EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR
REGARDING THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OF THE
ORIGINAL SECURITIES FOR THE EXCHANGE SECURITIES PURSUANT TO THE EXCHANGE OFFER
AND THE OWNERSHIP DISPOSITION OF THE SECURITIES, AS WELL AS ANY ESTATE TAX
CONSEQUENCES AND ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY
RELEVANT FOREIGN, STATE, LOCAL, OR OTHER TAXING JURISDICTION.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of an
exchange security that is, for United States federal income tax purposes:
(1) a citizen or resident of the United States,
(2) a corporation or other entity treated as a corporation, created or
organized in or under the laws of the United States or of any political
subdivision thereof,
(3) an estate the income of which is subject to United States federal
income taxation regardless of its source,
(4) a trust if (a) a United States court is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust or (b) the trust was in existence on August 20, 1996, was treated
as a United States person prior to that date, and elected to continue to be
treated as a United States person, and
(5) a partnership, or other entity treated as a partnership, created
or organized in or under the laws of the United States or of any political
subdivision thereof, except as Treasury regulations may otherwise provide.
Exchange Offer
The exchange of an original security for an exchange security pursuant to
the exchange offer will not constitute a "significant modification" of the
original security for United States federal income tax purposes and,
accordingly, the exchange security received will be treated as a continuation of
the original security in the hands of the holder. As a result, there will be no
United States federal income tax consequences to a United States Holder who
exchanges an original security for an exchange security pursuant to the exchange
offer and any such holder will have the same adjusted tax basis and holding
56
<PAGE> 59
period in the exchange security as that holder had in the original security
immediately before the exchange.
Payment of Interest
Interest payable on a exchange security generally will be included in the
gross income of a United States Holder as ordinary interest income at the time
accrued or received, in accordance with such United States Holder's method of
accounting for United States federal income tax purposes.
Disposition of the Exchange Securities
Upon the sale, exchange, retirement at maturity, or other taxable
disposition of an exchange security (collectively, a "disposition"), a United
States Holder generally will recognize capital gain or loss equal to the
difference between the amount realized by such holder, except to the extent such
amount is attributable to accrued interest, which will be treated as ordinary
interest income, and such holder's adjusted tax basis in the exchange security.
Such capital gain or loss will be long-term capital gain or loss if such United
States Holder's holding period for the exchange security exceeds one year at the
time of the disposition.
Backup Withholding and Information Reporting
Backup withholding tax at a rate of 31%, and information reporting
requirements, will apply in certain circumstances to interest and principal
payments on, and proceeds from the disposition of, an exchange security held by
a United States Holder other than a corporation. Backup withholding will apply
to such a United States Holder in the event of a failure by that United States
Holder to furnish his, her or its correct taxpayer identification number to the
relevant payor or otherwise to comply with, or to establish an exemption from,
the backup withholding requirements. Corporate United States Holders generally
will be exempt from information reporting and backup withholding requirements,
but may be required to certify their status on a Form W-9 in order to secure
that exemption.
Backup withholding is not an additional tax. Any amounts withheld from a
payment to a United States Holder under the backup withholding rules will be
allowed as a credit against the holder's United States federal income tax
liability and may entitle the holder to a refund, provided that the required
information is furnished to the United States Internal Revenue Service.
Under current Treasury Regulations, payments on the sale, exchange, or
other disposition of an exchange security made to or through a foreign office of
a foreign broker generally will not be subject to backup withholding or
information reporting. However, if such broker is, for United States federal
income tax purposes, a United States person, a controlled foreign corporation, a
foreign person 50% or more of whose gross income is effectively connected with a
United States trade or business for a specified three-year period or, in the
case of payments made after December 31, 2000, a foreign partnership with
certain connections to the United States, then information reporting will be
required unless the broker has in its records documentary evidence that the
beneficial owner is not a United States person and certain other conditions are
met or the beneficial owner otherwise establishes an exemption. Backup
withholding may apply to any payment that such broker is required to report if
the broker has actual knowledge that the payee is a United States person.
Payments to or through the United States office of a broker will be subject to
backup withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a United States person or otherwise
establishes an exemption.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-U.S. Holder" means any beneficial owner of an
exchange security that is not a United States Holder.
57
<PAGE> 60
Exchange Offer
The exchange of an original security for an exchange security pursuant to
the exchange offer will not constitute a "significant modification" of the
original security for United States federal income tax purposes and,
accordingly, the exchange security received will be treated as a continuation of
the original security in the hands of the holder. As a result, there will be no
United States federal income tax consequences to a Non-U.S. Holder who exchanges
an original security for an exchange security pursuant to the exchange offer and
any such holder will have the same adjusted tax basis and holding period in the
exchange security as that holder had in the original security immediately before
the exchange.
Payment of Interest
Subject to the discussion below concerning backup withholding, payment of
interest on the exchange securities to any Non-U.S. Holder will not be subject
to United States federal withholding tax, provided that (1) such holder does not
own, actually or constructively, 10% or more of the total combined voting power
of all classes of stock of Lear entitled to vote, is not a controlled foreign
corporation related, directly or indirectly, to Lear through stock ownership,
and is not a bank receiving interest described in Section 881(c)(3)(a) of the
Code and (2) the requirement to certify such holder's non-U.S. status, as set
forth in Section 871(h) or Section 881(c) of the Code, has been fulfilled with
respect to the beneficial owner.
Disposition of the Exchange Securities
Subject to the discussion below concerning backup withholding, a Non-U.S.
Holder of an exchange security will not be subject to United States federal
income tax on gain realized on the sale, exchange, or other disposition of that
exchange security, unless:
(1) the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more in the taxable year of disposition, and certain
other conditions are met, or
(2) the gain is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business in the United States.
Backup Withholding and Information Reporting
Under current United States federal income tax law, backup withholding at a
rate of 31% will not apply to payments by Lear or any paying agent thereof on an
exchange security if the certifications required by Sections 871(h) and 881(c)
of the Code are received, provided in each case that Lear or such paying agent,
as the case may be, does not have actual knowledge that the payee is a United
States person.
Under current Treasury Regulations, payments on the sale, exchange, or
other disposition of an exchange security made to or through a foreign office of
a foreign broker generally will not be subject to backup withholding or
information reporting. However, if such broker is, for United States federal
income tax purposes, a United States person, a controlled foreign corporation, a
foreign person 50% or more of whose gross income is effectively connected with a
United States trade or business for a specified three-year period, or, in the
case of payments made after December 31, 2000, a foreign partnership with
certain connections to the United States, then information reporting will be
required unless the broker has in its records documentary evidence that the
beneficial owner is not a United States person and certain other conditions are
met or the beneficial owner otherwise establishes an exemption. Backup
withholding may apply to any payment that such broker is required to report if
the broker has actual knowledge that the payee is a United States person.
Payments to or through the United States office of a broker will be subject to
backup withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a United States person or otherwise
establishes an exemption. Recently enacted Treasury Regulations, effective for
payments after December 31, 2000, provide certain presumptions under
58
<PAGE> 61
which Non-U.S. Holders will be subject to backup withholding or information
reporting unless such holder certifies its non-U.S. status.
Non-U.S. Holders of exchange securities should consult their tax advisors
regarding the application of information reporting and backup withholding in
their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available. Any amounts withheld
from a payment to a Non-U.S. Holder under the backup withholding rules will be
allowed as a credit against that holder's United States federal income tax
liability and may entitle that holder to a refund, provided that the required
information is furnished to the United States Internal Revenue Service.
59
<PAGE> 62
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange securities for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange securities. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange securities received in
exchange for original securities where such original securities were acquired as
a result of market-making activities or other trading activities. Lear has
agreed that, for a period of 90 days after the expiration date, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale.
Lear will not receive any proceeds from any sale of exchange securities by
broker-dealers. Exchange securities received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange securities, or through a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices, or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such exchange
securities. Any broker-dealer that resells exchange securities that were
received by it for its own account pursuant to the exchange offer and any broker
or dealer that participates in a distribution of such exchange securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of exchange securities and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Lear has agreed, for a period of 90 days after the expiration date to
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. Lear has also agreed to pay all expenses incident
to the exchange offer and will indemnify the holders of the securities,
including any broker-dealers, against certain liabilities, including liabilities
under the Securities Act to the extent they arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of a material
fact contained in the registration statement or prospectus or
(2) an omission or alleged omission to state in the registration
statement or the prospectus a material fact that is necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
This indemnification obligation does not extend to statements or omissions
in the registration statement or prospectus made in reliance upon and in
conformity with written information pertaining to the holder that is furnished
to Lear by or on behalf of the holder.
LEGAL MATTERS
Winston & Strawn, New York, New York, will pass upon certain legal matters
relating to the validity of the issuance of the exchange securities offered
hereby.
EXPERTS
The audited financial statements and schedule of Lear included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as
60
<PAGE> 63
indicated in their reports with respect thereto and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The audited historical financial statements of UT Automotive, Inc.,
formerly a wholly-owned operating segment of United Technologies Corporation, as
of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998, incorporated in this prospectus by reference to Lear's
Current Report on Form 8-K dated May 4, 1999, have been so incorporated in
reliance on the report on PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of the Seating Business formerly of the Delphi
Interior Systems Division of Delphi Automotive Systems Corporation as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, incorporated by reference in this prospectus from Lear's
Current Report on Form 8-K/A dated September 1, 1998, and filed with the
Securities and Exchange Commission on November 17, 1998, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
61
<PAGE> 64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEAR CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Public Accountants.................... F-40
Schedule II-Valuation and Qualifying Accounts............... F-41
Consolidated Balance Sheets as of October 2, 1999
(unaudited) and December 31, 1998......................... F-42
Consolidated Statements of Income for the three and nine
months ended October 2, 1999 and September 26, 1998
(unaudited)............................................... F-43
Consolidated Statements of Cash Flows for the nine months
ended October 2, 1999 and September 26, 1998
(unaudited)............................................... F-44
Notes to the Consolidated Financial Statements.............. F-45
UT AUTOMOTIVE, INC.
Introduction to the Unaudited Combined Financial
Statements................................................ F-62
Unaudited Combined Balance Sheets -- March 31, 1999 and
December 31, 1998......................................... F-63
Unaudited Combined Statements of Income -- Three Month
Periods Ended March 31, 1999 and March 31, 1998........... F-64
Unaudited Combined Statements of Cash Flows -- Three Month
Periods Ended March 31, 1999 and March 31, 1998........... F-65
Notes to the Unaudited Combined Financial Statements........ F-66
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Corporation:
We have audited the accompanying consolidated balance sheets of LEAR
CORPORATION AND SUBSIDIARIES ("the Company") as of December 31, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Detroit, Michigan,
January 29, 1999 (except with respect to the matters discussed
in Note 18, as to which the date is May 18, 1999).
F-2
<PAGE> 66
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---- ----
(IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 30.0 $ 12.9
Accounts receivable, net of reserves of $16.0 in 1998 and
$14.7 in 1997.......................................... 1,373.9 1,065.8
Inventories............................................... 349.6 231.4
Recoverable customer engineering and tooling.............. 221.4 152.6
Other..................................................... 223.1 152.2
-------- --------
Total current assets................................... 2,198.0 1,614.9
-------- --------
LONG-TERM ASSETS:
Property, plant and equipment, net........................ 1,182.3 939.1
Goodwill, net............................................. 2,019.8 1,692.3
Other..................................................... 277.2 212.8
-------- --------
Total long-term assets................................. 3,479.3 2,844.2
-------- --------
$5,677.3 $4,459.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 82.7 $ 37.9
Accounts payable and drafts............................... 1,600.8 1,186.5
Accrued liabilities....................................... 797.5 620.5
Current portion of long-term debt......................... 16.5 9.1
-------- --------
Total current liabilities.............................. 2,497.5 1,854.0
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes............................ 39.0 61.7
Long-term debt............................................ 1,463.4 1,063.1
Other..................................................... 377.4 273.3
-------- --------
Total long-term liabilities............................ 1,879.8 1,398.1
-------- --------
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share, 150,000,000 shares
authorized and 67,194,314 and 66,872,188 shares issued
at December 31,1998 and 1997, respectively............. .7 .7
Additional paid-in capital................................ 859.3 851.9
Notes receivable from sale of common stock................ (.1) (.1)
Common stock held in treasury, 510,230 and 10,230 shares
at December 31, 1998 and 1997, respectively, at cost... (18.3) (.1)
Retained earnings......................................... 504.7 401.3
Accumulated other comprehensive income.................... (46.3) (46.7)
-------- --------
Total stockholders' equity............................. 1,300.0 1,207.0
-------- --------
$5,677.3 $4,459.1
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 67
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $9,059.4 $7,342.9 $6,249.1
Cost of sales............................................... 8,198.0 6,533.5 5,629.4
Selling, general and administrative expenses................ 337.0 286.9 210.3
Restructuring and other charges............................. 133.0 -- --
Amortization of goodwill.................................... 49.2 41.4 33.6
-------- -------- --------
Operating income.......................................... 342.2 481.1 375.8
Interest expense............................................ 110.5 101.0 102.8
Other expense, net.......................................... 16.9 34.3 19.6
-------- -------- --------
Income before provision for national income taxes,
minority interests in consolidated subsidiaries, equity
in net income of affiliates and extraordinary item..... 214.8 345.8 253.4
Provision for national income taxes......................... 93.9 143.1 101.5
Minority interests in consolidated subsidiaries............. 6.9 3.3 4.0
Equity in net income of affiliates.......................... (1.5) (8.8) (4.0)
-------- -------- --------
Income before extraordinary item.......................... 115.5 208.2 151.9
Extraordinary loss on early extinguishment of debt.......... -- (1.0) --
-------- -------- --------
Net income................................................ $ 115.5 $ 207.2 $ 151.9
======== ======== ========
Basic net income per share:
Income before extraordinary item.......................... $1.73 $3.14 $2.51
Extraordinary loss........................................ -- (.01) --
-------- -------- --------
Basic net income per share.................................. $1.73 $3.13 $2.51
======== ======== ========
Diluted net income per share:
Income before extraordinary item.......................... $1.70 $3.05 $2.38
Extraordinary loss........................................ -- (.01) --
-------- -------- --------
Diluted net income per share................................ $1.70 $3.04 $2.38
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 68
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
---- ---- ----
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of period.............................. $ .7 $ .7 $ .6
Sale of common stock (Note 5)............................... -- -- .1
-------- -------- --------
Balance at end of period.................................... $ .7 $ .7 $ .7
======== ======== ========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period.............................. $ 851.9 $ 834.5 $ 559.1
Sale of common stock (Note 5)............................... -- -- 242.7
Stock options exercised..................................... 3.4 8.4 6.7
Stock options cancelled..................................... -- (5.8) --
Tax benefit of stock options exercised...................... 4.0 14.8 17.0
Conversion of Masland stock options......................... -- -- 9.0
-------- -------- --------
Balance at end of period.................................... $ 859.3 $ 851.9 $ 834.5
======== ======== ========
NOTES RECEIVABLE FROM SALE OF COMMON STOCK
Balance at beginning of period.............................. $ (.1) $ (.6) $ (.9)
Repayment of stockholders' notes receivable................. -- .5 .3
-------- -------- --------
Balance at end of period.................................... $ (.1) $ (.1) $ (.6)
======== ======== ========
TREASURY STOCK
Balance at beginning of period.............................. $ (.1) $ (.1) $ (.1)
Purchases, 500,000 shares at an average price of $36.50 per
share..................................................... (18.2) -- --
-------- -------- --------
Balance at end of period.................................... $ (18.3) $ (.1) $ (.1)
======== ======== ========
RETAINED EARNINGS
Balance at beginning of period.............................. $ 401.3 $ 194.1 $ 42.2
Net income.................................................. 115.5 207.2 151.9
Net loss from change in consolidation policy (Note 1)....... (12.1) -- --
-------- -------- --------
Balance at end of period.................................... $ 504.7 $ 401.3 $ 194.1
======== ======== ========
ACCUMULATED OTHER COMPREHENSIVE INCOME
Minimum Pension Liability
Balance at beginning of period.............................. $ (.5) $ (1.0) $ (3.5)
Minimum pension liability adjustment........................ (11.3) .5 2.5
-------- -------- --------
Balance at end of period.................................... $ (11.8) $ (.5) $ (1.0)
======== ======== ========
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance at beginning of period.............................. $ (46.2) $ (8.9) $ (17.4)
Cumulative translation adjustments.......................... 11.7 (37.3) 8.5
-------- -------- --------
Balance at end of period.................................... $ (34.5) $ (46.2) $ (8.9)
-------- -------- --------
Accumulated other comprehensive income...................... $ (46.3) $ (46.7) $ (9.9)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. $1,300.0 $1,207.0 $1,018.7
======== ======== ========
COMPREHENSIVE INCOME
Net income.................................................. $ 115.5 $ 207.2 $ 151.9
Net loss from change in consolidation policy, including tax
of $1.2 (Note 1).......................................... (12.1) -- --
Minimum pension liability adjustment, net of tax of $6.1,
$(.2) and $(1.3) in 1998, 1997 and 1996, respectively..... (11.3) .5 2.5
Cumulative translation adjustments.......................... 11.7 (37.3) 8.5
-------- -------- --------
Comprehensive income........................................ $ 103.8 $ 170.4 $ 162.9
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 69
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 115.5 $ 207.2 $ 151.9
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization of goodwill................. 219.7 184.4 142.3
Postretirement benefits accrued, net...................... 15.3 8.5 6.9
Loss on long-lived assets................................. 33.2 -- --
Net loss from change in consolidation policy (Note 1)..... (12.1) -- --
Recoverable customer engineering and tooling, net......... (119.1) (48.4) (35.3)
Extraordinary loss........................................ -- 1.0 --
Other, net................................................ (28.9) (3.7) (19.1)
Net change in working capital items....................... 61.8 100.4 215.9
------- ------- -------
Net cash provided by operating activities.............. 285.4 449.4 462.6
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (351.4) (187.9) (153.8)
Acquisitions................................................ (328.2) (332.2) (529.0)
Other, net.................................................. 1.8 .4 1.1
------- ------- -------
Net cash used in investing activities.................. (677.8) (519.7) (681.7)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings, net (Note 9)......... 317.0 136.9 (211.3)
Other long-term debt borrowings, net........................ 58.3 (133.0) 203.6
Short-term borrowings, net.................................. 43.2 24.2 (7.5)
Proceeds from sale of common stock, net..................... 3.4 8.4 249.5
Purchase of treasury stock, net............................. (18.2) -- --
Increase (decrease) in drafts............................... (19.9) 2.2 (29.5)
Other, net.................................................. -- .3 (3.2)
------- ------- -------
Net cash provided by financing activities.............. 383.8 39.0 201.6
------- ------- -------
Effect of foreign currency translation...................... 25.7 18.2 9.4
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 17.1 (13.1) (8.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 12.9 26.0 34.1
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 30.0 $ 12.9 $ 26.0
======= ======= =======
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS:
Accounts receivable, net.................................... $(218.6) $ (72.7) $ 42.5
Inventories................................................. (59.9) (10.3) 30.9
Accounts payable............................................ 322.1 150.4 52.7
Accrued liabilities and other............................... 18.2 33.0 89.8
------- ------- -------
Net change in working capital items......................... $ 61.8 $ 100.4 $ 215.9
======= ======= =======
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest...................................... $109.0 $109.3 $97.0
======= ======= =======
Cash paid for income taxes.................................. $119.9 $ 91.9 $74.3
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 70
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear
Corporation, a Delaware corporation ("Lear" or the "Parent"), and its
wholly-owned and majority-owned subsidiaries (collectively, the "Company").
Investments in affiliates in which Lear owns a 20% or greater equity interest
are accounted for under the equity method (Note 7).
