1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
COMMISSION FILE NUMBER: 1-11311
LEAR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3386776
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48086-5008
(Address of principal executive offices) (zip code)
(810) 746-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Approximate number of shares of Common Stock, $0.01 par value per share,
outstanding at July 31, 1996: 64,230,489.
----------
2
LEAR CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 29, 1996
INDEX
Part I - Financial Information: Page No.
- ------------------------------- --------
Item 1 - Consolidated Financial Statements
Introduction to the Consolidated Financial Statements 3
Consolidated Balance Sheets - June 29, 1996 and December 31, 1995 4
Consolidated Statements of Income - Three and Six Month Periods
ended June 29, 1996 and July 1, 1995 5
Consolidated Statements of Cash Flows - Six Month
Periods ended June 29, 1996 and July 1, 1995 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II - Other Information:
- ----------------------------
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
- ----------
Exhibit Index 18
- -------------
2
3
LEAR CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements of Lear Corporation and
subsidiaries ("the Company") (Note 1) have been prepared by Lear Corporation,
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. The Company believes that the disclosures are adequate to make
the information presented not misleading when read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission for the period ended December 31, 1995 under the name "Lear Seating
Corporation." Effective as of May 9, 1996, the Company changed its name to
"Lear Corporation" from "Lear Seating Corporation."
The financial information presented reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results of operations and financial
position for the interim periods presented. These results are not necessarily
indicative of a full year's results of operations.
3
4
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
June 29, December 31,
1996 1995
---- ----
ASSETS (Unaudited)
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 32.0 $ 34.1
Accounts receivable, net 1,052.5 831.9
Inventories 199.5 196.2
Unbilled customer tooling 121.2 91.9
Other 93.8 53.1
-------- --------
1,499.0 1,207.2
-------- --------
Property, plant and equipment, net 778.1 642.8
Goodwill, net 1,405.5 1,098.4
Other 153.0 112.9
-------- --------
$3,835.6 $3,061.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 12.1 $ 16.9
Accounts payable and drafts 1,021.4 857.0
Accrued liabilities 511.6 392.2
Current portion of long-term debt 12.3 9.9
-------- --------
1,557.4 1,276.0
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes 45.1 37.3
Long-term debt 1,392.5 1,038.0
Other 168.1 130.0
-------- --------
1,605.7 1,205.3
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000 shares authorized
56,738,219 issued at June 29, 1996 and
56,253,541 issued at December 31, 1995 .6 .6
Additional paid-in capital 574.1 559.1
Notes receivable from sale of common stock (.9) (.9)
Less- Common stock held in treasury, 10,230 shares at cost (.1) (.1)
Retained earnings 118.1 42.2
Minimum pension liability adjustment (3.5) (3.5)
Cumulative translation adjustment (15.8) (17.4)
-------- --------
672.5 580.0
-------- --------
$3,835.6 $3,061.3
======== ========
The accompanying notes are an integral part of these statements.
4
5
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
------------------------ -------------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- ------- -------- -------
Net sales $1,618.7 $1,142.6 $3,024.5 $2,186.1
Cost of sales 1,451.8 1,047.8 2,737.0 2,014.7
Selling, general and administrative expenses 49.0 24.3 92.3 50.1
Amortization of goodwill 7.4 3.3 14.7 6.4
-------- -------- -------- --------
Operating income 110.5 67.2 180.5 114.9
Interest expense 23.1 14.3 47.5 28.5
Other expense, net 3.9 3.7 7.0 5.8
-------- -------- -------- --------
Income before provision for
national income taxes 83.5 49.2 126.0 80.6
Provision for national income taxes 33.4 20.3 50.1 34.7
-------- -------- -------- --------
Net income $ 50.1 $ 28.9 $ 75.9 $ 45.9
======== ======== ======== ========
Net income per common share $ .83 $ .58 $ 1.26 $ .92
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
5
6
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN MILLIONS)
Six Months Ended
June 29, 1996 July 1, 1995
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 75.9 $ 45.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of goodwill 67.7 37.1
Amortization of deferred financing fees 1.6 1.2
Deferred national income taxes (.3) (1.0)
Other, net .2 9.3
Change in working capital items, net of effect of acquisition (19.3) (52.2)
-------- -------
Net cash provided by operating activities 125.8 40.3
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net (306.4) --
Additions to property, plant and equipment (64.9) (42.6)
Other, net 1.9 .9
-------- -------
Net cash used in investing activities (369.4) (41.7)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net 260.1 41.3
Short-term borrowings, net (5.4) (61.6)
Other, net (7.5) 27.0
-------- -------
Net cash provided by financing activities 247.2 6.7
-------- -------
Effect of foreign currency translation (5.7) 15.7
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2.1) 21.0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34.1 32.0
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32.0 $ 53.0
======== =======
CHANGES IN WORKING CAPITAL, net of effect of acquisition
Accounts receivable $ (141.0) $(149.9)
Inventories 15.7 2.8
Accounts payable 124.1 124.5
Accrued liabilities and other (18.1) (29.6)
-------- -------
$ (19.3) $ (52.2)
======== =======
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 46.8 $ 31.4
======== =======
Cash paid for income taxes $ 41.6 $ 41.2
======== =======
The accompanying notes are an integral part of these statements.
6
7
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"). Investments in less than majority-owned
businesses are generally accounted for under the equity method.
(2) ACQUISITIONS
Masland Corporation
On June 27, the Company through a wholly owned subsidiary ("Acquisition
Corp.") acquired approximately 97% of the 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, 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 $475.7 million (including the assumption of $80.7
million of Masland's existing net indebtedness and $10.0 million in fees and
expenses). Funds for the Masland Acquisition were provided by borrowings under
the Credit Agreement and New Credit Agreement, as described in Note 5.
Masland is a leading supplier of floor and acoustic systems to the North
American automotive market. Masland also is a major supplier of interior
luggage compartment trim components and other acoustical products which are
designed to minimize noise, heat and vibration 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 at their estimated fair market value in the accompanying balance
sheet as of June 29, 1996. The operating results of Masland since the
acquisition are not material to the statement of operations of the Company for
the three and six month periods ended June 29, 1996. The purchase price
consisted of the following and has been allocated to the net assets purchased
as follows (in millions):
Consideration paid to stockholders, net of cash received $ 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
Estimated fees and expenses 10.0
-------
Cost of acquisition $ 475.7
=======
Property, plant, and equipment $ 127.2
Net working capital 36.7
Other assets purchased and liabilities assumed, net (6.6)
Goodwill 318.4
-------
Total allocation of cost $ 475.7
=======
The purchase price and related allocation may be revised in the next year
based on revisions of preliminary estimates of fair values made at the date of
purchase. Such changes are not expected to be significant.
7
8
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUTOMOTIVE INDUSTRIES
On August 17, 1995, the Company purchased the issued and outstanding
common stock of Automotive Industries Holding, Inc. ("AI") for an aggregate
purchase price of $885.0 million. AI is a leading designer and manufacturer of
high quality interior trim systems and blow molded products principally for
North American and European car and light truck manufacturers.
The following pro forma unaudited results of operations of the Company for
the three and six month periods ended June 29, 1996 and July 1, 1995 were
prepared to illustrate the estimated effects of (i) the Masland Acquisition
(including the refinancing of certain debt of Masland pursuant to the Credit
Agreement), (ii) the AI acquisition and certain acquisitions completed by AI
prior to the purchase of AI by the Company (including the refinancing of
certain debt of AI pursuant to the Credit Agreement) (iii) public offering of
7.5 million shares of the Company's common stock by the Company and the
application of net proceeds therefrom in September 1995 (iv) the refinancing of
the Company's prior credit facility with borrowings under the Credit Agreement
(v) the completion of the New Credit Agreement (Note 5) and (vi) the Note
Offering (Note 4) and the Common Stock Offering (Note 3) and the application of
the net proceeds to the Company therefrom to repay indebtedness outstanding
under the Credit Agreement, a portion of which was incurred to finance the
Masland Acquisition, and indebtedness outstanding under the New Credit
Agreement (collectively, the "Pro Forma Transactions"), as if the Pro Forma
Transactions had occurred as of January 1 of each year presented.
(Unaudited, in millions, except per share data):
Three Months Ended Six Months Ended
------------------ ----------------
June 29, 1996 July 1, 1995 June 29,1996 July 1, 1995
------------- ------------ ------------ ------------
Net Sales $1,758.9 $1,477.5 $3,286.2 $2,862.9
Net income $ 49.8 $ 37.2 $ 77.7 $ 60.0
Net income per share $ .73 $ .55 $ 1.15 $ .89
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.
(3) ISSUANCE OF COMMON STOCK
In July 1996, the Company issued 7.5 million shares of common stock ("the
Common Stock Offering"). Concurrently with this issuance, 7.5 million shares
were sold by certain stockholders of the Company. Net of issuance costs, the
Company received proceeds of approximately $242.8 million for the shares of
common stock sold by the Company. The proceeds of this issuance were used to
repay indebtedness outstanding under the Credit Agreement, a portion of which
was incurred to finance the Masland Acquisition.