The Company and its affiliates are involved in the design and manufacture
of interior systems and components for automobiles and light trucks. The
Company's main customers are automotive original equipment manufacturers. The
Company operates facilities worldwide (Note 14). Effective December 31, 1998,
certain international operating facilities, which had previously been included
in the consolidated financial statements based on fiscal years ending November
30, are now included in the consolidated financial statements based on fiscal
years ending December 31. Net sales at these international facilities for
December 1998 were $339.9 million, and the December 1998 net loss from these
international facilities was charged to retained earnings.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Finished goods and work-in-process
inventories include material, labor and manufacturing overhead costs.
Inventories are comprised of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Raw materials............................................... $253.9 $165.7
Work-in-process............................................. 23.8 22.5
Finished goods.............................................. 71.9 43.2
------ ------
Inventories................................................. $349.6 $231.4
====== ======
</TABLE>
Recoverable Customer Engineering and Tooling
Costs incurred for certain engineering and tooling projects for which the
Company will receive customer recovery are capitalized and classified as either
recoverable customer engineering and tooling or other long-term assets,
dependent upon when recovery is anticipated. Provisions for losses are provided
at the time the Company anticipates engineering and tooling costs will exceed
anticipated customer recovery.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciable property is
depreciated over the estimated useful lives of the assets, using principally the
straight-line method as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 20 to 25 years
Machinery and equipment..................................... 5 to 15 years
</TABLE>
F-7
<PAGE> 71
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of property, plant and equipment is shown below (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Land...................................................... $ 70.6 $ 60.5
Buildings and improvements................................ 429.6 345.9
Machinery and equipment................................... 1,197.8 919.4
Construction in progress.................................. 78.4 54.8
-------- --------
Total property, plant and equipment....................... 1,776.4 1,380.6
Less -- accumulated depreciation.......................... (594.1) (441.5)
-------- --------
Net property, plant and equipment......................... $1,182.3 $ 939.1
======== ========
</TABLE>
Goodwill
Goodwill is amortized on a straight-line basis over 40 years. Accumulated
amortization of goodwill amounted to $206.3 million and $156.9 million at
December 31, 1998 and 1997, respectively. The Company evaluates the carrying
value of goodwill for potential impairment if the facts and circumstances of the
operations to which goodwill relates suggest that it may be impaired. Such
evaluations consider significant declines in sales, earnings or cash flows or
material adverse changes in the business climate. If any impairment is
indicated, the Company would measure it by comparing the undiscounted cash flow
of the business to its book value including goodwill.
Long Term Assets
The Company complies with Statement of Financial Accounting Standards
("SFAS") No. 121, "Recognition of Impairment of Long-Lived Assets." In
accordance with this statement, the Company reevaluates the carrying values of
its long-term assets whenever circumstances arise which call into question the
recoverability of such carrying values. The evaluation takes into account all
future estimated cash flows from the use of assets, with an impairment being
recognized if the evaluation indicates that the future cash flows will not be
greater than the carrying value. An impairment charge of $33.2 million was
recognized in 1998 in connection with the restructuring (Note 3).
Revenue Recognition and Sales Commitments
The Company recognizes revenue as its products are shipped to its
customers. The Company enters into agreements with its customers to produce
products at the beginning of a given vehicle's life. Once such agreements are
entered into by the Company, fulfillment of the customers' purchasing
requirements is the obligation of the Company for the entire production life of
the vehicle, with terms of up to 10 years. These agreements generally may be
terminated by the customer (but not by the Company) at any time, but in general
are not. The Company, in certain instances, may be committed under existing
agreements to supply product to its customers at selling prices which are not
sufficient to cover the direct cost to produce such product. In such situations,
the Company records a liability for the estimated future amount of such losses.
Such losses are recognized at the time that the loss is probable and reasonably
estimable and are recorded at the minimum amount necessary to fulfill the
Company's obligations to its customer. Losses are determined on a separate
agreement basis and are estimated based upon information available at the time
of the estimate, including future production volume estimates, length of the
program and selling price and production cost information.
Research and Development
Costs incurred in connection with the development of new products and
manufacturing methods to the extent not recoverable from the Company's customers
are charged to selling, general and
F-8
<PAGE> 72
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
administrative expenses as incurred. These costs amounted to $116.6 million,
$90.4 million and $70.0 million for the years ended December 31, 1998, 1997 and
1996, respectively.
Foreign Currency Translation
With the exception of foreign subsidiaries operating in highly inflationary
economies, which are measured in U.S. dollars, assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at the exchange rates in effect at
the end of the period. Revenues and expenses of foreign subsidiaries are
translated using an average of exchange rates in effect during the period.
Translation adjustments that arise from translating a foreign subsidiary's
financial statements from the functional currency to U.S. dollars are reflected
in accumulated other comprehensive income in the consolidated balance sheets.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of a foreign currency
investment position, are included in the results of operations as incurred.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Generally, assets and
liabilities subject to estimation and judgment include amounts related to
unsettled pricing discussions with customers and suppliers, pension and other
postretirement costs (Note 11), plant consolidation and reorganization reserves
(Note 3), self-insurance accruals, asset valuation reserves and accruals related
to litigation and environmental remediation costs. Management does not believe
that the ultimate settlement of any such assets or liabilities will materially
affect the Company's financial position or future results of operations.
Net Income Per Share
Basic net income per share is computed using the weighted average common
shares outstanding during the period. Diluted net income per share is computed
using the average share price during the period when calculating the dilutive
effect of stock options. Shares outstanding were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares
outstanding................................. 66,947,135 66,304,770 60,485,696
Dilutive effect of stock options............ 1,076,240 1,943,313 3,275,938
---------- ---------- ----------
Diluted shares outstanding.................. 68,023,375 68,248,083 63,761,634
========== ========== ==========
</TABLE>
Comprehensive Income
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income. Comprehensive income is defined as all changes in a
Company's net assets except changes resulting from transactions with
shareholders. It differs from net income in that certain items currently
recorded to equity are included in comprehensive income. Prior years have been
restated to conform to the requirements of SFAS No. 130.
Reclassifications
Certain items in prior years' financial statements have been reclassified
to conform with the presentation used in the year ended December 31, 1998.
F-9
<PAGE> 73
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(3) RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1998, the Company began to implement a
restructuring plan designed to lower its cost structure and improve the
long-term competitive position of the Company. As a result of this restructuring
plan, the Company recorded pre-tax charges of $133.0 million, consisting of
$110.5 million of restructuring charges and $22.5 million of other charges.
Included in this total are the costs to consolidate the Company's European
operations of $78.9 million, charges resulting from the consolidation of certain
manufacturing and administrative operations in North and South America of $31.6
million, other asset impairment charges of $15.0 million and contract
termination fees and other of $7.5 million.
The consolidation of the European operations includes the closing of six
manufacturing facilities and two administrative offices. These facilities are
expected to be closed by the end of 1999. The majority of the European countries
in which the Company operates have statutory requirements with regards to the
minimum severance payments that must be made to employees upon termination. The
Company has accrued $37.7 million of severance costs for approximately 210
salaried and 1,040 hourly employees under SFAS No. 112, "Employers' Accounting
for Postemployment Benefits," at December 31, 1998, as the Company anticipates
this is the minimum aggregate severance payments that will be made in accordance
with these statutory requirements. The accrual of $37.7 million of severance
costs recorded under SFAS 112 includes employees in two countries, Italy and
Sweden. The accrual in Italy includes $5.3 million for 220 manufacturing and
support personnel and $1.7 million for 131 Engineering and administrative
personnel. The accrual in Sweden includes $27.7 million for 820 manufacturing
and support personnel and $3.0 million for 79 engineering and administrative
personnel.
In addition, the Company has also accrued $5.5 million for separation pay
for approximately 450 employees at European locations where the individuals have
been notified of their planned termination, of which 77 employees were
terminated as of December 31, 1998. The European consolidation has also resulted
in lease cancellation costs with a net present value of $22.1 million and asset
impairment charges of $11.7 million. The asset impairment charges include a $3.6
million write-down to fair value less disposal costs of land and buildings based
upon appraisals and a $8.1 million write-down to fair value less disposal costs
of machinery and equipment made obsolete or redundant due to the decision to
close or consolidate European facilities. Other costs incurred to consolidate
these facilities amount to $1.9 million, consisting mainly of government grant
repayments. The Company anticipates incurring the majority of these costs in
1999 with the exception of the lease cancellation costs, for which payments
extend out for up to 9 years.
In addition, the Company is eliminating two manufacturing facilities in
North America and three in South America. These facility closures are expected
to be finalized by the end of 1999. Management feels that these consolidations
better position the Company in terms of capacity, location and utilization in
the future. The charge consists of severance of $5.2 million for approximately
470 employees notified prior to December 31, 1998, of which 172 employees were
terminated as of December 31, 1998, a $6.5 million write-down of assets to their
fair value less disposal costs, lease cancellation costs of $4.5 million and
other costs to close the facilities of $.4 million. The asset impairment charges
include a $2.1 million write-down to fair value less disposal costs of land and
buildings based upon appraisals and a $4.4 million write-down to fair value less
disposal costs of machinery and equipment made obsolete or redundant due to the
decision to close or consolidate facilities. The write-down of fixed assets has
been recorded in 1998, while the payments related to the other costs are
anticipated to take place in 1999. Lear also implemented a plan to consolidate
certain administrative functions and to reduce the U.S. salaried workforce. As
of December 31, 1998, approximately 830 salaried employees were notified that
their positions were being eliminated and were presented with the severance
packages that they will receive upon their departure from the Company, of which
814 employees were terminated as of December 31, 1998. As a result, the Company
recorded a charge of $15.0 million to cover severance pay and benefits offered
to these employees.
F-10
<PAGE> 74
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company has reevaluated the carrying value of its long-lived assets as
a result of changes in the economic condition of certain countries in which the
Company operates and the consolidation of specific operations in North and South
America. The carrying values of these assets were determined to be impaired as
the separately identifiable, anticipated, undiscounted future cash flows from
such assets were less than their respective carrying values. The resulting
impaired asset charges of $15.0 million, included in other charges, consist of a
valuation allowance on the collectibility of a note receivable from a South
American supplier of $6.5 million, the write-down of equipment of $5.6 million
and the write-down of costs related to the termination of an information systems
project of $2.9 million.
The costs of contract terminations and other are comprised primarily of a
contract termination penalty related to a sales representation contract.
The following table summarizes the restructuring and other charges (in
millions):
<TABLE>
<CAPTION>
UTILIZED ACCRUAL
ORIGINAL ---------------- BALANCE AT
PROVISION CASH NONCASH DECEMBER 31, 1998
--------- ---- ------- -----------------
<S> <C> <C> <C> <C>
European Operations Consolidation:
Severance......................................... $ 43.2 $(3.4) $39.8
Asset impairments................................. 11.7 $(11.7) --
Lease cancellation costs.......................... 22.1 22.1
Other closure costs............................... 1.9 1.9
North and South America Operations Consolidation:
Severance......................................... 20.2 (5.1) 15.1
Asset impairments................................. 6.5 (6.5) --
Lease cancellation costs.......................... 4.5 4.5
Other closure costs............................... .4 .4
Other charges:
Asset impairments................................. 15.0 (15.0) --
Other............................................. 7.5 7.5
------ ----- ------ -----
Total.......................................... $133.0 $(8.5) $(33.2) $91.3
====== ===== ====== =====
</TABLE>
(4) ACQUISITIONS
1998 ACQUISITIONS
Delphi Seating Systems
In September 1998, the Company purchased the seating business of Delphi
Automotive Systems, a division of General Motors Corporation ("Delphi Seating").
Delphi Seating was a leading supplier of seat systems to General Motors with
sixteen facilities located throughout ten countries. The aggregate purchase
price for the acquisition of Delphi Seating (the "Delphi Acquisition") was
$246.6 million. Funds for the Delphi Acquisition were provided by borrowings
under the Credit Agreement (Note 9).
The Delphi Acquisition was accounted for as a purchase, and accordingly,
the assets purchased and liabilities assumed have been reflected in the
accompanying consolidated balance sheet as of December 31, 1998. The operating
results of Delphi Seating have been included in the consolidated financial
statements
F-11
<PAGE> 75
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
of the Company since the date of acquisition. The purchase price and related
allocation were as follows (in millions):
<TABLE>
<S> <C>
Consideration paid to former owner, net of cash acquired of
$6.0 million................................................ $212.9
Deferred purchase price..................................... 30.0
Debt assumed................................................ .5
Estimated fees and expenses................................. 3.2
------
Cost of acquisition.................................... $246.6
======
Property, plant and equipment............................... $ 50.8
Net working capital......................................... 15.1
Other assets purchased and liabilities assumed, net......... (15.6)
Goodwill.................................................... 196.3
------
Total cost allocation.................................. $246.6
======
</TABLE>
The purchase price and related allocation may be revised up to one year
from the date of acquisition, as a result of obtaining more information
regarding property valuations, liabilities assumed, outcomes of final
negotiations with the former owner, revisions of preliminary estimates of fair
values and finalization of restructuring plans. While there may be revisions,
the Company does not know whether there will be a material change as additional
information on issues such as those noted above is not available at this time.
The final purchase price and related allocation will be completed by the end of
August 1999.
During the third quarter of 1998, the Company began to implement
restructuring plans designed to integrate the operations of Delphi Seating. As
of December 31, 1998, the Company recorded an adjustment to the original
purchase price allocation of $7.2 million, consisting of $3.2 million of asset
impairment charges, $1.2 million of severance, $1.2 million of lease
cancellation costs and $1.6 million of other charges, consisting mainly of
government grant repayments. The asset impairment charges represent the
write-down to fair value less disposal costs of equipment made obsolete or
redundant due to the decision to close or exit facilities.
The following pro forma unaudited financial data is presented to illustrate
the estimated effects of the Delphi Acquisition as if this transaction had
occurred as of the beginning of each year presented (in millions, except per
share data).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1998 1997
PRO FORMA PRO FORMA
--------- ---------
<S> <C> <C>
Net sales............................................... $9,728.4 $8,411.1
Income before extraordinary item........................ 27.9 44.1
Net income.............................................. 27.9 43.1
Basic income per share before extraordinary item........ .42 .67
Diluted income per share before extraordinary item...... .41 .65
Basic net income per share.............................. .42 .65
Diluted net income per share............................ .41 .63
</TABLE>
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. The Company
believes there are adjustments that could affect pro forma net income for the
years ended December 31, 1998 and 1997 related to the Delphi Acquisition which
have not been reflected in the pro forma financial information, as such
adjustments represent adjustments to the historical operating results of Delphi.
These adjustments primarily relate to costs incurred as a result of actions
taken by the former owner prior to the date of acquisition and other cost
allocations which the Company believes will not have a continuing impact on our
results of operations.
F-12
<PAGE> 76
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The adjustments were determined using allocation methods consistent with those
used in deriving Delphi's audited financial statements and include:
- operating losses of approximately $27.3 million and $46.3 million in 1998
and 1997, respectively, related to plants closed by the former owner
prior to the date of acquisition where the Company did not acquire or
assume any of the related obligations;
- charges of approximately $15.3 million and $20.7 million in 1998 and
1997, respectively, related to employee benefit obligations which were
not assumed by the Company; and
- charges of approximately $56.1 million and $32.2 million in 1998 and
1997, respectively, related to a general corporate allocation which had
previously been allocated by the former owner. The Company believes based
upon its experience of operating Delphi Seating since September 1, 1998,
reasonable estimates of Delphi Seating's general corporate costs on a
stand-alone basis would have been approximately $15.4 million and $23.1
million in 1998 and 1997, respectively.
Other 1998 Acquisitions
In May 1998, the Company acquired, in separate transactions, Gruppo Pianfei
S.r.L. ("Pianfei"), Strapazzini Resine S.r.L. ("Strapazzini") and the A.W.
Chapman Ltd. and A.W. Chapman Belgium NV subsidiaries of the Rodd Group Limited
("Chapman"). Each of the acquired companies was a supplier of automotive
interiors to the European automotive market. These acquisitions were accounted
for as purchases, and accordingly, the assets purchased and liabilities assumed
have been reflected in the accompanying consolidated balance sheet as of
December 31, 1998. The operating results of these acquired companies have been
included in the consolidated financial statements of the Company since the date
of each acquisition. The aggregate cash paid for these acquisitions was $115.3
million, with funds provided by borrowings under the Credit Agreement (Note 9).
The pro forma effects of these acquisitions would not be materially different
from reported results.
During the second quarter of 1998, the Company began to implement
restructuring plans designed to integrate the operations of recently acquired
Pianfei, Strapazzini and Chapman. As of December 31, 1998 the Company recorded
an adjustment to the original purchase price allocation of $9.4 million,
consisting of $3.9 million of asset impairment charges, $3.4 million of
severance and $2.1 million of lease cancellation costs. The asset impairment
charges represent the write-down to fair value less disposal costs of equipment
made obsolete or redundant due to the decision to close or exit facilities.
1997 ACQUISITIONS
In August 1997, the Company acquired the Seat Sub-Systems Unit of ITT
Automotive, a division of ITT Industries ("ITT Seat Sub-Systems"). ITT Seat
Sub-Systems was a North American supplier of power seat adjusters and power
recliners.
In July 1997, the Company acquired certain equity and partnership interests
in Keiper Car Seating GmbH & Co. and certain of its subsidiaries and affiliates
(collectively, "Keiper Seating") for approximately $252.5 million. Keiper
Seating was a leading supplier of automotive vehicle seat systems with
operations in Germany, Italy, Hungary, Brazil and South Africa.
As part of the Keiper Seating acquisition, the Company acquired a 25%
ownership interest in Euro American Seating Corporation ("EAS"). On December 12,
1997, the Company acquired the remaining 75% of EAS. EAS was a supplier of
automotive seat systems to original equipment manufacturers.
In June 1997, the Company acquired all of the outstanding shares of common
stock of Dunlop Cox Limited ("Dunlop Cox"). Dunlop Cox, based in Nottingham,
England, provided Lear with the ability to design and manufacture manual and
electronically-powered automotive seat adjusters.
F-13
<PAGE> 77
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The ITT Seat Sub-Systems, Keiper Seating and Dunlop Cox acquisitions
(collectively, the "1997 Acquisitions") were accounted for as purchases, and
accordingly, the assets purchased and liabilities assumed in the acquisitions
have been reflected in the accompanying consolidated balance sheets. The
operating results of the 1997 Acquisitions have been included in the
consolidated financial statements of the Company since the date of each
acquisition. Funds for the 1997 Acquisitions were provided by borrowings under
the Company's then existing credit agreements. The aggregate purchase price of
the 1997 Acquisitions and final allocation, which were not materially different
than preliminary estimates, were as follows (in millions):
<TABLE>
<S> <C>
Consideration paid to former owners, net of cash acquired of
$9.2 million................................................ $332.2
Deferred purchase price..................................... 28.1
Debt assumed................................................ 4.4
Estimated fees and expenses................................. 3.5
------
Cost of acquisition.................................... $368.2
======
Property, plant and equipment............................... $ 85.0
Net working capital......................................... 12.5
Other assets purchased and liabilities assumed, net......... (4.9)
Goodwill.................................................... 275.6
------
Total cost allocation.................................. $368.2
======
</TABLE>
The pro forma effects of these acquisitions would not be materially
different from reported results.
1996 ACQUISITIONS
Borealis Industrier, AB
In December 1996, the Company acquired all of the issued and outstanding
capital stock of Borealis Industrier, AB ("Borealis") for an aggregate purchase
price of $91.1 million (including the assumption of $18.8 million of Borealis
existing net indebtedness and $1.5 million of fees and expenses). Borealis was a
supplier of instrument panels and other interior components to the European
automotive market. The Borealis acquisition was accounted for as a purchase, and
accordingly, the assets purchased and liabilities assumed have been reflected in
the accompanying consolidated balance sheets. The operating results of Borealis
have been included in the consolidated financial statements of the Company since
the date of acquisition.