8
9
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) ISSUANCE OF SUBORDINATED NOTES
In July 1996, the Company issued $200 million aggregate principal amount
of its 9 1/2 % Subordinated Notes due 2006 ("the Note Offering"). Interest
on the notes is payable on January 15 and July 15 of each year. The notes are
redeemable at the option of the Company, in whole or in part, on or after July
15, 2001. Net of issuance costs, the Company received proceeds of
approximately $195.5 million in connection with the sale of the notes. The
proceeds were used to repay indebtedness incurred in connection with the
purchase of Masland.
(5) NEW CREDIT AGREEMENT
On June 27, 1996, the Company entered into a second revolving credit
agreement with a syndicate of financial institutions (the "New Credit
Agreement"). The New Credit Agreement contains substantially identical terms
as the Company's $1.475 billion Credit Agreement dated August 17, 1995, as
amended (the "Credit Agreement") and permits borrowings of up to $300 million.
Following the Masland Acquisition, the Company borrowed the full amount
permitted under the New Credit Agreement and used the proceeds to repay the
outstanding indebtedness under the Credit Agreement.
Borrowings under the Credit Agreement and the New Credit Agreement bear
interest, at the election of the Company, at a floating rate of interest equal
to (i) the higher of Chemical Bank's prime lending rate and the federal funds
rate plus .5% or (ii) the Eurodollar Rate (as defined in the New Credit
Agreement and Credit Agreement) plus a borrowing margin of .5% to 1.0%. The
applicable borrowing margin is determined based on the level of a specified
financial ratio of the Company. Under the Credit Agreement and the New Credit
Agreement, Lear is permitted to convert variable rate interest obligations on
up to an aggregate of $500 million in principal amount of indebtedness into
fixed rate interest obligations.
Amounts available under the New Credit Agreement and the Credit Agreement
will be reduced by an aggregate amount of $750 million prior to maturity on
September 30, 2001.
(6) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is principally
determined by 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):
June 29, December 31,
1996 1995
---- ----
Raw materials $128.2 $139.4
Work-in-process 21.4 18.0
Finished goods 49.9 38.8
------ ------
$199.5 $196.2
====== ======
9
10
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) LONG-TERM DEBT
Long term debt is comprised of the following (in millions):
June 29, December 31,
1996 1995
---- ----
Domestic revolving credit loans $1,070.4 $ 717.1
Industrial Revenue Bonds 23.5 20.9
Other 40.9 39.9
-------- --------
1,134.8 777.9
Less- Current portion (12.3) (9.9)
-------- --------
1,122.5 768.0
-------- --------
Subordinated Debt:
8 1/4 % Subordinated Notes 145.0 145.0
11 1/4 % Senior Subordinated Notes 125.0 125.0
-------- --------
270.0 270.0
-------- --------
$1,392.5 $1,038.0
======== ========
(8) COMMON SHARES OUTSTANDING
The weighted average number of shares of the Company's common stock is as
follows for the periods presented:
Three Months Ended Six Months Ended
------------------ ----------------
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
------------- ------------ ------------- ------------
Primary 60,060,508 49,537,489 59,984,438 49,536,813
Fully Diluted 60,078,101 49,635,199 60,052,761 49,634,592
10
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 1996 VS. THREE MONTHS ENDED JULY 1, 1995.
Net sales of $1,618.7 million in the second quarter of 1996 exceeded the
second quarter of 1995 by $476.1 million or 41.7%. Net sales in the current
year benefited from the acquisition of AI in August 1995, new business
introduced globally within the past twelve months and the incremental volume
and content on mature seating programs in North America and Europe.
Net sales in the United States and Canada of $1,045.3 million increased in
the second quarter of 1996 as compared to the second quarter of 1995 by $312.6
million or 42.7%. Sales in the quarter ended June 29, 1996 benefited from the
acquisition of AI, which accounted for $191.8 million of the increase,
introduction within the past twelve months of a new Ford passenger car program
and modest increases on industry build schedules for carryover seat programs.
Partially offsetting the increase in sales was downtime associated with a
Chrysler plant conversion for a replacement program which will begin
production in July, 1996.
Net sales in Europe of $434.3 million in the second quarter of 1996
surpassed the comparable period in the prior year by $85.8 million or 24.6%.