Masland Corporation
In June 1996, the Company, through a wholly-owned subsidiary ("PA
Acquisition Corp."), acquired 97% of the issued and outstanding shares of common
stock of Masland Corporation ("Masland") pursuant to an offer to purchase which
was commenced on May 30, 1996. On July 1, 1996, the remaining issued and
outstanding shares of common stock of Masland were acquired and PA Acquisition
Corp. merged with and into Masland, such that Masland became a wholly-owned
subsidiary of the Company. The aggregate purchase price for the acquisition of
Masland (the "Masland Acquisition") was $473.8 million (including the assumption
of $80.7 million of Masland's existing net indebtedness and $8.1 million in fees
and expenses). Funds for the Masland Acquisition were provided by borrowings
under the Company's then existing credit agreements.
Masland was a leading supplier of flooring and acoustic systems to the
North American automotive market. Masland also was a major supplier of interior
luggage compartment trim components and other acoustical products which are
designed to minimize noise, vibration and harshness for passenger cars and light
trucks.
The Masland Acquisition was accounted for as a purchase, and accordingly,
the assets purchased and liabilities assumed in the acquisition have been
reflected in the accompanying consolidated balance sheets.
F-14
<PAGE> 78
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The operating results of Masland have been included in the consolidated
financial statements of the Company since the date of acquisition. The purchase
price and final allocation, which were not materially different than preliminary
estimates, were as follows (in millions):
<TABLE>
<S> <C>
Consideration paid to stockholders, net of cash acquired of
$16.1 million............................................... $337.8
Consideration paid to former Masland stock option holders... 22.1
Debt assumed................................................ 96.8
Stock options issued to former Masland option holders....... 9.0
Fees and expenses........................................... 8.1
------
Cost of acquisition.................................... $473.8
======
Property, plant and equipment............................... $125.8
Net working capital......................................... 31.5
Other assets purchased and liabilities assumed, net......... (15.7)
Goodwill.................................................... 332.2
------
Total cost allocation.................................. $473.8
======
</TABLE>
The pro forma unaudited financial data is presented to illustrate the
estimated effects of the Masland Acquisition, the related financing and
subsequent refinancing (Notes 5 and 6) as if these transactions had occurred as
of the beginning of the year presented as follows (in millions, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
PRO FORMA
---------
<S> <C>
Net sales................................................... $6,510.8
Net income.................................................. 153.9
Basic net income per share.................................. 2.39
Diluted net income per share................................ 2.27
</TABLE>
(5) PUBLIC STOCK OFFERINGS
COMPANY OFFERINGS
In July 1996, the Company issued and sold 7,500,000 shares of common stock
in a public offering (the "1996 Offering"). The total proceeds to the Company
from the stock issuance were $251.3 million. Fees and expenses related to the
1996 Offering totaled $8.5 million, including approximately $1.1 million paid to
Lehman Brothers Inc., an affiliate of the Lehman Funds. Net of issuance costs,
the Company received $242.8 million, which was used to repay debt incurred in
connection with the Masland Acquisition (Note 4).
SECONDARY OFFERINGS
In June 1997, the Company's then-largest stockholders, certain merchant
banking partnerships affiliated with Lehman Brothers Holdings, Inc., (the
"Lehman Funds"), sold all 10,284,854 of their remaining shares of common stock
of Lear in a secondary offering. Prior to the offering, the Lehman Funds held
approximately 16% of the outstanding common stock of the Company. The Company
received no proceeds from the sale of these shares.
Concurrent with the 1996 Offering, 7,500,000 shares were sold by certain
stockholders of the Company, including the Lehman Funds. The Company received no
proceeds from the sale of these shares.
(6) SUBORDINATED NOTES OFFERINGS
In July 1996, the Company completed a public offering of $200.0 million
principal amount of its 9 1/2% Subordinated Notes due 2006 (the "9 1/2% Notes").
Interest is payable on the 9 1/2% Notes semi-annually on January 15 and July 15.
Fees and expenses related to the issuance of the 9 1/2% Notes were approximately
F-15
<PAGE> 79
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
$4.5 million. Net of issuance costs, the Company received $195.5 million, which
was used to repay debt incurred in connection with the Masland Acquisition (Note
4).
(7) INVESTMENTS IN AFFILIATES
The investments in affiliates, which are accounted for using the equity
method, are as follows:
<TABLE>
<CAPTION>
PERCENT BENEFICIAL
OWNERSHIP AS OF
DECEMBER 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sommer Masland UK Limited................................... 50% 50% 50%
Industrias Cousin Freres, S.L. (Spain)...................... 50 50 50
Lear -- Donnelly Overhead Systems, L.L.C. .................. 50 50 --
SALBI, A.B. ................................................ 50 50 50
Detroit Automotive Interiors, L.L.C. ....................... 49 49 49
Autoform Kunststoffteile GmbH............................... 45 -- --
Interiores Automotrices Summa, S.A. de C.V. (Mexico)........ 40 40 40
U.P.M. S.r.L. (Italy)....................................... 39 -- --
Markol Otomotiv Yan Sanayi Ve Ticaret (Turkey).............. 35 35 35
Jiangxi Jiangling Lear, Interior Systems Co., Ltd.
(China)................................................... 33 33 50
Guildford Kast Plastifol Dynamics, Ltd. (U.K.).............. 33 33 33
Precision Fabrics Group..................................... 29 29 29
Interni Interiores S.A. (Brazil)............................ 25 -- --
Pacific Trim Corporation Ltd. (Thailand).................... 20 20 20
</TABLE>
In October 1997, the Company formed a joint venture with Donnelly
Corporation named Lear-Donnelly Overhead Systems, L.L.C. The joint venture
designs, develops, markets and produces overhead systems for the global
automotive market. The aggregate investment in affiliates was $73.9 million and
$71.3 million as of December 31, 1998 and 1997, respectively.
Summarized group financial information for affiliates accounted for under
the equity method is as follows (unaudited, in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
---- ----
<S> <C> <C>
Balance sheet data:
Current assets............................................ $162.0 $127.7
Non-current assets........................................ 137.0 78.1
Current liabilities....................................... 128.9 69.8
Non-current liabilities................................... 54.2 77.7
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income statement data:
Net sales........................................... $579.4 $493.2 $471.0
Gross profit........................................ 80.0 75.4 68.1
Income (loss) before provision for income taxes..... (.1) 25.2 21.6
Net income (loss)................................... (1.6) 20.3 17.9
</TABLE>
The Company had sales to affiliates of approximately $62.9 million, $28.1
million and $22.2 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Dividends of approximately $2.3 million, $3.9 million and $3.0
million were received by the Company for the years ended December 31, 1998, 1997
and 1996, respectively.
F-16
<PAGE> 80
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
During 1998, the Company increased its ownership of General Seating of
America, Inc., General Seating of Canada, Ltd. and Lear Corporation Thailand. As
a result of these ownership increases, the Company acquired majority control and
included the results of operations and financial position of these entities in
its consolidated financial statements from the date of majority control.
(8) SHORT-TERM BORROWINGS
Lear utilizes uncommitted lines of credit to satisfy short-term working
capital requirements. At December 31, 1998, the Company had unsecured lines of
credit available from banks of approximately $470 million, subject to certain
restrictions imposed by the Credit Agreement (Note 9). Weighted average interest
rates on the outstanding borrowings at December 31, 1998 and 1997 were 4.7% and
7.2%, respectively.
(9) LONG-TERM DEBT
Long-term debt is comprised of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Credit agreement.......................................... $ 970.3 $ 647.7
Other..................................................... 173.6 88.5
-------- --------
1,143.9 736.2
Less -- Current Portion................................... 16.5 9.1
-------- --------
1,127.4 727.1
-------- --------
9 1/2% Subordinated Notes................................. 200.0 200.0
8 1/4% Subordinated Notes................................. 136.0 136.0
-------- --------
336.0 336.0
-------- --------
Long-Term Debt............................................ $1,463.4 $1,063.1
======== ========
</TABLE>
In May and December 1998, the Company amended its multi-currency revolving
credit agreement (the "Credit Agreement") to increase total borrowing
availability from $1.8 billion to $2.1 billion, eliminate the pledge of
subsidiary stock which secured the facility and provide for euro denominated
multi-currency loans. The Credit Agreement matures on September 30, 2001 and may
be used for general corporate purposes, including acquisitions.
As of December 31, 1998, the Company had $970 million outstanding under the
Credit Agreement and $60 million committed under outstanding letters of credit,
resulting in approximately $1.1 billion unused long-term revolving credit
commitments. The weighted average interest across all currencies was
approximately 5.4% and 5.8% at December 31, 1998 and 1997, respectively.
Borrowings and repayments on the Credit Agreement were as follows (in millions):
<TABLE>
<CAPTION>
YEAR BORROWINGS REPAYMENTS
---- ---------- ----------
<S> <C> <C>
1998..................................................... $3,994.8 $3,677.8
1997..................................................... 3,422.3 3,260.3
1996..................................................... 2,790.8 3,027.8
</TABLE>
Other senior debt at December 31, 1998 is principally made up of amounts
outstanding under U.S. term loans, industrial revenue bonds and capital leases.
The 8 1/4% Subordinated Notes, due in 2002, require interest payments
semi-annually on February 1 and August 1 and became callable at par on February
1, 1999. The 9 1/2% Subordinated Notes, due in 2006, require interest payments
semi-annually on January 15 and July 15 and are callable at par beginning
F-17
<PAGE> 81
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
July 15, 2001. In July 1997, the Company redeemed all of its 11 1/4% Senior
Subordinated Notes, due 2000 (the "11 1/4% Notes"), at par with borrowings under
the Credit Agreement. The accelerated amortization of deferred financing fees
related to the 11 1/4% Notes totaled approximately $1.6 million. This amount,
net of the related tax benefit of $.6 million, has been reflected as an
extraordinary loss in the consolidated statement of income in 1997.
The Credit Agreement and indentures relating to the Company's subordinated
debt contain restrictive covenants. The most restrictive of these covenants are
the financial covenants related to the maintenance of certain levels of leverage
and interest coverage. These agreements also restrict the Company's ability to
incur additional indebtedness, declare dividends, create liens, make investments
and advances and sell assets.
The scheduled maturities of long-term debt at December 31, 1998 for the
five succeeding years are as follows (in millions):
<TABLE>
<CAPTION>
YEAR MATURITIES
---- ----------
<S> <C>
1999........................................................ $ 16.5
2000........................................................ 31.2
2001........................................................ 1,026.3
2002........................................................ 138.1
2003........................................................ 5.1
</TABLE>
(10) NATIONAL INCOME TAXES
A summary of income before provision for national income taxes and
components of the provision for national income taxes is as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income before provision for national income taxes, minority
interests in consolidated subsidiaries, equity in net income
of affiliates and extraordinary item:
Domestic.................................................. $ 98.9 $213.2 $135.7
Foreign................................................... 115.9 132.6 117.7
------ ------ ------
$214.8 $345.8 $253.4
====== ====== ======
Domestic provision for national income taxes:
Current provision......................................... $ 72.7 $109.8 $ 48.4
------ ------ ------
Deferred --
Deferred provision........................................ (14.2) (18.3) 2.8
Benefit of previously unbenefitted net operating loss
carryforwards.......................................... -- (5.9) --
------ ------ ------
(14.2) (24.2) 2.8
------ ------ ------
Total domestic provision.................................... 58.5 85.6 51.2
------ ------ ------
Foreign provision for national income taxes:
Current provision......................................... 58.1 65.1 51.0
------ ------ ------
Deferred --
Deferred provision........................................ (17.4) (1.9) 6.6
Benefit of previously unbenefitted net operating loss
carryforwards.......................................... (5.3) (5.7) (7.3)
------ ------ ------
(22.7) (7.6) (.7)
------ ------ ------
Total foreign provision..................................... 35.4 57.5 50.3
------ ------ ------
Provision for national income taxes......................... $ 93.9 $143.1 $101.5
====== ====== ======
</TABLE>
F-18
<PAGE> 82
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The differences between tax provisions calculated at the United States
Federal statutory income tax rate of 35% and the consolidated national income
tax provision are summarized as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income before provision for national income taxes,
minority interests in consolidated subsidiaries,
equity in net income of affiliates and extraordinary
item multiplied by the United States Federal statutory
rate.................................................. $ 75.2 $121.0 $ 88.7
Differences between domestic and effective foreign tax
rates............................................... 6.4 3.9 1.3
Net operating losses not tax benefited................ 14.3 10.2 15.8
Decrease in valuation allowance....................... (0.3) (3.6) (8.3)
Foreign subsidiary basis adjustment................... (13.9) -- --
Amortization of goodwill.............................. 13.5 12.4 10.4
Utilization of net operating losses and other......... (1.3) (.8) (6.4)
------ ------ ------
$ 93.9 $143.1 $101.5
====== ====== ======
</TABLE>
Deferred national income taxes represent temporary differences in the
recognition of certain items for income tax and financial reporting purposes.
The components of the net deferred national income tax (asset) liability are
summarized as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Deferred national income tax liabilities:
Long-term asset basis differences........................ $ 52.5 $ 63.4
Taxes provided on unremitted foreign earnings............ -- 10.3
Deferred finance fees.................................... 1.7 2.9
Recoverable customer engineering and tooling............. 50.2 30.3
Other.................................................... 13.7 2.1
------- -------
$ 118.1 $ 109.0
======= =======
Deferred national income tax assets:
Tax credit carryforwards................................. $ -- $ (.3)
Tax loss carryforwards................................... (128.0) (78.7)
Retirement benefit plans................................. (28.6) (22.4)
Accruals................................................. (97.5) (64.8)
Self-insurance reserves.................................. (12.4) (11.6)
Asset valuations......................................... (0.8) (18.2)
Minimum pension liability................................ (6.4) (.3)
Deferred compensation.................................... (2.0) (2.4)
Other.................................................... (6.2) (8.8)
------- -------
(281.9) (207.5)
Valuation allowance........................................ 95.6 64.8
------- -------
$(186.3) $(142.7)
======= =======
Net deferred national income tax asset..................... $ (68.2) $ (33.7)
======= =======
</TABLE>
F-19
<PAGE> 83
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Deferred national income tax assets have been fully offset by a valuation
allowance in certain foreign tax jurisdictions due to a history of operating
losses. The classification of the net deferred national income tax asset is
summarized as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Deferred national income tax assets:
Current................................................... $(100.7) $(85.9)
Long-term................................................. (13.5) (15.0)
Deferred national income tax liabilities:
Current................................................... 7.0 5.5
Long-term................................................. 39.0 61.7
------- ------
Net deferred national income tax asset...................... $ (68.2) $(33.7)
======= ======
</TABLE>
Deferred national income taxes have not been provided on the undistributed
earnings of the Company's foreign subsidiaries as such amounts are either
considered to be permanently reinvested or would not create any additional U.S.
tax upon repatriation. The cumulative undistributed earnings at December 31,
1998 on which the Company had not provided additional national income taxes were
approximately $173.7 million.
As of December 31, 1998, the Company had tax loss carryforwards of $326.0
million which relate to certain foreign subsidiaries. Of the total loss
carryforwards, $179.5 million have no expiration and $146.5 million expire in
1999 through 2006.
(11) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has noncontributory defined benefit pension plans covering
certain domestic employees and certain employees in foreign countries. The
Company's salaried plans provide benefits based on a five-year average earnings
formula. Hourly pension plans provide benefits under flat benefit formulas. The
Company also has contractual arrangements with certain employees which provide
for supplemental retirement benefits. In general, the Company's policy is to
fund these plans based on legal requirements, tax considerations and local
practices.
The Company has postretirement plans covering a portion of the Company's
domestic employees and Canadian employees. The plans generally provide for the
continuation of medical benefits for all employees who complete 10 years of
service after age 45 and retire from the Company at age 55 or older. The Company
does not fund its postretirement benefit obligation. Rather, payments are made
as costs are incurred by covered retirees.
F-20
<PAGE> 84
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits". In accordance
with SFAS No. 132, the following tables provide a reconciliation of the change
in benefit obligation, the change in plan assets and the net amount recognized
in the consolidated balance sheets (based on a September 30 measurement date, in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
OTHER
PENSION POSTRETIREMENT
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $201.0 $154.1 $ 70.2 $ 66.3
Service cost.............................................. 14.8 14.7 4.8 4.6
Interest cost............................................. 13.9 13.4 4.7 4.9
Amendments................................................ 0.9 8.1 -- --
Actuarial (gain) loss..................................... 7.0 4.7 (9.4) (3.6)
Acquisitions.............................................. -- 17.2 3.9 --
Benefits paid............................................. (7.1) (6.6) (1.9) (1.3)
Translation adjustment.................................... (6.7) (4.6) (1.4) (0.7)
------ ------ ------ ------
Benefit obligation at end of year........................... $223.8 $201.0 $ 70.9 $ 70.2
====== ====== ====== ======
Change in plan assets:
Fair value of plan assets at beginning of year............ $138.0 $108.0 $ -- $ --
Actual return on plan assets.............................. (6.6) 20.1 -- --
Employer contributions.................................... 18.8 15.3 1.9 1.3
Acquisitions.............................................. -- 3.6 -- --
Benefits paid............................................. (6.3) (5.8) (1.9) (1.3)
Translation adjustment.................................... (5.8) (3.2) -- --
------ ------ ------ ------
Fair value of plan assets at end of year.................... $138.1 $138.0 $ -- $ --
====== ====== ====== ======
Funded status............................................... $(85.7) $(63.0) $(70.9) $(70.2)
Unrecognized net actuarial (gain) loss...................... 21.7 (1.9) (13.9) (6.9)
Unrecognized net transition (asset) obligation.............. (2.4) (3.0) 27.2 27.5
Unrecognized prior service cost............................. 26.7 29.4 (2.9) 0.3
------ ------ ------ ------
Net amount recognized....................................... $(39.7) $(38.5) $(60.5) $(49.3)
====== ====== ====== ======
Amounts recognized in the consolidated balance sheets:
Prepaid benefit cost...................................... $ 12.2 $ 10.4 $ -- $ --
Accrued benefit liability................................. (93.6) (75.8) (60.5) (49.3)
Intangible asset.......................................... 23.5 26.1 -- --
Deferred tax asset........................................ 6.4 0.3 -- --
Accumulated other comprehensive income.................... 11.8 0.5 -- --
------ ------ ------ ------
Net amount recognized....................................... $(39.7) $(38.5) $(60.5) $(49.3)
====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $161.9 million, $156.8 million and $89.0 million,
respectively, as of December 31, 1998, and $136.0 million, $127.6 million and
$78.4 million, respectively, as of December 31, 1997.
F-21
<PAGE> 85
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Components of the Company's net periodic benefit costs are as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
OTHER
PENSION POSTRETIREMENT
------------------------ -----------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost................................... $ 14.8 $14.7 $10.6 $ 4.8 $ 4.6 $ 4.2
Interest cost.................................. 13.9 13.4 10.6 4.7 4.9 4.0
Expected return on plan assets................. (10.8) (8.9) (7.0) -- -- --
Amortization of actuarial (gain) loss.......... (0.2) 0.1 0.8 (1.2) (0.3) (0.5)
Amortization of transition (asset)
obligation.................................. (0.4) (0.3) (0.2) 1.7 1.7 1.8
Amortization of prior service cost............. 2.3 2.4 1.7 (0.4) 0.1 0.2
------ ----- ----- ----- ----- -----
Net periodic benefit cost........................ $ 19.6 $21.4 $16.5 $ 9.6 $11.0 $ 9.7
====== ===== ===== ===== ===== =====
</TABLE>
The actuarial assumptions used in determining the funded status information
and net periodic benefit cost information shown above were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
OTHER
PENSION POSTRETIREMENT
--------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate:
Domestic plans............................................ 6 3/4% 7 1/2% 6 3/4% 7 1/2%
Foreign plans............................................. 6-7% 4 1/2-7 1/2% 7% 8%
Expected return on plan assets:
Domestic plans............................................ 9% 9% N/A N/A
Foreign plans............................................. 7% 7 1/2% N/A N/A
Rate of compensation increase:
Domestic plans............................................ 4 1/4% 5% N/A N/A
Foreign plans............................................. 3-4 1/2% 1-5% N/A N/A
</TABLE>
For measurement purposes, domestic health care costs were assumed to
increase 8.8% in 1998, grading down over time to 5.5% in eight years. Foreign
health care costs were assumed to increase 8.0% in 1998, grading down over time
to 5.5% in fifteen years.