Sales in the current quarter benefited from the contribution of $41.5 million
in sales from the AI acquisition, increased automotive production on existing
seat programs in Italy and Germany and favorable translation rates in Italy and
Sweden.
Net sales of $139.1 million in the Company's remaining geographic regions,
consisting of Mexico, the Pacific Rim, South America and South Africa, in the
quarter ended June 29, 1996 increased by $77.7 million or 126.5% as compared to
the second quarter of the prior year. Sales in the second quarter of 1996
reflect increased market demand for General Motors and Chrysler programs in
Mexico coupled with new business operations in South America, Australia and
South Africa, which accounted for $56.9 million of the increase.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of net sales) improved to $166.9 million and 10.3% for the
second quarter of 1996 as compared to $94.8 million and 8.3% for the second
quarter of 1995 due to the acquisition of AI and the overall growth in domestic
and foreign sales activity, including the production of certain new business
programs in the United States, South America, Mexico and South Africa.
Selling, general and administrative expenses as a percentage of net sales
increased to 3.0% for the quarter ended June 29, 1996 as compared to 2.1% a
year earlier. The increase in actual expenditures was largely the result of
the AI acquisition and increased customer focused engineering and
administrative expenses necessary to support established and potential business
opportunities.
11
12
Operating income and operating margin improved to $110.5 million and 6.8%
for the quarter ended June 29, 1996 as compared to $67.2 million and 5.9% for
the quarter ended July 1, 1995. The increase in operating income was primarily
due to the AI acquisition coupled with benefits derived from increased global
vehicle build schedules for new and ongoing seat programs. Partially
offsetting the increase in operating income were design, development and
administrative support expenses and plant downtime associated with a Chrysler
model changeover. Non-cash depreciation and amortization charges were $34.5
million and $18.7 million for the second quarter of 1996 and 1995,
respectively.
Interest expense for the second quarter of 1996 increased by $8.8 million
from the comparable period in the prior year largely as a result of interest
incurred on additional debt utilized to finance the AI acquisition.
Other expenses for the current quarter, which include state and local
taxes, foreign exchange, equity income of non-consolidated affiliates and other
non-operating expenses, remained essentially unchanged as foreign exchange
gains realized at the Company's North American and European operations offset
increased state and local taxes associated with the AI acquisition.
Net income for the second quarter was $50.1 million, or $.83 per share as
compared to $28.9 million or $.58 per share in the prior year second quarter.
The provision for income taxes in the current quarter was $33.4 million, or an
effective tax rate of 40.0% as compared to $20.3 million or an effective tax
rate of 41.3% in the previous year. The decline in the effective tax rate is
primarily due to changes in the operating performance of the various domestic
and foreign tax jurisdictions. Earnings per share increased in 1996 by 43.1%
despite an increase in the weighted average number of shares outstanding of
approximately 10.5 million shares.
SIX MONTHS ENDED JUNE 29, 1996 VS. SIX MONTHS ENDED JULY 1, 1995.
Net sales increased by 38.4% to $3,024.5 million in the first six months
of 1996 as compared to $2,186.1 million in the first six months of 1995. Sales
for the six month period ended June 29, 1996 benefited from the acquisition of
AI and new business operations introduced worldwide during the past year.
Gross profit and gross margin improved to $287.5 million and 9.5% in the
first half of 1996 as compared to $171.4 million and 7.8% a year earlier.
Gross profit in the current six months benefited from the acquisition of AI and
the overall growth in production volume on passenger car and truck seat
programs by domestic and foreign automotive manufacturers. Partially
offsetting the increase in gross profit were program expenses for recently
opened facilities in South America and the Pacific Rim, General Motors work
stoppage in the first quarter of 1996 and downtime associated with a Chrysler
model changeover.
12
13
Selling, general and administrative expenses, including research and
development, for the six month period ended June 29, 1996 increased as a
percentage of net sales to 3.1% from 2.3% in the comparable period in the prior
year. Actual expenditures increased in comparison to prior year due to the
inclusion of AI operating expenses and increased North American and European
engineering and administrative expenses required to support the expansion of
business and expenses related to the pursuit of new business opportunities.
Operating income and operating margin improved to $180.5 million and 6.0%
in the first six months of 1996 as compared to $114.9 million and 5.3% for the
first six months of 1995. Operating income in 1996 benefited from the
acquisition of AI, increased industry build schedules for new and mature sport
utility and light truck programs in North America, introduction of a new Ford
passenger car program and improved performance in Europe and Mexico. Partially
offsetting the increase in operating income were engineering and administrative
support expenses, Chrysler's downtime for model changeover and the adverse
impact of the General Motors work stoppage. Non-cash depreciation and
amortization charges were $67.7 million and $37.1 million for the first half of
1996 and 1995, respectively.