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the postretirement plans. A 1% rise in the assumed rate of
healthcare cost increases each year would increase the postretirement benefit
obligation as of December 31, 1998 by $10.7 million and increase the
postretirement net periodic benefit cost by $1.8 million for the year ended
December 31, 1998.
The Company also sponsors defined contribution plans and participates in
government sponsored programs in certain foreign countries. Contributions are
determined as a percentage of each covered employee's salary. The Company also
participates in multi-employer pension plans for certain of its hourly employees
and contributes to those plans based on collective bargaining agreements. The
aggregate cost of the defined contribution and multi-employer pension plans
charged to income was $12.1 million, $10.4 million and $4.7 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
F-22
<PAGE> 86
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(12) COMMITMENTS AND CONTINGENCIES
The Company is the subject of various lawsuits, claims and environmental
contingencies. In addition, the Company has been identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("Superfund"), for the cleanup of
contamination from hazardous substances at one Superfund site and may incur
indemnification obligations for cleanup at three additional sites. In the
opinion of management, the expected liability resulting from these matters is
adequately covered by amounts accrued and will not have a material adverse
effect on the Company's consolidated financial position or future results of
operations.
Approximately 21,000 of the Company's workforce worldwide are subject to
collective bargaining agreements, 38% of which expire within one year.
Relationships with all unions are good, and management does not anticipate any
difficulties with respect to the agreements.
Lease commitments at December 31, 1998 under noncancelable operating leases
with terms exceeding one year are as follows (in millions):
<TABLE>
<S> <C>
1999........................................................ $ 37.2
2000........................................................ 30.6
2001........................................................ 24.3
2002........................................................ 20.0
2003........................................................ 15.5
2004 and thereafter......................................... 24.9
------
Total....................................................... $152.5
======
</TABLE>
The Company's operating leases cover principally buildings and
transportation equipment. Rent expense incurred under all operating leases and
charged to operations was $60.6 million, $37.8 million and $29.8 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
(13) STOCK OPTION PLANS
The Company has four plans under which it has issued stock options, the
1992 Stock Option Plan, the 1994 Stock Option Plan, the 1996 Stock Option Plan
and the Long-Term Stock Incentive Plan. Options issued to date under these plans
generally vest over a three-year period and expire ten years from the original
plan date. All stock options issued by the Company are exercisable at a price
equal to the market price at the date of grant.
F-23
<PAGE> 87
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
As part of the Masland Acquisition (Note 4), outstanding Masland stock
options were converted into options to acquire 517,920 shares of the Company's
common stock at prices ranging from $11.63 to $30.17 per share. The value of the
Masland options converted as of the date of the acquisition was $9.0 million and
was included in the purchase price of the acquisition. A summary of options
transactions during each of the three years in the period ended December 31,
1998 is shown below:
<TABLE>
<CAPTION>
STOCK OPTIONS PRICE RANGE
------------- -----------
<S> <C> <C>
Outstanding at December 31, 1995.................. 4,476,910 $ 1.29 - $30.25
Granted......................................... 1,076,920 $11.63 - $33.00
Expired or cancelled............................ (36,000) $15.50 - $33.00
Exercised....................................... (1,832,588) $ 1.29 - $23.12
----------
Outstanding at December 31,1996................... 3,685,242 $ 1.29 - $33.00
Granted......................................... 554,000 $37.25
Expired or cancelled............................ (166,685) $ 1.29 - $37.25
Exercised....................................... (1,286,059) $ 1.29 - $33.00
----------
Outstanding at December 31, 1997.................. 2,786,498 $ 1.29 - $37.25
Granted......................................... 880,350 $54.22
Expired or cancelled............................ (84,378) $19.26 - $54.22
Exercised....................................... (320,379) $ 1.29 - $37.25
----------
Outstanding at December 31, 1998.................. 3,262,091 $ 5.00 - $54.22
==========
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C>
Range of Exercise Prices........ $ 5.00 $11.63 - 19.63 $20.41 - 26.81 $30.25 - 37.25 $ 54.22
-------- -------------- -------------- -------------- --------
Number outstanding.............. 701,815 431,097 231,729 1,051,500 845,950
Weighted average:
Remaining contractual life
(years).................... 3.29 5.32 6.32 7.85 9.37
Exercise price................ $ 5.00 $ 15.80 $ 23.32 $ 35.08 $ 54.22
Options exercisable:
Number exercisable............ 701,815 404,207 149,756 25,000 --
Weighted average exercise
price...................... $ 5.00 $ 15.57 $ 22.81 $ 30.25 $ N/A
</TABLE>
The Long-Term Stock Incentive Plan also permits the grants of stock
appreciation rights, restricted stock, restricted units, performance shares and
performance units (collectively "Incentive Units") to officers and other key
employees of the Company. As of December 31, 1998, the Company had outstanding
Incentive Units convertible into a maximum of 186,588 shares of common stock of
the Company, of which 134,151 shares are exercisable at no cost to the employee
and 52,437 shares are exercisable at an average cost to the employee of $37.65
per share. Total compensation expense under these plans was $2.9 million, $1.5
million and $0 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Pro Forma
At December 31, 1998, the Company had several stock option plans, which are
described above. The Company applies APB Opinion 25 and related Interpretations
in accounting for its plans. Accordingly, compensation cost was calculated as
the difference between the exercise price of the option and the market value of
the stock at the date the option was granted. If compensation cost for the
Company's stock option plans was determined based on the fair value at the grant
dates consistent with the method prescribed in SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income.
F-24
<PAGE> 88
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
and net income per share would have been reduced to the pro forma amounts
indicated below (unaudited, in millions, except per share data).
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
As Reported
Income before extraordinary item.................... $115.5 $208.2 $151.9
Net income.......................................... $115.5 $207.2 $151.9
Basic income per share before extraordinary item.... 1.73 3.14 2.51
Diluted income per share before extraordinary
item............................................. $ 1.70 $ 3.05 $ 2.38
Basic net income per share.......................... 1.73 3.13 2.51
Diluted net income per share........................ $ 1.70 $ 3.04 $ 2.38
Pro forma
Income before extraordinary item.................... $107.9 $204.3 $150.4
Net income.......................................... $107.9 $203.3 $150.4
Basic income per share before extraordinary item.... 1.61 3.08 2.49
Diluted income per share before extraordinary
item............................................. $ 1.59 $ 2.99 $ 2.36
Basic net income per share.......................... 1.61 3.07 2.49
Diluted net income per share........................ $ 1.59 $ 2.98 $ 2.36
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996: expected dividend yields of
0.0% and expected lives of 10 years. The risk-free interest rates used were
6 3/4% in 1998 and 7 1/2% in 1997 and 1996. The expected volatility used was
33.9% in 1998, 30.2% in 1997 and 31.5% in 1996.
(14) SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company is organized based on customer-focused and geographic
divisions. Each division reports their results from operations and makes
requests for capital expenditures directly to the chief operating decision
making group. This group is comprised of the Chairman & Chief Executive Officer,
the Vice-Chairman, the President and Chief Operating Officer and the Chief
Financial Officer. Under this organizational structure, the Company's operating
segments have been aggregated into one reportable segment. This aggregated
segment consists of eight divisions, each with separate management teams and
infrastructures dedicated to providing complete automotive interiors to its
respective automotive OEM customers. Each of the Company's eight divisions
demonstrate similar economic performance, mainly driven by automobile production
volumes in the geographic regions in which they operate. Also, each division
operates in the competitive "Tier 1" automotive supplier environment and
continually is working with its customers to manage costs without sacrificing
quality. All of the Company's manufacturing facilities use Just-In-Time (JIT)
manufacturing techniques to produce and distribute their automotive interior
products. These techniques include maintaining constant computer and other
communication connections between personnel at the Company's plants and
personnel at the customers' plants to keep production current with the
customers' demand. The Other category includes the corporate office, geographic
headquarters, technology division and elimination of intercompany activities,
none of which meet the requirements of being classified as an operating segment.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies described in Note 2.
The Company evaluates the performance of its
F-25
<PAGE> 89
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
operating segments based primarily on sales, operating income before
amortization and cash flow, being defined as EBITA less capital expenditures
plus depreciation.
The following table presents revenues and other financial information by
business segment (in millions):
<TABLE>
<CAPTION>
1998
--------------------------------------
AUTOMOTIVE
INTERIORS OTHER CONSOLIDATED
---------- ----- ------------
<S> <C> <C> <C>
Revenues...................................... $9,050.4 $ 9.0 $9,059.4
EBITA......................................... 537.1 (145.7) 391.4
Depreciation.................................. 161.2 9.3 170.5
Capital expenditures.......................... 307.2 44.2 351.4
Total assets.................................. 3,812.5 1,864.8 5,677.3
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------
AUTOMOTIVE
INTERIORS OTHER CONSOLIDATED
---------- ----- ------------
<S> <C> <C> <C>
Revenues...................................... $7,330.0 $ 12.9 $7,342.9
EBITA......................................... 652.9 (130.4) 522.5
Depreciation.................................. 135.4 7.6 143.0
Capital expenditures.......................... 168.7 19.2 187.9
Total assets.................................. 2,937.2 1,521.9 4,459.1
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------
AUTOMOTIVE
INTERIORS OTHER CONSOLIDATED
---------- ----- ------------
<S> <C> <C> <C>
Revenues...................................... $6,249.1 $ -- $6,249.1
EBITA......................................... 496.6 (87.2) 409.4
Depreciation.................................. 103.4 5.3 108.7
Capital expenditures.......................... 139.4 14.4 153.8
Total assets.................................. 2,525.6 1,291.2 3,816.8
</TABLE>
The following table presents revenues and long-lived assets for each of the
geographic areas in which the Company operates (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
United States............................... $4,413.7 $3,609.4 $3,213.5
Canada...................................... 957.8 1,056.1 844.5
Germany..................................... 1,345.8 559.8 476.9
Other foreign countries..................... 2,342.1 2,117.6 1,714.2
-------- -------- --------
Total.................................... $9,059.4 $7,342.9 $6,249.1
======== ======== ========
</TABLE>
F-26
<PAGE> 90
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Long-lived assets:
United States............................... $ 705.0 $ 608.7 $554.5
Canada...................................... 82.9 62.9 66.4
Germany..................................... 132.6 101.1 58.3
Other foreign countries..................... 392.9 248.6 251.0
-------- -------- ------
Total.................................... $1,313.4 $1,021.3 $930.2
======== ======== ======
</TABLE>
A majority of the Company's revenues are from four automobile manufacturing
companies. The following is a summary of the percentage of revenues from major
customers:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
General Motors Corporation.................... 26% 27% 30%
Ford Motor Company............................ 23 29 32
DaimlerChrysler............................... 14 9 7
Fiat S.p.A.................................... 8 10 10
</TABLE>
In addition, a significant portion of the remaining revenues are to the
above automobile manufacturing companies through various other automotive
suppliers or to affiliates of these automobile manufacturing companies.
(15) FINANCIAL INSTRUMENTS
The Company hedges certain foreign currency risks through the use of
forward foreign exchange contracts and options. Such contracts are generally
deemed as, and are effective as, hedges of the related transactions. As such,
gains and losses from these contracts are deferred and are recognized on the
settlement date, consistent with the related transactions. The Company and its
subsidiaries contracted to exchange notional United States dollar equivalent
principal amounts of $289.8 million as of December 31, 1998 and $231.8 million
as of December 31, 1997. All contracts outstanding as of December 31, 1998
mature in 1999. The deferred gain on such contracts as of December 31, 1998 was
$.5 million compared to $.3 million as of December 31, 1997.
The carrying values of the Company's subordinated notes vary from the fair
values of these instruments. The fair values were determined by reference to
market prices of the securities in recent public transactions. As of December
31, 1998 and 1997, the aggregate carrying value of the Company's subordinated
notes was $336.0 million compared to an estimated fair value of $356.7 million
and $357.9 million, respectively. The carrying value of the Company's senior
indebtedness approximates its fair value which was determined based on rates
currently available to the Company for similar borrowings with like maturities.
The Company uses interest rate swap contracts to hedge against interest
rate risks in future periods. As of December 31, 1998, the Company had entered
into swap contracts with an aggregate notional value of $300.0 million with
maturities between fifteen months and ten years. Pursuant to each of the
contracts, the Company will make payments calculated at a fixed base rate of
between 4.6% and 6.0% of the notional value and will receive payments calculated
at the LIBOR rate. This effectively fixes the Company's interest rate on the
portion of the indebtedness under the Credit Agreement covered by the contracts.
The fair value of these contracts as of December 31, 1998 was a negative $12.2
million.
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 3.8% to
F-27
<PAGE> 91
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4.7%. The amount of such factored receivables, which is not included in accounts
receivable in the consolidated balance sheets at December 31, 1998 and 1997, was
approximately $200.0 million and $137.0 million, respectively.
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective for fiscal years beginning after June 15,
1999. It requires all derivative instruments to be recorded in the balance sheet
at their fair value. Changes in the fair value of derivatives are required to be
recorded each period in current earnings or other comprehensive income,
depending on whether the derivative is designated as part of a hedge
transaction. We do not expect the effects of adoption to be significant.
(16) QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------------------------
MARCH 28, JUNE 27, SEPTEMBER 26, DECEMBER 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $2,032.1 $2,175.0 $1,946.5 $2,905.8
Gross profit..................................... 200.2 231.6 162.0 267.6
Net income (loss)................................ 47.3 65.7 21.6 (19.1)
Basic net income per share....................... .71 .98 .32 (.29)
Diluted net income per share..................... .69 .96 .32 (.28)
</TABLE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $1,724.0 $1,839.3 $1,635.9 $2,143.7
Gross profit..................................... 177.9 213.5 175.3 242.7
Income before extraordinary item................. 41.9 61.1 36.6 68.6
Net income....................................... 41.9 61.1 35.6 68.6
Basic net income per share before extraordinary
item........................................... .64 .92 .55 1.03
Basic net income per share....................... .64 .92 .54 1.03
Diluted net income per share before extraordinary
item........................................... .62 .90 .53 1.00
Diluted net income per share..................... .62 .90 .52 1.00
</TABLE>
F-28
<PAGE> 92
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ (3.8) $ .9 $ 32.9 $ -- $ 30.0
Accounts receivable, net.............. 138.4 294.2 941.3 -- 1,373.9
Inventories........................... 17.3 45.9 286.4 -- 349.6
Recoverable customer engineering and
tooling............................ 28.1 12.6 180.7 -- 221.4
Other................................. 44.6 29.5 149.0 -- 223.1
-------- -------- -------- --------- --------
Total current assets............. 224.6 383.1 1,590.3 -- 2,198.0
-------- -------- -------- --------- --------
LONG-TERM ASSETS:
Property, plant and equipment, net.... 110.6 320.7 751.0 -- 1,182.3
Goodwill, net......................... 274.6 615.3 1,129.9 -- 2,019.8
Investment in subsidiaries............ 1,794.4 21.1 -- (1,815.5) --
Other................................. 82.0 11.1 184.1 -- 277.2
-------- -------- -------- --------- --------
Total long-term assets........... 2,261.6 968.2 2,065.0 (1,815.5) 3,479.3
-------- -------- -------- --------- --------
$2,486.2 $1,351.3 $3,655.3 $(1,815.5) $5,677.3
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................. $ 55.0 $ -- $ 27.7 $ -- $ 82.7
Accounts payable and drafts........... 191.0 254.5 1,155.3 -- 1,600.8
Accrued liabilities................... 133.9 141.9 521.7 -- 797.5
Current portion of long-term debt..... 3.5 .2 12.8 -- 16.5
-------- -------- -------- --------- --------
Total current liabilities........ 383.4 396.6 1,717.5 -- 2,497.5
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes........ (15.5) 31.2 23.3 -- 39.0
Long-term debt........................ 1,168.1 .8 294.5 -- 1,463.4
Intercompany accounts, net............ (484.1) 666.7 (182.6) -- --
Other................................. 134.3 53.1 190.0 -- 377.4
-------- -------- -------- --------- --------
Total long-term liabilities...... 802.8 751.8 325.2 -- 1,879.8
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY.................... 1,300.0 202.9 1,612.6 (1,815.5) 1,300.0
-------- -------- -------- --------- --------
$2,486.2 $1,351.3 $3,655.3 $(1,815.5) $5,677.3
======== ======== ======== ========= ========
</TABLE>
F-29
<PAGE> 93
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ (.6) $ .5 $ 13.0 $ -- $ 12.9
Accounts receivable, net.............. 73.4 255.5 736.9 -- 1,065.8
Inventories........................... 11.4 47.9 172.1 -- 231.4
Recoverable customer engineering and
tooling............................ 28.0 14.6 110.0 -- 152.6
Other................................. 38.6 25.9 87.7 -- 152.2
-------- -------- -------- --------- --------
Total current assets............. 150.8 344.4 1,119.7 -- 1,614.9
-------- -------- -------- --------- --------
LONG-TERM ASSETS:
Property, plant and equipment, net.... 80.6 310.2 548.3 -- 939.1
Goodwill, net......................... 113.3 626.8 952.2 -- 1,692.3
Investment in subsidiaries............ 1,098.1 13.1 -- (1,111.2) --
Other................................. 79.8 7.7 125.3 -- 212.8
-------- -------- -------- --------- --------
Total long-term assets........... 1,371.8 957.8 1,625.8 (1,111.2) 2,844.2
-------- -------- -------- --------- --------
$1,522.6 $1,302.2 $2,745.5 $(1,111.2) $4,459.1
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................. $ 27.6 $ -- $ 10.3 $ -- $ 37.9
Accounts payable and drafts........... 115.8 190.7 880.0 -- 1,186.5
Accrued liabilities................... 91.4 154.8 374.3 -- 620.5
Current portion of long-term debt..... -- .3 8.8 -- 9.1
-------- -------- -------- --------- --------
Total current liabilities........ 234.8 345.8 1,273.4 -- 1,854.0
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes........ (19.4) 30.6 50.5 -- 61.7
Long-term debt........................ 754.5 1.0 307.6 -- 1,063.1
Intercompany accounts, net............ (737.7) 58.0 679.7 -- --
Other................................. 83.4 49.1 140.8 -- 273.3
-------- -------- -------- --------- --------
Total long-term liabilities...... 80.8 138.7 1,178.6 -- 1,398.1
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY.................... 1,207.0 817.7 293.5 (1,111.2) 1,207.0
-------- -------- -------- --------- --------
$1,522.6 $1,302.2 $2,745.5 $(1,111.2) $4,459.1
======== ======== ======== ========= ========
</TABLE>
F-30
<PAGE> 94
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................... $1,213.8 $2,629.2 $6,951.3 $(1,734.9) $9,059.4
Cost of sales........................... 1,210.4 2,279.9 6,442.6 (1,734.9) 8,198.0
Selling, general and administrative
expenses.............................. 122.6 31.6 182.8 -- 337.0
Restructuring and other changes......... 15.7 8.3 109.0 -- 133.0
Amortization of goodwill................ 4.1 16.7 28.4 -- 49.2
-------- -------- -------- --------- --------
Operating income (loss)............ (139.0) 292.7 188.5 -- 342.2
Interest expense........................ 35.3 47.7 27.5 -- 110.5
Intercompany charges, net............... (161.1) 115.4 45.7 -- --
Other expense (income), net............. 4.5 (11.7) 24.1 -- 16.9
-------- -------- -------- --------- --------
Income (loss) before provision
(credit) for national income
taxes, minority interests in
consolidated subsidiaries, equity
in net income of affiliates and
subsidiaries..................... (17.7) 141.3 91.2 -- 214.8
Provision (credit) for national income
taxes................................. (5.4) 48.5 50.8 -- 93.9
Minority interests in consolidated
subsidiaries.......................... -- (.5) 7.4 -- 6.9
Equity in net income of affiliates...... (1.5) -- -- -- (1.5)
Equity in net income of
subsidiaries.......................... (126.3) (7.2) -- 133.5 --
-------- -------- -------- --------- --------
Net income.............................. $ 115.5 $ 100.5 $ 33.0 $ (133.5) $ 115.5
======== ======== ======== ========= ========
</TABLE>
F-31
<PAGE> 95
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 746.8 $2,039.5 $4,577.7 $ (21.1)_ $7,342.9
Cost of sales........................... 735.9 1,753.7 4,065.0 (21.1) 6,533.5
Selling, general and administrative
expenses.............................. 79.1 74.4 133.4 -- 286.9
Amortization of goodwill................ 3.5 16.6 21.3 -- 41.4
------- -------- -------- ------- --------
Operating income (loss)............ (71.7) 194.8 358.0 -- 481.1
Interest expense........................ 31.7 2.2 67.1 -- 101.0
Intercompany charges, net............... (108.9) 56.1 52.8 -- --
Other expense, net...................... 9.3 15.0 10.0 -- 34.3
------- -------- -------- ------- --------
Income (loss) before provision
(credit) for national income
taxes, minority interests in
consolidated subsidiaries, equity
in net income of affiliates and
subsidiaries and extraordinary
item............................. (3.8) 121.5 228.1 -- 345.8
Provision (credit) for national income
taxes................................. (1.8) 55.8 89.1 -- 143.1
Minority interests in consolidated
subsidiaries.......................... .7 (.8) 3.4 -- 3.3
Equity in net income of affiliates...... (5.2) (.6) (3.0) -- (8.8)
Equity in net income of subsidiaries.... (204.7) (20.0) -- 224.7 --
------- -------- -------- ------- --------
Income before extraordinary item... 207.2 87.1 138.6 (224.7) 208.2
Extraordinary loss on early
extinguishment of debt................ -- -- 1.0 -- 1.0
------- -------- -------- ------- --------
Net income.............................. $ 207.2 $ 87.1 $ 137.6 $(224.7) $ 207.2
======= ======== ======== ======= ========
</TABLE>
F-32
<PAGE> 96
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 765.5 $1,857.1 $3,636.7 $ (10.2) $6,249.1
Cost of sales........................... 746.2 1,625.7 3,267.7 (10.2) 5,629.4
Selling, general and administrative
expenses.............................. 58.0 86.1 66.2 -- 210.3
Amortization of goodwill................ 3.5 12.7 17.4 -- 33.6
------- -------- -------- ------- --------
Operating income (loss)............ (42.2) 132.6 285.4 -- 375.8
Interest expense........................ 43.3 1.3 58.2 -- 102.8
Intercompany charges, net............... (103.8) 50.4 53.4 -- --
Other expense (income), net............. (6.9) 9.2 17.3 -- 19.6
------- -------- -------- ------- --------
Income before provision for
national income taxes, minority
interests in consolidated
subsidiaries, equity in net loss
(income) of affiliates and
subsidiaries..................... 25.2 71.7 156.5 -- 253.4
------- -------- -------- ------- --------
Provision for national income taxes..... 7.4 21.1 73.0 -- 101.5
Minority interests in consolidated
subsidiaries.......................... (.4) -- 4.4 -- 4.0
Equity in net loss (income) of
affiliates............................ .5 -- (4.5) -- (4.0)
Equity in net income of subsidiaries.... (134.2) (15.6) -- 149.8 --
------- -------- -------- ------- --------
Net income.............................. $ 151.9 $ 66.2 $ 83.6 $(149.8) $ 151.9
======= ======== ======== ======= ========
</TABLE>
F-33
<PAGE> 97
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES.............................. $ 46.8 $ 177.3 $ 61.3 $-- $ 285.4
------- ------- ------- -- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment........................ (69.5) (54.3) (227.6) -- (351.4)
Acquisitions....................... (89.6) -- (238.6) -- (328.2)
Other, net......................... 2.6 -- (0.8) -- 1.8
------- ------- ------- -- -------
Net cash used in investing
activities.................. (156.5) (54.3) (467.0) -- (677.8)
------- ------- ------- -- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit
borrowings, net.................. 365.1 -- (48.1) -- 317.0
Other long-term debt borrowings,
net.............................. 46.2 (0.2) 12.3 -- 58.3
Short-term borrowings, net......... 27.4 -- 15.8 -- 43.2
Proceeds from sale of common stock,
net.............................. 3.4 -- -- -- 3.4
Purchase of treasury stock, net.... (18.2) -- -- -- (18.2)
Decrease in drafts................. (0.1) (0.4) (19.4) -- (19.9)
Change in intercompany accounts.... (317.3) (122.0) 439.3 -- --
------- ------- ------- -- -------
Net cash provided by (used in)
financing activities........ 106.5 (122.6) 399.9 -- 383.8
------- ------- ------- -- -------
Effect of foreign currency
translation...................... -- -- 25.7 -- 25.7
------- ------- ------- -- -------
NET CHANGE IN CASH AND CASH
EQUIVALENTS........................... (3.2) 0.4 19.9 -- 17.1
CASH AND CASH EQUIVALENTS -- BEGINNING
OF YEAR............................... (0.6) 0.5 13.0 -- 12.9
------- ------- ------- -- -------
CASH AND CASH EQUIVALENTS -- END OF
YEAR.................................. $ (3.8) $ 0.9 $ 32.9 $-- $ 30.0
======= ======= ======= == =======
</TABLE>
F-34
<PAGE> 98
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.............................. $ (26.1) $ 156.0 $ 319.5 $-- $ 449.4
------- ------- ------- -- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment.......................... (12.9) (49.6) (125.4) -- (187.9)
Acquisitions.......................... (36.5) -- (295.7) -- (332.2)
Other, net............................ (14.6) (2.1) 17.1 -- 0.4
------- ------- ------- -- -------
Net cash used in investing
activities....................... (64.0) (51.7) (404.0) -- (519.7)
------- ------- ------- -- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings,
net................................ (53.5) -- 190.4 -- 136.9
Other long-term debt borrowings,
net................................ (134.5) (1.4) 2.9 -- (133.0)
Short-term borrowings, net............ 27.6 -- (3.4) -- 24.2
Proceeds from sale of common stock,
net................................ 8.4 -- -- -- 8.4
Increase (decrease) in drafts......... 2.5 2.4 (2.7) -- 2.2
Change in intercompany accounts....... 237.9 (100.7) (137.2) -- --
Other, net............................ 0.3 -- -- -- 0.3
------- ------- ------- -- -------
Net cash provided by (used in)
financing activities............. 88.7 (99.7) 50.0 -- 39.0
------- ------- ------- -- -------
Effect of foreign currency
translation........................ -- -- 18.2 -- 18.2
------- ------- ------- -- -------
NET CHANGE IN CASH AND CASH
EQUIVALENTS........................... (1.4) 4.6 (16.3) -- (13.1)
CASH AND CASH EQUIVALENTS -- BEGINNING
OF YEAR............................... 0.8 (4.1) 29.3 -- 26.0
------- ------- ------- -- -------
CASH AND CASH EQUIVALENTS -- END OF
YEAR.................................. $ (0.6) $ 0.5 $ 13.0 $-- $ 12.9
======= ======= ======= == =======
</TABLE>
F-35
<PAGE> 99
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... $ 31.0 $ 212.9 $ 218.7 $-- $ 462.6
------- ------- ------- -- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment........................... (20.0) (25.9) (107.9) -- (153.8)
Acquisitions........................... -- (326.1) (202.9) -- (529.0)
Other, net............................. 1.5 0.7 (1.1) -- 1.1
------- ------- ------- -- -------
Net cash used in investing
activities..................... (18.5) (351.3) (311.9) -- (681.7)
------- ------- ------- -- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings,
net................................. (273.6) -- 62.3 -- (211.3)
Other long-term debt borrowings, net... 210.0 (5.0) (1.4) -- 203.6
Short-term borrowings, net............. -- (0.4) (7.1) -- (7.5)
Proceeds from sale of common stock,
net................................. 249.5 -- -- -- 249.5
Increase (decrease) in drafts.......... (8.9) 48.5 (69.1) -- (29.5)
Change in intercompany accounts........ (187.0) 91.4 95.6 -- --
Other, net............................. (3.2) -- -- -- (3.2)
------- ------- ------- -- -------
Net cash provided by (used in)
financing activities........... (13.2) 134.5 80.3 -- 201.6
------- ------- ------- -- -------
Effect of foreign currency
translation......................... -- -- 9.4 -- 9.4
------- ------- ------- -- -------
NET CHANGE IN CASH AND CASH
EQUIVALENTS............................ (0.7) (3.9) (3.5) -- (8.1)
CASH AND CASH EQUIVALENTS --
BEGINNING OF YEAR...................... 1.5 (0.2) 32.8 -- 34.1
------- ------- ------- -- -------
CASH AND CASH EQUIVALENTS --
END OF YEAR............................ $ 0.8 $ (4.1) $ 29.3 $-- $ 26.0
======= ======= ======= == =======
</TABLE>
F-36
<PAGE> 100
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
Basis of Presentation -- In connection with the acquisition of UT
Automotive, Inc., a wholly-owned subsidiary of United Technologies Corporation
("UT Automotive")(see Note 18), the Company issued $1.4 billion in securities,
which consist of $600 million aggregate principal amount of 7.96% Senior Notes
due May 15, 2005 and $800 million aggregate principal amount of 8.11% Senior
Notes due May 15, 2009 (collectively, the "May 1999 Notes"). Certain of the
Company's domestic wholly-owned subsidiaries (the "Guarantors") irrevocably and
unconditionally fully guaranteed on a joint and several basis the punctual
payment when due, whether at stated maturity, by acceleration or otherwise, all
of the Company's obligations under the May 1999 Notes indenture, including the
Company's obligations to pay principal, premium, if any, and interest with
respect to the May 1999 Notes. The Guarantors on the date of the indenture were
Lear Operations Corporation and Lear Corporation Automotive Holdings (formerly,
UT Automotive). In lieu of providing separate audited financial statements for
the Guarantors, the Company has included the audited consolidating condensed
financial statements on pages F-29 to F-36. Management does not believe that
separate financial statements of the Guarantors are material to investors.
Therefore, separate financial statements and other disclosures concerning the
Guarantors are not presented.
Distributions -- There are no significant restrictions on the ability of
the Company to sell or otherwise dispose of any or all of the assets of any of
the Guarantors or on the ability of the Guarantors to make distributions to the
Company.
Selling, General and Administrative Expenses -- During 1998, 1997 and 1996,
the Parent allocated $64.5 million, $67.4 million and $53.5 million,
respectively, of corporate selling, general and administrative expenses to its
operating subsidiaries. The allocations were based on various factors which
estimate usage of particular corporate functions, and in certain instances,
other relevant factors were used, such as the revenues or headcount of the
Company's subsidiaries.
Long-term Debt of the Parent Corporation and the Guarantors -- Long-term
debt of the Parent and the Guarantors on a combined basis consisted of the
following at December 31 (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Credit agreement............................................ $ 755.1 $390.0
Other long-term debt........................................ 81.5 29.8
Subordinated notes.......................................... 336.0 336.0
-------- ------
1,172.6 755.8
Less current portion........................................ (3.7) (0.3)
-------- ------
$1,168.9 $755.5
======== ======
</TABLE>
The obligations of foreign subsidiary borrowers under the credit agreement
are guaranteed by the Parent.
For a more detailed description of the above indebtedness, see Note 9 to
the Consolidated Financial Statements.
F-37
<PAGE> 101
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
Aggregate minimum principal payment requirements on long-term debt,
including capital lease obligations, in each of the five years subsequent to
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 3.7
2000........................................................ 31.3
2001........................................................ 731.9
2002........................................................ 138.1
2003........................................................ 5.1
Thereafter.................................................. 262.5
</TABLE>
(18) SUBSEQUENT EVENTS
Acquisition of UT Automotive
On May 4, 1999, the Company acquired UT Automotive for approximately $2.3
billion, subject to certain post-closing adjustments. UT Automotive is a
supplier of electrical, electronic, motor and interior products and systems to
the global automotive industry. Headquartered in Dearborn, Michigan, UT
Automotive has annual sales of approximately $3 billion, 44,000 employees and 90
facilities located in 18 countries. The purchase price for the UT Automotive
acquisition was financed through borrowings under the Company's primary credit
facilities.
Primary Credit Facilities and the Senior Notes Offering
In connection with the UT Automotive acquisition, the Company amended and
restated its existing $2.1 billion revolving credit facility and entered into
new credit facilities. The new credit facilities consisted of $500 million
revolving credit facility, which matures on May 4, 2004, a $500 million term
loan having a scheduled amortization beginning on October 31, 2000 and a final
maturity of May 4, 2004, and a $1.4 billion interim term loan maturing on May 3,
2000.
On May 18, 1999, the Company completed the private offering of the May 1999
Notes. Interest is payable on the May 1999 Notes on May 15 and November 15 of
each year. The Company used the net proceeds from the May 1999 Notes offering to
repay the $1.4 billion interim term loan under its new credit facilities, which
was used to fund a portion of the UT Automotive acquisition purchase price. The
Company intends to file a registration statement with the Securities and
Exchange Commission to register substantially identical notes that will be
exchanged for the May 1999 Notes after the registration statement becomes
effective.
The May 1999 Notes are senior unsecured obligations of the Company and rank
pari passu in right of payment with all of the Company's existing and future
unsubordinated unsecured indebtedness. The Company's obligations under the May
1999 Notes are guaranteed, on a joint and several basis, by certain of the
Company's domestic subsidiaries. Indebtedness under the Company's primary credit
facilities is secured by the pledge of all or a portion of the capital stock of
certain of the Company's subsidiaries. The May 1999 Notes do not have the
benefit of such pledges. The primary credit facilities are guaranteed by the
same domestic subsidiaries of the Company that guarantee the May 1999 Notes.
Pursuant to the terms of the primary credit facilities, the guarantees and stock
pledges shall be released when and if the Company achieves a certain leverage
ratio or its senior long-term unsecured debt is at or above "BBB-" from Standard
& Poor's Ratings Group or at or above "Baa3" from Moody's Investors Service,
Inc., and certain other conditions are satisfied. In the event that any such
subsidiary ceases to be a guarantor under the primary credit facilities, such
subsidiary will be released as a guarantor of the May 1999 Notes. The Company
may redeem all or part of either series of the May 1999 Notes, at its option, at
any time, at the redemption price equal to the greater of (a) 100% of the
principal amount of the notes to be redeemed
F-38
<PAGE> 102
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
and (b) the sum of the present values of the remaining scheduled payments of
principal and interest thereon from the redemption date to the maturity date
discounted to the redemption date on a semiannual basis at the applicable
treasury rate plus 50 basis points, in each case, together with any interest
accrued but not paid to the date of the redemption.
The primary credit facilities contain numerous restrictive covenants
relating to maintenance of certain financial ratios and to the management and
operation of the Company. The covenants include, among others, limitations on
indebtedness, guarantees, mergers, acquisitions, fundamental corporate changes,
asset sales, investments, loans and advances, liens, dividends and other stock
payments, transactions with affiliates and optional payments and modification of
debt instruments. The May 1999 Notes also contain covenants restricting the
ability of the Company and its subsidiaries to incur liens and enter into sale
and leaseback transactions, and limiting the ability of the Company to
consolidate or merge with or into, or sell or otherwise dispose of all or
substantially all of its assets to, any person.
Sale of Electric Motor Systems
On May 7, 1999, the Company entered into a definitive purchase agreement
with Johnson Electric Holdings Limited to sell the recently acquired Electric
Motor Systems ("EMS") business for $310 million, subject to certain post-closing
adjustments. The Company acquired the EMS business as a part of the acquisition
of UT Automotive. EMS is a supplier of industrial and automotive electric motors
and starter motors for small gasoline engines. EMS had gross sales of $351
million and has approximately 3,300 employees operating at locations in 10
countries.
Consummation of the sale is contingent upon expiration or termination of
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act, applicable foreign competition act approvals and certain other customary
conditions.
F-39
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of LEAR CORPORATION AND SUBSIDIARIES ("the
Company") included in this Form S-4 , and have issued our report thereon dated
January 29, 1999 (except with respect to the matters discussed in Note 18, as to
which the date is May 18, 1999). Our audit was made for the purpose of forming
an opinion on those statements taken as a whole. The schedule on page F-41 is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
January 29, 1999.