For the six months ended June 29, 1996, interest expense increased by
$19.0 million to $47.5 million as compared to the prior year. The increase in
interest expense was largely the result of interest incurred on additional debt
utilized to finance the AI acquisition.
Other expenses for the first half of 1996, which include state and local
taxes, foreign exchange, equity income of non-consolidated affiliates and other
non-operating expenses, increased in comparison to the prior year as increased
state and local taxes associated with the acquisition of AI more than offset
favorable exchange gains related to the Company's North American and European
operations.
Net income for the first six months of 1996 was $75.9 million or $1.26 per
share as compared to $45.9 million or $.92 per share for the first six months
of 1995. Earnings per share in the current period increased 37.0% despite the
impact of the General Motors work stoppage and an increase in the weighted
average number of shares outstanding of approximately 10.5 million shares. The
decline in the effective tax rate to 40% in the current period as compared to
43% in the previous year is largely attributable to changes in profitability
among the various tax jurisdictions.
13
14
LIQUIDITY AND CAPITAL RESOURCES
On June 27, 1996, the Company closed the tender offer and paid $322.5
million for approximately 97% of the outstanding shares of Masland Corporation
("Masland"). On July 1, 1996, subsequent to the end of the second quarter, the
Company completed the acquisition of the remaining issued and outstanding
shares of Masland's common stock along with the retirement of certain
indebtedness for the aggregate purchase price of $475.7 million (see footnote 2
to financial statements). Concurrently with the Masland Acquisition, the
Company entered into a second revolving credit agreement with a syndicate of
financial institutions (the "New Credit Agreement" and, together with the
Credit Agreement, the "Credit Agreements"). The New Credit Agreement contains
substantially identical terms as the Credit Agreement and permits borrowings of
up to $300 million. As of June 29, 1996, the Company had an aggregate of $1.775
billion available under these secured Credit Agreements, of which $977.9
million was outstanding and $50.0 million was committed under outstanding
letters of credit, resulting in $747.1 million unused and available.
Borrowing under the New Credit Agreement and the Credit Agreement are
guaranteed by substantially all of the Company's direct and indirect domestic
subsidiaries secured by (i) a pledge of all of the capital stock and
substantially all of the Company's domestic subsidiaries, (ii) a grant of
security interest in substantially all of the assets of the Company and its
domestic subsidiaries, other than certain assets of certain recently acquired
domestic subsidiaries and (iii) the mortgages of certain of the real property
of the Company and its domestic subsidiaries.
In addition to debt outstanding under the Credit Agreements, as of June
29, 1996, the Company had an additional $439.0 million of debt, including
short-term borrowings, primarily consisting of $270.0 million of subordinated
debentures due between 2000 and 2002 and $92.5 million of debt outstanding
under an unsecured credit facility between Masland and a syndicate of financial
institutions. On July 1, 1996, the merger date, the Masland facility was
retired with borrowings under the Credit Agreements.
In the second quarter of 1996, Moody's Investors Services, Inc.
("Moody's") upgraded its rating of the Company's primary debt instruments. The
Credit Agreement was upgraded from Ba2 to Ba1, the Company's 8 1/4%
Subordinated Notes from B2 to B1 and the Company's 11 1/4% Senior Subordinated
Notes from B1 to Ba3. Standard and Poors Corporation ("S&P") also upgraded
its rating of the Credit Agreement to BB+ from BB- and of the subordinated debt
to BB- from B. The Company's 9 1/2% Subordinated Notes, were assigned a B1 and
BB- rating from Moody's and S&P, respectively.
14
15
Net cash provided by operating activities increased to $125.8 million
during the six months ended June 29, 1996 compared to $40.3 million during the
comparable period in 1995. In addition to the 65% increase in net income,
net cash provided by operating activities includes non-cash depreciation and
goodwill amortization which increased, from $37.1 million to $67.7 million
primarily as a result of the AI acquisition. The net change in working capital
resulted in a net use of $19.3 million and $52.2 million for the six months
ended June 29, 1996 and July 1, 1995, respectively. The use of working capital
declined in 1996 as a result of improved asset management which resulted in an
increase in accounts receivable of only $141.0 million in 1996 compared to
$149.9 million in 1995 despite a 38% increase in sales for the same six month
period. Inventory levels declined by $15.7 million from December 31, 1995.