F-40
<PAGE> 104
LEAR CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING OTHER AT END
OF PERIOD ADDITIONS RETIREMENTS CHANGES OF PERIOD
---------- --------- ----------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Valuation of accounts deducted from related
assets:
Allowance for doubtful accounts................ $ 4.0 $ 3.3 $ (.6) $ 2.3 $ 9.0
Reserve for unmerchantable inventories......... 6.3 4.6 (1.0) (.6) 9.3
----- ------ ------ ----- ------
$10.3 $ 7.9 $ (1.6) $ 1.7 $ 18.3
===== ====== ====== ===== ======
FOR THE YEAR ENDED DECEMBER 31, 1997:
Valuation of accounts deducted from related
assets:
Allowance for doubtful accounts................ $ 9.0 $ 5.1 $ (2.6) $ 3.2 $ 14.7
Reserve for unmerchantable inventories......... 9.3 3.6 (3.7) 3.2 12.4
----- ------ ------ ----- ------
$18.3 $ 8.7 $ (6.3) $ 6.4 $ 27.1
===== ====== ====== ===== ======
FOR THE YEAR ENDED DECEMBER 31, 1998:
Valuation of accounts deducted from related
assets:
Allowance for doubtful accounts................ $14.7 $ 8.4 $ (5.8) $(1.3) $ 16.0
Reserve for unmerchantable inventories......... 12.4 8.0 (5.6) .1 14.9
Reserve for restructuring and other charges.... -- 133.0 (41.7) -- 91.3
----- ------ ------ ----- ------
$27.1 $149.4 $(53.1) $(1.2) $122.2
===== ====== ====== ===== ======
</TABLE>
F-41
<PAGE> 105
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 2, DECEMBER 31,
1999 1998
---------- ------------
(UNAUDITED)
(IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 71.4 $ 30.0
Accounts receivable, net.................................... 2,013.6 1,373.9
Inventories................................................. 570.4 349.6
Recoverable customer engineering and tooling................ 340.1 221.4
Other....................................................... 440.1 223.1
-------- --------
Total current assets........................................ 3,435.6 2,198.0
-------- --------
LONG-TERM ASSETS:
Property, plant and equipment, net.......................... 1,870.0 1,182.3
Goodwill, net............................................... 3,328.3 2,019.8
Other....................................................... 391.8 277.2
-------- --------
Total long-term assets...................................... 5,590.1 3,479.3
-------- --------
$9,025.7 $5,677.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings....................................... $ 111.2 $ 82.7
Accounts payable and drafts................................. 1,982.5 1,600.8
Accrued liabilities......................................... 1,254.1 797.5
Current portion of long-term debt........................... 13.6 16.5
-------- --------
Total current liabilities................................... 3,361.4 2,497.5
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes.............................. 94.0 39.0
Long-term debt.............................................. 3,756.6 1,463.4
Other....................................................... 400.4 377.4
-------- --------
Total long-term liabilities................................. 4,251.0 1,879.8
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000 authorized;
67,569,230 issued at October 2, 1999 and
67,194,314 issued at December 31, 1998.................... .7 .7
Additional paid-in capital.................................. 866.8 859.3
Note receivable from sale of common stock................... (.1) (.1)
Less -- Common stock held in treasury, 510,230 shares at
cost...................................................... (18.3) (18.3)
Retained earnings........................................... 669.1 504.7
Accumulated other comprehensive income...................... (104.9) (46.3)
-------- --------
Total stockholders' equity.................................. 1,413.3 1,300.0
-------- --------
$9,025.7 $5,677.3
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-42
<PAGE> 106
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCT. 2 SEPT. 26 OCT. 2 SEPT. 26
1999 1998 1999 1998
------ -------- ------ --------
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................. $3,046.7 $1,946.5 $8,967.5 $6,153.6
Cost of sales......................................... 2,741.8 1,784.5 8,104.7 5,559.8
Selling, general and administrative expenses.......... 131.3 80.1 344.7 238.6
Amortization of goodwill.............................. 21.9 12.8 55.2 35.8
-------- -------- -------- --------
Operating income...................................... 151.7 69.1 462.9 319.4
Interest expense...................................... 71.3 29.0 161.6 79.2
Other expense, net.................................... 13.4 4.5 28.6 18.0
-------- -------- -------- --------
Income before provision for national income taxes..... 67.0 35.6 272.7 222.2
Provision for national income taxes................... 27.7 14.0 108.3 87.6
-------- -------- -------- --------
Net income............................................ $ 39.3 $ 21.6 $ 164.4 $ 134.6
======== ======== ======== ========
Basic net income per share............................ $ .59 $ .32 $ 2.46 $ 2.01
======== ======== ======== ========
Diluted net income per share.......................... $ .58 $ .32 $ 2.42 $ 1.97
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE> 107
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
OCTOBER 2, SEPTEMBER 26,
1999 1998
---------- -------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 164.4 $ 134.6
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 244.4 163.7
Change in recoverable customer engineering and tooling and
other.................................................. (119.3) (55.0)
Change in working capital items........................... (199.7) (49.0)
--------- -------
Net cash provided by operating activities.............. 89.8 194.3
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (257.0) (236.9)
Cost of acquisitions, net of cash acquired.................. (2,450.8) (307.5)
Proceeds from disposition of business segment............... 310.0 --
Other, net.................................................. -- 1.8
--------- -------
Net cash used in investing activities.................. (2,397.8) (542.6)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net............................... 2,306.1 398.2
Short-term borrowings, net.................................. 25.3 7.7
Proceeds from sale of common stock.......................... 7.5 3.3
Purchase of treasury stock.................................. -- (18.2)
--------- -------
Net cash provided by financing activities.............. 2,338.9 391.0
--------- -------
Effect of foreign currency translation...................... 10.5 (22.9)
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 41.4 19.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 30.0 12.9
--------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 71.4 $ 32.7
========= =======
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS:
Accounts receivable......................................... $ (231.1) $(160.4)
Inventories................................................. (71.2) (52.5)
Accounts payable............................................ 140.1 208.2
Accrued liabilities and other............................... (37.5) (44.3)
--------- -------
$ (199.7) $ (49.0)
========= =======
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest...................................... $ 101.7 $ 86.8
========= =======
Cash paid for income taxes.................................. $ 53.3 $ 73.1
========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE> 108
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear
Corporation, a Delaware corporation, and its wholly-owned and majority-owned
subsidiaries (the "Company" or "Lear"). Investments in affiliates in which the
Company owns a 20% or greater equity interest are accounted for under the equity
method. Certain items in prior year's quarterly financial statements have been
reclassified to conform with the presentation used in the quarter ended October
2, 1999.
2. 1999 ACQUISITIONS/DISPOSITIONS
Acquisition of UT Automotive
On May 4, 1999, Lear acquired UT Automotive, Inc., a wholly owned operating
segment of United Technologies Corporation, for approximately $2.3 billion, net
of cash acquired. During the third quarter of 1999, the consideration paid to
the former owner was increased by $79.9 million to reflect a revised estimate of
the working capital acquired. UT Automotive was a supplier of electrical,
electronic, motor and interior products and systems to the global automotive
industry. Headquartered in Dearborn, Michigan, UT Automotive had annual sales of
approximately $3.0 billion, 44,000 employees and 90 facilities located in 18
countries. The UT Automotive acquisition was accounted for as a purchase, and
accordingly, the assets purchased and liabilities assumed in the acquisition
have been reflected in the accompanying consolidated balance sheet. The
operating results of UT Automotive have been included in the consolidated
financial statements of the Company since the date of acquisition. The purchase
price and related allocation were as follows (in millions):
<TABLE>
<S> <C>
Consideration paid to former owner, net of cash acquired of
$83.5 million............................................... $2,296.4
Debt assumed................................................ 9.0
Estimated fees and expenses................................. 8.2
--------
Cost of acquisition......................................... $2,313.6
========
Property, plant and equipment............................... $ 633.0
Value assigned to assets sold............................... 310.0
Net working capital......................................... 81.4
Other assets purchased and liabilities assumed.............. (20.0)
Goodwill.................................................... 1,309.2
--------
Total cost allocation............................. $2,313.6
========
</TABLE>
The purchase price and related allocation may be revised up to one year
from the date of acquisition. The Company can provide no assurances as to
whether any revisions to the original purchase price allocation will be
significant. Adjustments to the purchase price and related allocation may occur
as a result of obtaining more information regarding property valuations and
liabilities assumed, including liabilities for acquired sales agreements to
supply product to customers at selling prices which are not sufficient to cover
the direct cost to produce such product, the outcome of final negotiations with
the former owner and revisions of preliminary estimates of fair values made at
the date of purchase. Additionally, the Company has not finalized a plan for the
restructuring of the acquired operations. The activities being considered
include potential plant closings and the termination or relocation of employees.
While there may be revisions, the Company does not know whether there will be a
material change as additional information on issues such as those noted above is
not available at this time. The net effect of the adjustments described above
will be reported as an adjustment to the purchase price and related allocation
described above. See Note 4 for pro forma financial information.
F-45
<PAGE> 109
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisition of Peregrine
On April 1, 1999, the Company acquired certain assets of Peregrine Windsor,
Inc. ("Peregrine"), a division of Peregrine Incorporated. Peregrine produces
just-in-time seat assemblies and door panels for several General Motors models.
The results of Peregrine are not included in the pro forma financial information
provided in Note 4 as the amounts are not significant.
Acquisition of Polovat / Ovatex
In February 1999, the Company acquired Polovat and the automotive business
of Ovatex. Polovat and Ovatex supply flooring and acoustic products for the
automotive market. The acquired operations have three plants in Poland and two
plants in Italy and employ more than 600 people. The results of Polovat and
Ovatex are not included in the pro forma financial information provided in Note
4 as the amounts are not significant.
Sale of Electric Motor Systems
On June 25, 1999, Lear completed the sale of the recently acquired Electric
Motor Systems ("EMS") business to Johnson Electric Holdings Limited for $310
million, subject to certain post-closing adjustments. Lear acquired the EMS
business in conjunction with the acquisition of UT Automotive. The EMS business
was sold for an amount that was approximately equal to the fair value which had
been allocated to the EMS business at the date of acquisition. As such, no gain
or loss on the sale was recognized. Although the sale of the EMS business
qualified as a discontinued operation, the results of the EMS business
operations during the ownership period were not material and are included in
Other expense, net. See Note 4 for pro forma financial information.
Acquisition of Lear-Donnelly Joint Venture Company
On September 15, 1999, Lear completed the acquisition of Donnelly
Corporations's 50-percent stake in Lear-Donnelly Overhead Systems, L.L.C.
("LDOS"), the joint venture in which the two automotive suppliers had been equal
partners. LDOS designs and manufactures overhead systems for the automotive
industry. The 50-50 joint venture was formed in 1997 by Donnelly and Lear, with
each contributing certain assets. The LDOS product line includes headliners, sun
visors, lighting and overhead consoles. The results of LDOS are not included in
the pro forma financial information provided in Note 4 as the amounts are not
significant.
3. 1998 ACQUISITION
Delphi Seating
In September 1998, the Company purchased the seating business of Delphi
Automotive Systems, a division of General Motors Corporation ("Delphi Seating"),
for approximately $250 million. Delphi Seating was a leading supplier of seat
systems to General Motors with 16 locations in 10 countries.
The Delphi Seating acquisition was accounted for as a purchase, and
accordingly, the assets purchased and liabilities assumed in the acquisition
have been reflected in the accompanying consolidated balance sheets. The
operating results of Delphi Seating have been included in the consolidated
financial statements since the date of acquisition. The purchase price and
related allocations were finalized in August 1999, which resulted in a $28
million increase in goodwill. The increase was primarily due to the revision of
amounts recorded of approximately $13.3 million related to loss contracts
existing at the date of acquisition to provide products to its customers at
selling prices which are not sufficient to cover the direct costs to produce
such products and a decrease of approximately $12.1 million in the amount
allocated to
F-46
<PAGE> 110
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the fixed assets acquired to reflect the final determination of their fair
value. The final purchase price and related allocation were as follows (in
millions):
<TABLE>
<S> <C>
Consideration paid to former owner, net of cash acquired of
$6.0 million................................................ $242.9
Debt assumed................................................ .5
Fees and expenses........................................... 3.2
------
Cost of acquisition......................................... $246.6
======
Property, plant and equipment............................... $ 38.7
Net working capital......................................... 12.5
Accrued losses on future sales commitments.................. (53.9)
Other assets purchased and liabilities assumed.............. 25.0
Goodwill.................................................... 224.3
------
Total cost allocation............................. $246.6
======
</TABLE>
See Note 4 for pro forma financial information.
4. PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information is presented to illustrate
the estimated effects of the Transactions, as if such Transactions had occurred
as of January 1, 1998.
The Transactions are:
- the acquisition of Delphi Seating;
- the acquisition of UT Automotive;
- the sale of EMS and the application of the proceeds therefrom;
- the amendment and restatement of the Company's existing senior credit
facility in connection with the acquisition of UT Automotive;
- borrowings under the Company's new senior credit facilities, which it
entered into in May 1999, in connection with the acquisition of UT
Automotive; and
- the offering and sale of the Company's 7.96% Senior Notes due 2005 and
8.11% Senior Notes due 2009 and the application of the net proceeds
therefrom.
(Unaudited; in millions, except per share data):
FOR THE THREE MONTHS ENDED SEPTEMBER 26, 1998
<TABLE>
<CAPTION>
UT OPERATING AND DELPHI OPERATING AND ELIMINATION OPERATING AND
LEAR AUTOMOTIVE FINANCING SEATING FINANCING OF EMS FINANCING
HISTORICAL HISTORICAL(1) ADJUSTMENTS HISTORICAL(2) ADJUSTMENTS HISTORICAL(1) ADJUSTMENTS
---------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $1,946.5 $629.9 $ -- $187.1 $(26.0)(6) $(72.4) $ --
Net income........... 21.6 11.7 (31.9)(3) (32.2) 15.3(4) (4.2) 3.3(5)
Basic net income per
share.............. .32
Diluted net income
per share.......... .32
<CAPTION>
PRO FORMA
---------
<S> <C>
Net sales............ $2,665.1
Net income........... (16.4)
Basic net income per
share.............. (.25)
Diluted net income
per share.......... (.24)
</TABLE>
F-47
<PAGE> 111
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED OCTOBER 2, 1999
<TABLE>
<CAPTION>
UT OPERATING AND DELPHI OPERATING AND ELIMINATION OPERATING AND
LEAR AUTOMOTIVE FINANCING SEATING FINANCING OF EMS FINANCING
HISTORICAL HISTORICAL(1) ADJUSTMENTS HISTORICAL(2) ADJUSTMENTS HISTORICAL(1) ADJUSTMENTS
---------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $8,967.5 $1,091.1 $ -- $-- $-- $(114.9) $ --
Net income........... 164.4 36.4 (41.9)(3) -- -- (6.1) 6.1(5)
Basic net income per
share.............. 2.46
Diluted net income
per share.......... 2.42
<CAPTION>
PRO FORMA
---------
<S> <C>
Net sales............ $9,943.7
Net income........... 158.9
Basic net income per
share.............. 2.38
Diluted net income
per share.......... 2.34
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1998
<TABLE>
<CAPTION>
UT OPERATING AND DELPHI OPERATING AND ELIMINATION OPERATING AND
LEAR AUTOMOTIVE FINANCING SEATING FINANCING OF EMS FINANCING
HISTORICAL HISTORICAL(1) ADJUSTMENTS HISTORICAL(2) ADJUSTMENTS HISTORICAL(1) ADJUSTMENTS
---------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $6,153.6 $2,085.9 $ -- $ 777.3 $(108.3)(6) $(262.6) $ --
Net income........... 134.6 64.7 (95.8)(3) (133.9) 59.8(4) (10.6) 9.5(5)
Basic net income per
share.............. 2.01
Diluted net income
per share.......... 1.97
<CAPTION>
PRO FORMA
---------
<S> <C>
Net sales............ $8,645.9
Net income........... 28.3
Basic net income per
share.............. .42
Diluted net income
per share.......... .41
</TABLE>
- ---------------
(1) The UT Automotive and EMS historical information for the nine months ended
October 2, 1999 represents amounts derived from the unaudited results of
operations from the beginning of the year to May 4, 1999, the date Lear
acquired UT Automotive. The UT Automotive and EMS historical information for
the three months ended October 2, 1999 are included in Lear's historical
information. The UT Automotive and EMS historical information for the 1998
periods represents amounts derived from the unaudited results of operations
for the three months ended September 26, 1998 and the nine months ended
September 26, 1998. Certain amounts have been reclassified to conform to
Lear's presentation.
(2) The Delphi Seating historical information for the 1998 periods represents
amounts derived from the unaudited results of operations from the beginning
of the respective periods to September 1, 1998, the date Lear acquired
Delphi Seating. The Delphi Seating historical information for the 1999
periods is included in the Lear historical information.
(3) The Operating and Financing Adjustments that resulted from the acquisition
of UT Automotive include:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPT. 26, 1998 OCT. 2, 1999 SEPT. 26, 1998
-------------- ------------ --------------
<S> <C> <C> <C>
Amortization of goodwill from the acquisition of UT
Automotive (over 40 years).......................... $ 5.8 $ 7.6 $ 17.4
Incremental interest expense incurred as a result of
the acquisition of UT Automotive.................. 40.2 52.8 120.7
Impact on tax provision due to incremental interest
expense........................................... (14.1) (18.5) (42.3)
------ ------ ------
Net impact of adjustments on net income............. $(31.9) $(41.9) $(95.8)
====== ====== ======
</TABLE>
(4) The Delphi Seating pro forma financial data does not reflect adjustments for
the anticipated results of certain activities and actions that the Company
feels will benefit continuing operations, as such adjustments represent
adjustments to the historical operating results of Delphi Seating. These
adjustments were determined using allocation methods consistent with those
used in deriving Delphi Seating's audited financial statements and include
operating losses of approximately $4.5 million and
F-48
<PAGE> 112
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$27.3 million for the three and nine month periods ended September 26,
1998, respectively, of certain plants that will not be incurred in the future as
they were closed prior to the acquisition, a charge of approximately $3.9
million and $15.3 million for the three and nine month periods ended
September 26, 1998, respectively, related to the employee benefit
obligations not assumed by the Company and charges of approximately $14.1
million and $56.1 million for the three and nine month periods ended
September 26, 1998, respectively, that had previously been allocated by the
former owner. The Company believes that based upon its experience of
operating Delphi Seating since September 1, 1998, reasonable estimates of
Delphi Seating's general corporate costs on a stand-alone basis would have
been approximately $3.8 million and $15.4 million in the three and nine
month periods ended September 26, 1998, respectively.
The Operating and Financing Adjustments that resulted from the acquisition
of Delphi Seating include:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPT. 26, 1998 SEPT. 26, 1998
-------------- --------------
<S> <C> <C>
Amortization of goodwill from the acquisition of Delphi
Seating (over 40 years)..................................... $ .8 $ 3.2
Incremental interest expense incurred as a result of the
acquisition of Delphi Seating............................. 2.5 9.0
Capitalization of fixed asset purchases originally
expensed.................................................. (7.8) (31.2)
Depreciation expense on fixed assets previously written
off....................................................... 2.3 8.9
Impact on tax provision due to utilization of domestic
Delphi losses against Lear pre-tax income................. (13.1) (49.7)
------ ------
Net impact of adjustments on net income..................... $ 15.3 $ 59.8
====== ======
</TABLE>
(5) The Operating and Financing Adjustments that resulted from the sale of EMS
include:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPT. 26, 1998 OCT. 2, 1999 SEPT. 26, 1998
-------------- ------------ --------------
<S> <C> <C> <C>
Reduction of interest expense incurred as a result
of the sale of EMS.................................. $(5.0) $(9.4) $(14.6)
Impact on tax provision due to reduction of interest
expense........................................... 1.7 3.3 5.1
----- ----- ------
Net impact of adjustments on net income............. $ 3.3 $ 6.1 $ 9.5
===== ===== ======
</TABLE>
(6) The adjustment to net sales reflects the elimination of intercompany sales
between the Company and Delphi Seating.
The pro forma information above does not purport to be indicative of the
results that actually would have been achieved if the operations were combined
during the periods presented and is not intended to be a projection of future
results or trends.
5. 1998 RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1998, the Company began to implement a
restructuring plan designed to lower its cost structure and improve the
long-term competitive position of the Company. As a result of this restructuring
plan, the Company recorded pre-tax charges of $133.0 million, consisting of
$110.5 million of restructuring charges and $22.5 million of other charges.
Included in this total are the costs to consolidate the Company's European
operations of $78.9 million, charges resulting from the consolidation of certain
F-49
<PAGE> 113
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
manufacturing and administrative operations in North and South America of $31.6
million, other asset impairment charges of $15.0 million and contract
termination fees and other of $7.5 million. The impaired assets, included in
other charges, consist of a valuation allowance on the collectibility of a note
receivable from a South American supplier of $6.5 million, the write-down of
equipment to fair market value of $5.6 million and the write-down of costs
related to the termination of an information systems project of $2.9 million.
The plan originally called for termination of approximately 3,000
employees, of which 2,662 have been terminated as of October 2, 1999. In
addition, the plan originally called for the closure of 13 facilities, of which
11 have been closed as of October 2, 1999. There have been no significant
changes to the original restructuring plan. However, in the third quarter, as
part of Lear's ongoing monitoring procedures and controls for detecting and
explaining variances from costs included in the restructuring plan, Lear further
analyzed the timing and certainty of the termination of certain manufacturing
and engineering personnel which remained to be completed in Europe. As a result
of this review, the Company determined that it may be required to delay or
cancel such terminations due to greater resource demands for and higher than
expected demand on some of the programs in Italy and Germany. Upon completion of
its analysis in the fourth quarter of 1999, if the Company determines that such
reserves, which relate primarily to employee severance costs, are no longer
necessary, the reserves will be reversed through the restructuring line in
operating income. The reversals, if any, are not expected to be significant.
The following table summarizes the restructuring and other charges (in
millions):
<TABLE>
<CAPTION>
UTILIZED BALANCE AT
ORIGINAL ----------------- OCT. 2,
PROVISION ADJUST. CASH NONCASH 1999
--------- ------- ---- ------- ----------
<S> <C> <C> <C> <C> <C>
European Operations Consolidation:
Severance....................................... $ 43.2 $(2.5) $(18.9) $ -- $21.8
Asset impairments............................... 11.7 -- -- (11.7) --
Lease cancellation costs........................ 22.1 -- (2.8) -- 19.3
Other closure costs............................. 1.9 -- (.3) (.4) 1.2
North and South America Operations Consolidation
Severance....................................... 20.2 2.0 (17.7) -- 4.5
Asset impairments............................... 6.5 .9 -- (7.4) --
Lease cancellation costs........................ 4.5 (2.5) (1.0) -- 1.0
Other closure costs............................. .4 (.1) (.3) -- --
Other charges:
Asset impairments............................... 15.0 (.4) -- (14.6) --
Other........................................... 7.5 -- (7.3) (.2) --
------ ----- ------ ------ -----
Total................................... $133.0 $(2.6) $(48.3) $(34.3) $47.8
====== ===== ====== ====== =====
</TABLE>
6. RESTRUCTURING CHARGES RELATED TO 1998 ACQUISITIONS
Pianfei, Strapazzini and Chapman
During the second quarter of 1998, the Company began to implement
restructuring plans designed to integrate the operations of recently acquired
Pianfei, Strapazzini and Chapman, which was finalized during the second quarter
of 1999. As a result of these restructuring plans, the Company recorded an
adjustment to the original purchase price allocations of $24.1 million,
consisting of $12.2 million of lease cancellation costs, $6.8 million of asset
impairment charges and $5.1 million of severance costs. The asset impairment
charges represent the write-down to fair value less disposal costs of machinery
and equipment made obsolete or redundant due to the decision to close or exit
facilities. The plans called for the termination of 503 employees, of which 122
were terminated as of October 2, 1999. In addition, the plans called for the
closure of or exit from 5 facilities, of which 2 were closed as of October 2,
1999. The remaining employee
F-50
<PAGE> 114
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terminations and facility closures or exits are expected to be completed by the
second quarter of 2000. The following table summarizes the restructuring
activity related to these acquisitions (in millions):
<TABLE>
<CAPTION>
UTILIZED BALANCE AT
ORIGINAL ----------------- OCTOBER 2,
ADJUSTMENT CASH NONCASH 1999
---------- ---- ------- ----------
<S> <C> <C> <C> <C>
Lease cancellation costs................................ $12.2 $ (8.8) $ -- $3.4
Asset impairment........................................ 6.8 -- (6.8) --
Severance............................................... 5.1 (1.8) (.3) 3.0
----- ------ ----- ----
Total......................................... $24.1 $(10.6) $(7.1) $6.4
===== ====== ===== ====
</TABLE>
DELPHI SEATING
During the third quarter of 1998, the Company began to implement
restructuring plans designed to integrate the operations of Delphi Seating,
which were finalized during the third quarter of 1999. As a result of these
restructuring plans, the Company recorded an adjustment to the original purchase
price allocation of $10.6 million, of which $9.9 million was recorded as of
December 31, 1998. The adjustment consisted of $3.2 million of severance costs,
$3.3 million of asset impairment charges, $2.5 million of lease cancellation
costs and $1.6 million of other costs, consisting mainly of government grant
repayments. The asset impairment charges represent the write-down to fair value
less disposal costs of equipment made obsolete or redundant due to the decision
to close or exit facilities. These restructuring plans are progressing as
scheduled, and there have been no changes to the original plans. The plans
called for the termination of 796 employees of which 405 were terminated as of
October 2, 1999. In addition, the plans called for the closure or exit from 5
facilities, of which 2 were closed as of October 2, 1999. The remaining employee
terminations and facility closures or exits are expected to be completed by the
second quarter of 2000. The following table summarizes the restructuring
activity related to the Delphi Seating acquisition (in millions):
<TABLE>
<CAPTION>
UTILIZED BALANCE AT
ORIGINAL ---------------- OCTOBER 2,
ADJUSTMENT CASH NONCASH 1999
---------- ---- ------- ----------
<S> <C> <C> <C> <C>
Lease cancellation costs................................. $ 2.5 $(1.3) $ -- $1.2
Asset impairment......................................... 3.3 -- (3.3) --
Severance................................................ 3.2 (1.4) -- 1.8
Other.................................................... 1.6 (.2) -- 1.4
----- ----- ----- ----
Total.......................................... $10.6 $(2.9) $(3.3) $4.4
===== ===== ===== ====
</TABLE>
7. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally using the first-in, first-out method. Finished goods and
work-in-process inventories include material, labor and manufacturing overhead
costs. Inventories are comprised of the following (in millions):
<TABLE>
<CAPTION>
OCTOBER 2, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Raw materials............................................... $319.5 $253.9
Work-in-process............................................. 110.4 23.8
Finished goods.............................................. 140.5 71.9
------ ------
Inventories................................................. $570.4 $349.6
====== ======
</TABLE>
F-51
<PAGE> 115
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciable property is
depreciated over the estimated useful lives of the assets, using principally the
straight-line method. A summary of property, plant and equipment is shown below
(in millions):
<TABLE>
<CAPTION>
OCTOBER 2, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Land........................................................ $ 87.0 $ 70.6
Buildings and improvements.................................. 579.5 429.6
Machinery and equipment..................................... 1,923.4 1,276.2
-------- --------
Total property, plant and equipment......................... 2,589.9 1,776.4
Less -- accumulated depreciation............................ (719.9) (594.1)
-------- --------
Net property, plant and equipment........................... $1,870.0 $1,182.3
======== ========
</TABLE>
9. LONG-TERM DEBT
Long-term debt is comprised of the following (in millions):
<TABLE>
<CAPTION>
OCTOBER 2, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Credit agreements........................................... $1,876.1 $ 970.3
Other....................................................... 158.1 173.6
-------- --------
2,034.2 1,143.9
Less -- current portion..................................... 13.6 16.5
-------- --------
2,020.6 1,127.4
-------- --------
8.11% Senior Notes.......................................... 800.0 --
7.96% Senior Notes.......................................... 600.0 --
9.50% Subordinated Notes.................................... 200.0 200.0
8.25% Subordinated Notes.................................... 136.0 136.0
-------- --------
1,736.0 336.0
-------- --------
Long-term debt.............................................. $3,756.6 $1,463.4
======== ========
</TABLE>
The purchase price for the acquisition of UT Automotive was financed by
borrowings under the Company's primary credit facilities. In connection with the
acquisition, the Company amended and restated its $2.1 billion senior credit
facility and entered into new senior credit facilities. The $2.1 billion senior
credit facility matures on September 30, 2001. The new senior credit facilities
consist of a $500 million revolving credit facility which matures on May 4,
2004, a $500 million term loan having scheduled amortization beginning on
October 31, 2000 and a final maturity on May 4, 2004, and a $1.4 billion interim
term loan, which was repaid with the proceeds from the Company's offering of its
8.11% and 7.96% Senior Notes (referred to below). The $310 million proceeds from
the sale of the Electric Motors Business were used to reduce revolving credit
borrowings under the $2.1 billion senior credit facility.
On May 18, 1999, the Company issued $1.4 billion aggregate principal amount
of Senior Notes, the proceeds of which were used to repay the interim loan. The
offering included $800 million in aggregate principal amount of ten-year notes
bearing interest at a rate of 8.11% per annum and $600 million in aggregate
principal amount of six-year notes bearing interest at a rate of 7.96% per
annum.
F-52
<PAGE> 116
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's primary credit facilities are guaranteed by certain of its
significant domestic subsidiaries and secured by the pledge of all or a portion
of the capital stock of certain of its significant subsidiaries. The senior
notes are guaranteed by the same subsidiaries that guarantee the Company's
primary credit facilities.
10. FINANCIAL INSTRUMENTS
Certain foreign currency contracts entered into by the Company qualify for
hedge accounting as only firm foreign currency commitments are hedged. Gains and
losses from these contracts are deferred and generally recognized in cost of
sales as of the settlement date. Other foreign currency contracts entered into
by the Company, which do not receive hedge accounting treatment, are marked to
market with unrealized gains or losses recognized in other expense in the income
statement. Interest rate swaps are accounted for by recognizing interest expense
and interest income in the amount of anticipated interest payments.
11. NET INCOME PER SHARE
Basic net income per share is computed using the weighted average common
shares outstanding during the period. Diluted net income per share is computed
using the average share price during the period when calculating the dilutive
effect of stock options. Shares outstanding for the periods presented were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
OCT. 2, SEPT. 26, OCT. 2, SEPT. 26,
1999 1998 1999 1998
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Weighted average shares outstanding........... 67,038,268 67,066,641 66,881,606 67,041,616
Dilutive effect of stock options.............. 872,561 1,094,591 907,244 1,222,966
---------- ---------- ---------- ----------
Diluted shares outstanding.................... 67,910,829 68,161,232 67,788,850 68,264,582
========== ========== ========== ==========
</TABLE>
12. COMPREHENSIVE INCOME
Comprehensive income is defined as all changes in a Company's net assets
except changes resulting from transactions with shareholders. It differs from
net income in that certain items currently recorded to equity would be a part of
comprehensive income. Comprehensive income for the periods is as follows (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
-------------------- --------------------
OCT. 2, SEPT. 26, OCT. 2, SEPT. 26,
1999 1998 1999 1998
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net income.................................................. $39.3 $ 21.6 $164.4 $134.6
Other comprehensive income:
Foreign currency translation adjustment................... 13.6 (12.4) (58.6) (17.1)
----- ------ ------ ------
Other comprehensive income.................................. 13.6 (12.4) (58.6) (17.1)
----- ------ ------ ------
Comprehensive income........................................ $52.9 $ 9.2 $105.8 $117.5
===== ====== ====== ======
</TABLE>
13. SEGMENT REPORTING
The Company is organized based on customer-focused and geographic
divisions. Each division reports their results from operations and makes
requests for capital expenditures directly to the chief operating
F-53
<PAGE> 117
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
decision making group. Under this organizational structure, the Company's
operating segments have been aggregated into one reportable segment. This
aggregated segment consists of ten divisions, each with separate management
teams. The Other category includes the corporate office, geographic
headquarters, technology division and elimination of intercompany activities,
none of which meet the requirements of being classified as an operating segment.
The following table presents revenues and other financial information by
business segment (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 2, 1999 NINE MONTHS ENDED OCTOBER 2, 1999
-------------------------------------- --------------------------------------
AUTOMOTIVE AUTOMOTIVE
INTERIORS OTHER TOTAL INTERIORS OTHER TOTAL
---------- ----- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $3,044.6 $ 2.1 $3,046.7 $8,960.6 $ 6.9 $8,967.5
EBITA....................... 206.3 (32.7) 173.6 609.8 (91.7) 518.1
Depreciation................ 69.2 3.2 72.4 181.1 8.1 189.2
Capital expenditures........ 95.0 (.6) 94.4 253.9 3.1 257.0
Total assets................ 6,070.8 2,954.9 9,025.7 6,070.8 2,954.9 9,025.7
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 26, 1998 NINE MONTHS ENDED SEPTEMBER 26, 1998
-------------------------------------- --------------------------------------
AUTOMOTIVE AUTOMOTIVE
INTERIORS OTHER TOTAL INTERIORS OTHER TOTAL
---------- ----- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $1,944.5 $ 2.0 $1,946.5 $6,147.0 $ 6.6 $6,153.6
EBITA....................... 95.0 (13.1) 81.9 446.8 (91.6) 355.2
Depreciation................ 41.7 2.7 44.4 120.2 7.7 127.9
Capital expenditures........ 98.7 13.1 111.8 202.9 34.0 236.9
Total assets................ 3,731.9 1,747.4 5,479.3 3,731.9 1,747.4 5,479.3
</TABLE>
F-54
<PAGE> 118
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OCTOBER 2, 1999
---------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ (3.7) $ .9 $ 74.2 $ -- $ 71.4
Accounts receivable, net............. 155.1 298.9 1,559.6 -- 2,013.6
Inventories.......................... 24.8 36.5 509.1 -- 570.4
Recoverable customer engineering and
tooling........................... 49.0 14.8 276.3 -- 340.1
Other................................ 130.0 38.6 271.5 -- 440.1
--------- -------- -------- --------- --------
Total current assets.............. 355.2 389.7 2,690.7 -- 3,435.6
--------- -------- -------- --------- --------
LONG-TERM ASSETS:
PP&E, net............................ 136.1 257.6 1,476.3 -- 1,870.0
Goodwill, net........................ 144.5 407.6 2,776.2 -- 3,328.3
Investment in subsidiaries........... 2,049.8 2,620.1 -- (4,669.9) --
Other................................ 179.8 6.9 205.1 -- 391.8
--------- -------- -------- --------- --------
Total long-term assets............ 2,510.2 3,292.2 4,457.6 (4,669.9) 5,590.1
--------- -------- -------- --------- --------
$ 2,865.4 $3,681.9 $7,148.3 $(4,669.9) $9,025.7
========= ======== ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................ $ 78.5 $ -- $ 32.7 $ -- $ 111.2
Accounts payable and drafts.......... 154.2 277.2 1,551.1 -- 1,982.5
Accrued liabilities.................. 226.8 139.6 887.7 -- 1,254.1
Current portion of long-term debt.... 7.0 .2 6.4 -- 13.6
--------- -------- -------- --------- --------
Total current liabilities......... 466.5 417.0 2,477.9 -- 3,361.4
--------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes....... (18.0) 31.2 80.8 -- 94.0
Long-term debt....................... 3,580.7 10.3 165.6 -- 3,756.6
Intercompany accounts, net........... (2,698.6) 3,032.5 (333.9) -- --
Other................................ 121.6 75.9 202.9 -- 400.4
--------- -------- -------- --------- --------
Total long-term liabilities....... 985.7 3,149.9 115.4 -- 4,251.0
--------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY................... 1,413.2 115.0 4,555.0 (4,669.9) 1,413.3
--------- -------- -------- --------- --------
$ 2,865.4 $3,681.9 $7,148.3 $(4,669.9) $9,025.7
========= ======== ======== ========= ========
</TABLE>
F-55
<PAGE> 119
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(AUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ (3.8) $ .9 $ 32.9 $ -- $ 30.0
Accounts receivable, net.............. 138.4 294.2 941.3 -- 1,373.9
Inventories........................... 17.3 45.9 286.4 -- 349.6
Recoverable customer engineering and
tooling............................ 28.1 12.6 180.7 -- 221.4
Other................................. 44.6 29.5 149.0 -- 223.1
-------- -------- -------- --------- --------
Total current assets.......... 224.6 383.1 1,590.3 -- 2,198.0
-------- -------- -------- --------- --------
LONG-TERM ASSETS:
PP&E, net............................. 110.6 320.7 751.0 -- 1,182.3
Goodwill, net......................... 274.6 615.3 1,129.9 -- 2,019.8
Investment in subsidiaries............ 1,794.4 21.1 -- (1,815.5) --
Other................................. 82.0 11.1 184.1 -- 277.2
-------- -------- -------- --------- --------
Total long-term assets........ 2,261.6 968.2 2,065.0 (1,815.5) 3,479.3
-------- -------- -------- --------- --------
$2,486.2 $1,351.3 $3,655.3 $(1,815.5) $5,677.3
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................. $ 55.0 $ -- $ 27.7 $ -- $ 82.7
Accounts payable and drafts........... 191.0 254.5 1,155.3 -- 1,600.8
Accrued liabilities................... 133.9 141.9 521.7 -- 797.5
Current portion of long-term debt..... 3.5 .2 12.8 -- 16.5
-------- -------- -------- --------- --------
Total current liabilities..... 383.4 396.6 1,717.5 -- 2,497.5
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes........ (15.5) 31.2 23.3 -- 39.0
Long-term debt........................ 1,168.1 .8 294.5 -- 1,463.4
Intercompany accounts, net............ (484.1) 666.7 (182.6) -- --
Other................................. 134.3 53.1 190.0 -- 377.4
-------- -------- -------- --------- --------
Total long-term liabilities... 802.8 751.8 325.2 -- 1,879.8
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY.................... 1,300.0 202.9 1,612.6 (1,815.5) 1,300.0
-------- -------- -------- --------- --------
$2,486.2 $1,351.3 $3,655.3 $(1,815.5) $5,677.3
======== ======== ======== ========= ========
</TABLE>
F-56
<PAGE> 120
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED OCTOBER 2, 1999
----------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................. $318.5 $533.2 $2,760.2 $(565.2) $3,046.7
Cost of sales......................... 320.1 479.6 2,507.3 (565.2) 2,741.8
Selling, general and administrative
expenses............................ 21.0 8.1 102.2 -- 131.3
Amortization of goodwill.............. 1.2 2.9 17.8 -- 21.9
------ ------ -------- ------- --------
Operating income (loss)............. (23.8) 42.6 132.9 -- 151.7
Interest expense...................... 18.3 50.8 2.2 -- 71.3
Other (income) expense, net........... (65.8) 19.2 60.0 -- 13.4
------ ------ -------- ------- --------
Income (loss) before provision
(credit) for national income
taxes and equity in net income of
subsidiaries..................... 23.7 (27.4) 70.7 -- 67.0
Provision (credit) for national income
taxes............................... 3.8 (14.9) 38.8 -- 27.7
Equity in net income of
subsidiaries........................ (19.4) (57.0) -- 76.4 --
------ ------ -------- ------- --------
NET INCOME............................ $ 39.3 $ 44.5 $ 31.9 $ (76.4) $ 39.3
====== ====== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 26, 1998
----------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- -------------- ------------ ------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................. $266.7 $521.9 $1,515.4 $(357.5) $1,946.5
Cost of sales......................... 271.0 458.6 1,412.4 (357.5) 1,784.5
Selling, general and administrative
expenses............................ 28.2 7.6 44.3 -- 80.1
Amortization of goodwill.............. 1.2 4.2 7.4 -- 12.8
------ ------ -------- ------- --------
Operating income (loss)............. (33.7) 51.5 51.3 -- 69.1
Interest expense...................... 2.3 13.1 13.6 -- 29.0
Other (income) expense, net........... (14.1) 25.9 (7.3) -- 4.5
------ ------ -------- ------- --------
Income (loss) before provision
(credit) for national income
taxes and equity in net income of
subsidiaries..................... (21.9) 12.5 45.0 -- 35.6
Provision (credit) for national income
taxes............................... (7.3) 7.0 14.3 -- 14.0
Equity in net income of
subsidiaries........................ (36.2) (1.6) -- 37.8 --
------ ------ -------- ------- --------
NET INCOME............................ $ 21.6 $ 7.1 $ 30.7 $ (37.8) $ 21.6
====== ====== ======== ======= ========
</TABLE>
F-57
<PAGE> 121
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 2, 1999
-------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 894.9 $1,709.6 $8,116.7 $(1,753.7) $8,967.5
Cost of sales........................... 886.7 1,510.9 7,460.8 (1,753.7) 8,104.7
Selling, general and administrative
expenses.............................. 84.2 24.9 235.6 -- 344.7
Amortization of goodwill................ 4.1 8.7 42.4 -- 55.2
------- -------- -------- --------- --------
Operating income (loss)............... (80.1) 165.1 377.9 -- 462.9
Interest expense........................ 49.6 100.4 11.6 -- 161.6
Other (income) expense, net............. (192.1) 74.3 146.4 -- 28.6
------- -------- -------- --------- --------
Income (loss) before provision
(credit) for national income taxes
and equity in net income of
subsidiaries....................... 62.4 (9.6) 219.9 -- 272.7
Provision (credit) for national income
taxes................................. 27.0 (4.2) 85.5 -- 108.3
Equity in net income of subsidiaries.... (129.0) (159.2) -- 288.2 --
------- -------- -------- --------- --------
NET INCOME.............................. $ 164.4 $ 153.8 $ 134.4 $ (288.2) $ 164.4
======= ======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1998
-------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 717.9 $1,762.7 $4,813.8 $(1,140.8) $6,153.6
Cost of sales........................... 721.6 1,520.3 4,458.7 (1,140.8) 5,559.8
Selling, general and administrative
expenses.............................. 79.2 28.3 131.1 -- 238.6
Amortization of goodwill................ 3.1 12.6 20.1 -- 35.8
------- -------- -------- --------- --------
Operating income (loss)............... (86.0) 201.5 203.9 -- 319.4
Interest expense........................ 3.0 36.0 40.2 -- 79.2
Other (income) expense, net............. (112.2) 88.9 41.3 -- 18.0
------- -------- -------- --------- --------
Income before provision for national
income taxes and equity in net
income of subsidiaries............. 23.2 76.6 122.4 -- 222.2
Provision for national income taxes..... 10.0 31.4 46.2 -- 87.6
Equity in net income of subsidiaries.... (121.4) (9.1) -- 130.5 --
------- -------- -------- --------- --------
NET INCOME.............................. $ 134.6 $ 54.3 $ 76.2 $ (130.5) $ 134.6
======= ======== ======== ========= ========
</TABLE>
F-58
<PAGE> 122
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 2, 1999
---------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES.................. $ (128.6) $ 75.0 $ 143.4 $ -- $ 89.8
--------- --------- ------- ---- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment........................ (38.5) (30.4) (188.1) -- (257.0)
Cost of acquisitions, net of cash
acquired......................... (63.3) (2,387.5) -- -- (2,450.8)
Proceeds from disposition of
business segment................. -- 310.0 -- -- 310.0
--------- --------- ------- ---- ---------
Net cash used in investing
activities..................... (101.8) (2,107.9) (188.1) -- (2,397.8)
--------- --------- ------- ---- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net....... 2,416.1 9.5 (119.5) -- 2,306.1
Short-term borrowings, net.......... 23.5 -- 1.8 -- 25.3
Change in intercompany accounts..... (2,216.6) 2,023.4 193.2 -- --
Proceeds from sale of common
stock............................ 7.5 -- -- -- 7.5
--------- --------- ------- ---- ---------
Net cash provided by financing
activities..................... 230.5 2,032.9 75.5 -- 2,338.9
--------- --------- ------- ---- ---------
Effect of foreign currency
translation...................... -- -- 10.5 -- 10.5
--------- --------- ------- ---- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS......................... .1 -- 41.3 -- 41.4
CASH AND CASH EQUIVALENTS -- BEGINNING
OF PERIOD........................... (3.8) .9 32.9 -- 30.0
--------- --------- ------- ---- ---------
CASH AND CASH EQUIVALENTS -- END OF
PERIOD.............................. $ (3.7) $ .9 $ 74.2 $ -- $ 71.4
========= ========= ======= ==== =========
</TABLE>
F-59
<PAGE> 123
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1998
-------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES.............................. $ 28.8 $52.2 $ 113.3 $ -- $ 194.3
------- ----- ------- ---- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment.......................... (68.6) (36.0) (132.3) -- (236.9)
Cost of acquisitions, net of cash
acquired........................... 43.4 -- (350.9) -- (307.5)
Other, net............................ 2.6 -- ( .8) -- 1.8
------- ----- ------- ---- -------
Net cash used in investing
activities....................... (22.6) (36.0) (484.0) -- (542.6)
------- ----- ------- ---- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net......... 404.0 73.3 (79.1) -- 398.2
Short-term borrowings, net............ 11.5 -- (3.8) -- 7.7
Change in intercompany accounts....... (402.0) (88.8) 490.8 -- --
Proceeds from sale of common stock.... 3.3 -- -- -- 3.3
Purchase of treasury stock............ (18.2) -- -- -- (18.2)
------- ----- ------- ---- -------
Net cash provided by (used in)
financing activities............. (1.4) (15.5) 407.9 -- 391.0
------- ----- ------- ---- -------
Effect of foreign currency
translation........................ -- -- (22.9) -- (22.9)
------- ----- ------- ---- -------
NET CHANGE IN CASH AND CASH
EQUIVALENTS........................... 4.8 .7 14.3 -- 19.8
CASH AND CASH EQUIVALENTS -- BEGINNING
OF PERIOD............................. ( .6) .5 13.0 -- 12.9
------- ----- ------- ---- -------
CASH AND CASH EQUIVALENTS -- END OF
PERIOD................................ $ 4.2 $ 1.2 $ 27.3 $ -- $ 32.7
======= ===== ======= ==== =======
</TABLE>
Basis of Presentation -- In connection with the acquisition of UT
Automotive, Inc., a wholly-owned subsidiary of United Technologies Corporation
("UT Automotive")(see Notes 2 and 9), the Company issued $1.4 billion in
securities, which consist of $600 million aggregate principal amount of 7.96%
Senior Notes due May 15, 2005 and $800 million aggregate principal amount of
8.11% Senior Notes due May 15, 2009 (collectively, the "May 1999 Notes").
Certain of the Company's domestic wholly-owned subsidiaries (the "Guarantors")
irrevocably and unconditionally fully guaranteed on a joint and several basis
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all of the Company's obligations under the May 1999 Notes
indenture, including the company's obligations to pay principal, premium, if
any, and interest with respect to the May 1999 Notes. The Guarantors on the date
of the indenture were Lear Operations Corporation and Lear Corporation
Automotive Holdings (formerly, UT Automotive). In lieu of providing separate
unaudited financial statements for the Guarantors, the Company has included the
unaudited consolidating condensed financial statements on pages F-55 to F-59.
Management does not believe that separate financial statements of the Guarantors
are material to investors. Therefore, separate financial statements and other
disclosures concerning the Guarantors are not presented.
Distributions -- There are no significant restrictions on the ability of
the Company to sell or otherwise dispose of any or all of the assets of any of
the Guarantors or on the ability of the Guarantors to make distributions to the
Company.
Selling and Administrative Expenses -- Lear Corporation (the "Parent")
allocated $10.4 million and $12.5 million for the three month periods ended
October 2, 1999 and September 26, 1998, respectively, and $34.8 million and
$44.4 million for the nine month periods ended October 2, 1999 and September 26,
1998, respectively, of corporate selling and administrative expenses to its
operating subsidiaries. The allocations were based on various factors which
estimate usage of particular corporate functions, and in
F-60
<PAGE> 124
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain instances, other relevant factors were used, such as the revenues or
headcount of the Company's subsidiaries.
Long-term debt of the Parent Corporation and the Guarantors-Long-term debt
of the Parent and the Guarantors on a combined basis consisted of the following
as of October 2, 1999 and December 31, 1998 (unaudited, in millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
May 1999 Notes............................................ $1,400.0 $ --
Credit agreement.......................................... 1,759.2 755.1
Other long-term debt...................................... 103.0 81.5
Subordinated notes........................................ 336.0 336.0
-------- --------
3,598.2 1,172.6
Less current portion...................................... (7.2) (3.7)
-------- --------
$3,591.0 $1,168.9
======== ========
</TABLE>
The obligations of foreign subsidiary borrowers under the credit agreement
are guaranteed by the Parent.
For a more detailed description of the above indebtedness, see Note 9 to
the Consolidated Financial Statements.
F-61
<PAGE> 125
UT AUTOMOTIVE, INC.
(FORMERLY WHOLLY-OWNED BY UNITED TECHNOLOGIES CORPORATION)
INTRODUCTION TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
We have prepared the combined financial statements of UT Automotive, Inc.,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. We believe that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the financial
statements and the notes thereto included in Lear Corporation's Current Report
on Form 8-K dated May 4, 1999, and filed with the Securities and Exchange
Commission on May 6, 1999.
The financial information presented reflects all adjustments (consisting
only of normal recurring adjustments) which are, in our opinion, necessary for a
fair presentation of the results of operations and statements of financial
position for the interim periods presented. These results are not necessarily
indicative of a full year's results of operations.
F-62
<PAGE> 126
UT AUTOMOTIVE, INC.
(FORMERLY WHOLLY-OWNED BY UNITED TECHNOLOGIES CORPORATION)
COMBINED BALANCE SHEETS
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 83.7 $ 43.4
Accounts receivable, net.................................. 528.7 575.2
Inventories............................................... 172.1 170.6
Other..................................................... 83.7 70.1
-------- --------
Total current assets................................... 868.2 859.3
-------- --------
LONG-TERM ASSETS:
Property, plant and equipment, net........................ 703.1 709.7
Goodwill, net............................................. 329.0 333.1
Other..................................................... 83.4 85.3
-------- --------
Total long-term assets................................. 1,115.5 1,128.1
-------- --------
$1,983.7 $1,987.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 6.7 $ 9.5
Accounts payable and drafts............................... 366.5 377.0
Accrued liabilities....................................... 192.4 193.4
Current portion of long-term debt......................... 1.3 --
-------- --------
Total current liabilities.............................. 566.9 579.9
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes............................ 37.2 38.4
Long-term debt............................................ 4.7 5.2
Other..................................................... 97.1 98.9
-------- --------
Total long-term liabilities............................ 139.0 142.5
-------- --------
STOCKHOLDERS' EQUITY:
UTC Investment............................................ 1,277.8 1,265.0
-------- --------
$1,983.7 $1,987.4
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-63
<PAGE> 127
UT AUTOMOTIVE, INC.
(FORMERLY WHOLLY-OWNED BY UNITED TECHNOLOGIES CORPORATION)
UNAUDITED COMBINED STATEMENTS OF INCOME
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $793.0 $715.8
Cost of sales............................................... 655.3 583.5
Selling, general and administrative expenses................ 90.6 83.3
Amortization of goodwill.................................... 3.3 3.2
------ ------
Operating income.......................................... 43.8 45.8
Interest expense............................................ 7.3 2.7
Other (income) / expense, net............................... (.7) .6
------ ------
Income before provision for national income taxes......... 37.2 42.5
Provision for national income taxes......................... 15.4 17.6
------ ------
Net income................................................ $ 21.8 $ 24.9
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE> 128
UT AUTOMOTIVE, INC.
(FORMERLY WHOLLY-OWNED BY UNITED TECHNOLOGIES CORPORATION)
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $21.8 $ 24.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 34.4 28.5
Other, net................................................ (.9) (3.4)
Change in working capital items........................... 12.8 20.2
----- ------
Net cash provided by (used in) operating activities.... 68.1 70.2
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (38.0) (45.4)
Other, net.................................................. (.2) 6.5
----- ------
Net cash used in investing activities.................. (38.2) (38.9)
----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net............................... (.2) (.8)
Short-term borrowings, net.................................. (.4) (2.2)
UTC Investment activity..................................... 3.4 (29.3)
Other, net.................................................. 9.2 --
----- ------
Net cash provided by (used in) financing activities.... 12.0 (32.3)
----- ------
Effect of foreign currency translation...................... (1.6) (.3)
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 40.3 (1.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 43.4 26.8
----- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $83.7 $ 25.5
===== ======
CHANGES IN WORKING CAPITAL:
Accounts receivable......................................... $29.0 $(11.6)
Inventories................................................. (6.4) 2.7
Accounts payable............................................ (.2) (5.5)
Accrued liabilities and other............................... (9.6) 34.6
----- ------
$12.8 $ 20.2
===== ======
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest...................................... $ 7.3 $ 2.7
===== ======
Cash paid for income taxes.................................. $ -- $ --
===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-65
<PAGE> 129
UT AUTOMOTIVE, INC.
(FORMERLY WHOLLY-OWNED BY UNITED TECHNOLOGIES CORPORATION)
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
UT Automotive, Inc. is a wholly-owned operating segment of United
Technologies Corporation ("UTC"). The accompanying combined financial statements
were prepared to show the historical operating results of the entities
comprising UTC's Automotive Business, which includes UT Automotive, Inc. and
certain affiliated entities which are subsidiaries of other UTC operating units
(collectively, "UT Automotive, Inc.", "UTA" or the "Company"). Throughout the
period covered by the combined financial statements, the Company was treated as
an operating segment of UTC.
The combined financial statements were prepared using UTC's historical
basis in the assets and liabilities of UTA. Changes in indebtedness between the
Company and UTC are reflected as part of the UTC investment in the accompanying
combined balance sheets.
(2) 1998 ACQUISITIONS
During 1998, the Company paid approximately $3.3 million for a 47% interest
in NTTF, an Indian components manufacturer; approximately $8.5 million for a 50%
interest in Ri Yong, a Chinese cooling fan module manufacturer; approximately
$4.0 million to buyout the remaining 25% minority interest in its Loewe
operation; and $2.0 million for a preferred share interest of 6% in Eclipse
International, Inc., a US based technology company specializing in software and
hardware critical to the development of the AutoPC. In addition, during 1998,
the Company assumed the remaining minority interest in its Xianfeng venture, to
facilitate its closure and redistribution of assets to the Company's other
Chinese operations, and contributed net assets of $3.1 million for a 45%
interest in a newly-formed battery cable joint venture with Saturn Electronics.
(3) RESTRUCTURING AND OTHER CHARGES
During 1998, 1997 and 1996, the Company recorded pre-tax charges related to
ongoing efforts to reduce costs in response to industry conditions and to
enhance cost structure and competitive position. Included in these charges were
amounts for facility closures, workforce reduction actions and the restructuring
of certain operations. The actions are progressing as scheduled, and there have
been no significant changes to the plans since December 31, 1998. As of March
31, 1999, the remaining balance of these charges to be utilized is less than
$5.0 million.
(4) INVENTORIES
Inventories are stated at the lower of cost or market. Approximately 18%
and 20% of total inventories were carried on the last-in, first-out (LIFO) cost
method at March 31, 1999 and 1998, respectively. The remaining inventories are
carried on the first-in, first-out (FIFO) method. Finished goods and work-in-
process inventories include material, labor and manufacturing overhead costs.
Inventories are comprised of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw materials and work-in-progress....................... $143.2 $137.0
Finished goods........................................... 65.6 67.3
LIFO reserve............................................. (23.1) (23.1)
Other reserves........................................... (13.6) (10.6)
------ ------
Inventories.............................................. $172.1 $170.6
------ ------
</TABLE>
F-66
<PAGE> 130
UT AUTOMOTIVE, INC.
(FORMERLY WHOLLY-OWNED BY UNITED TECHNOLOGIES CORPORATION)
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciable property is
depreciated over the estimated useful lives of the assets, using principally the
straight-line method. A summary of property, plant and equipment is shown below
(in millions):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Land..................................................... $ 16.4 $ 16.5
Buildings and improvements............................... 228.6 224.7
Machinery and equipment.................................. 1,061.4 1,062.3
Construction in progress................................. 53.3 47.3
-------- --------
Total property, plant and equipment...................... $1,359.7 $1,350.8
Less -- accumulated depreciation......................... (656.6) (641.1)
-------- --------
Net property, plant and equipment........................ $ 703.1 $ 709.7
======== ========
</TABLE>
(6) LONG-TERM DEBT
Long-term debt is comprised of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Notes and other debt..................................... $2.3 $2.4
Capital lease obligations................................ 3.7 4.4
---- ----
6.0 6.8
Less -- Current portion.................................. 1.3 1.6
---- ----
Long-term debt........................................... $4.7 $5.2
---- ----
</TABLE>
(7) SEGMENT REPORTING
The Company and its subsidiaries design, develop, manufacture and sell
products, classified in four principle operating segments. The Company's
operating segments were generally determined on the basis of geographic regions
and product segments.
Electrical Systems -- Americas. Products include electrical distribution,
electronic and electromechanical systems and components such as wire assemblies,
control modules, switches, actuators, relays, terminals and connectors, smart
junction boxes, power network boxes, in addition to, starter motors and wiper
systems, manufactured principally in North America.
Interior Systems -- International. Products include instrument panels,
modular headliners, door panels, door and sidewall trim, painted and decorated
trim components, exterior mirrors and acoustic and sealing products,
manufactured principally in the United States.
European Managed Operations. Products include electrical distribution,
electronic and electromechanical systems and components such as wire assemblies,
control modules, switches, actuators, relays, terminals and connectors, smart
junction boxes, power network boxes, in addition to fractional horsepower DC
motors, analog and digital auto amplifiers and video modules, manufactured
principally in Europe.
Asia Pacific Operations. Products include electronic and electromechanical
systems and components such as wire assemblies, control modules, in addition to
fractional horsepower DC motors, manufactured principally in Asia.
F-67
<PAGE> 131
UT AUTOMOTIVE, INC.
(FORMERLY WHOLLY-OWNED BY UNITED TECHNOLOGIES CORPORATION)
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
The following table presents revenues and other financial information by
business segment (in millions):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1999 1998
---- ----
<S> <C> <C>
NET SALES
Electrical Systems America................................ $366.4 $340.7
Interior Systems International............................ 154.4 145.2
European Managed Operations............................... 284.7 243.9
Asia Pacific Operations................................... 4.8 3.0
Headquarters, Eliminations, Other......................... (17.3) (17.0)
------ ------
Total net sales........................................ $793.0 $715.8
====== ======
OPERATING PROFITS
Electrical Systems America................................ $ 38.6 $ 45.2
Interior Systems International............................ 4.3 7.1
European Managed Operations............................... 27.3 23.7
Asia Pacific Operations................................... .8 (.4)
Headquarters, Eliminations, Other......................... (27.2) (29.8)
------ ------
Total operating profits................................ $ 43.8 $ 45.8
====== ======
CAPITAL EXPENDITURES
Electrical Systems America................................ $ 10.0 $ 17.5
Interior Systems International............................ 10.6 8.5
European Managed Operations............................... 14.1 21.0
Asia Pacific Operations................................... .1 .3
Headquarters, Eliminations, Other......................... 3.2 (1.9)
------ ------
Total capital expenditures............................. $ 38.0 $ 45.4
====== ======
DEPRECIATION AND AMORTIZATION
Electrical Systems America................................ $ 11.2 $ 11.2
Interior Systems International............................ 6.2 5.2
European Managed Operations............................... 12.5 8.2
Asia Pacific Operations................................... .1 .1
Headquarters, Eliminations, Other......................... 4.4 3.8
------ ------
Total depreciation and amortization.................... $ 34.4 $ 28.5
====== ======
</TABLE>
(8) SUBSEQUENT EVENTS
Acquisition of UT Automotive
On May 4, 1999, UT Automotive, Inc. was acquired by Lear Corporation for
approximately $2.3 billion, subject to certain post-closing adjustments. The
combined financial statements do not give effect to this transaction.
Sale of Electric Motor Systems
On May 7, 1999, Lear entered into a definitive purchase agreement with
Johnson Electric Holdings Limited to sell the recently acquired Electric Motor
Systems ("EMS") business for $310 million, subject
F-68
<PAGE> 132
UT AUTOMOTIVE, INC.
(FORMERLY WHOLLY-OWNED BY UNITED TECHNOLOGIES CORPORATION)
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
to certain post-closing adjustments. Lear acquired the EMS business in the
acquisition of UT Automotive. EMS is a supplier of industrial and automotive
electric motors and starter motors for small gasoline engines. EMS had 1998
sales of $351 million and has approximately 3,300 employees operating at
locations in 10 countries.
Consummation of the sale is contingent upon expiration or termination of
applicable waiting periods provided under the Hart-Scott-Rodino Antitrust
Improvements Act, applicable foreign competition act approvals and certain other
customary conditions.
F-69
<PAGE> 133
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LEAR CORPORATION
$600,000,000 7.96% SENIOR NOTES DUE 2005
$800,000,000 8.11% SENIOR NOTES DUE 2009
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PROSPECTUS
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DECEMBER 15, 1999
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