Net cash used in investing activities was $369.4 million and $41.7 million
for the six months ended June 29, 1996 and July 1, 1995, respectively. The
primary cause for the increase in investing activities was the Masland
Acquisition, as described above. Capital expenditures increased from $42.6
million in 1995 to $64.9 million primarily as a result of the AI purchase and
the need to support new programs under production in 1996.
On July 8, 1996, the Company issued 7.5 million shares of common stock at
$33.50 per share and $200 million aggregate principal amount of 9 1/2%
Subordinated Notes due 2006. The $438.3 million of proceeds ($242.8 million
and $195.5 million from the Common Stock Offering and Note Offering proceeds,
respectively), net of issuance costs received by the Company, were used to
repay indebtedness incurred under the Credit Agreement, a portion of which was
incurred to finance the Masland Acquisition, and the New Credit Agreement. On
a proforma basis after giving effect to these offerings and the completion of
the Masland Acquisition, the Company's total debt as a percent of total
capitalization would have been 58% on June 29, 1996, down from 64.7% at
December 31, 1995.
The 9 1/2% Notes are subordinated in right of payment to all existing and
future Senior Indebtedness (as defined in the Indenture relating to 9 1/2%
Notes), including indebtedness outstanding under the Credit Agreements and the
11 1/4% Notes. Interest on the 9 1/2% Notes is payable on January 15 and July
15 of each year. The 9 1/2% Notes are redeemable at the option of the Company,
in whole or in part, on or after July 15, 2001. The Indenture pursuant to
which the 9 1/2% Notes were issued contains certain covenants that restrict,
among other things, the incurrence of additional indebtedness, the payment of
dividends, the repurchase of capital stock, the creation of liens, sales of
assets, and the issuance of preferred stock.
As of June 29, 1996 the Company had $32.0 million of cash and cash
equivalents. The Company believes that cash flows from operations and
available credit facilities, principally the Credit Agreement, will be
sufficient to meet its debt service obligations, projected capital expenditures
and working capital requirements.
15
16
LEAR CORPORATION
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual Meeting of Stockholders of Lear Corporation was held on
May 9, 1996. At the meeting, the following matters were submitted to a vote of
the stockholders of Lear Corporation. Pursuant to the rules of the New York
Stock Exchange, there were no broker non-votes in any of the matters described
below.
(1) The election of four directors to hold office until the 1999
Annual Meeting of Stockholders. The vote with respect to
each nominee was as follows:
Nominee For Withheld
------- --- --------
Robert E. Rossiter 49,466,393 2,111,142
Robert Shower 49,382,255 2,195,280
James H. Vandenberghe 49,378,731 2,198,804
Alan Washkowitz 49,136,367 2,441,168
(2) The appointment of the firm of Arthur Andersen LLP as
independent auditors of Lear Corporation for the year ending
December 31, 1996.
For Against Withheld
--- ------- --------
51,560,315 10,135 7,085
(3) The amendment to the Company's Certificate of Incorporation to
change the name to "Lear Corporation" from "Lear Seating
Corporation."
For Against Withheld
--- ------- --------
51,563,654 9,695 4,186
(4) The adoption of the 1996 Stock Option Plan.
For Against Withheld
--- ------- --------
47,655,865 3,809,551 112,119
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the quarter ended June
29, 1996.
(a) May 22, 1996 - Form 8-K relating to the resignation of directors.
(b) June 27, 1996 - Form 8-K relating to the acquisition of Masland
Corporation.
16
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEAR CORPORATION
Dated: August 7, 1996 By: /s/ James H. Vandenberghe
--------------------------
James H. Vandenberghe
Executive Vice President and
Chief Financial Officer
and a Director
17
18
LEAR CORPORATION
FORM 10 -Q
EXHIBIT INDEX
FOR THE QUARTER ENDED JUNE 29, 1996
EXHIBIT
NUMBER EXHIBIT
- ------ -------
2.1 Agreement and Plan of Merger dated as of May 23, 1996, by and among the
Company, PA Acquisition Corp. and Masland Corporation (incorporated by
reference to Exhibit 2.1 to the Company's Registration Statement on Form
S-3 (No. 333-05809)).
4.1 Indenture dated as of July 1, 1996 by and between the Company and The
Bank of New York, as Trustee, relating to the 9 1/2% Subordinated Notes
due 2006 (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (No. 333-05809)).
10.1 Second Amendment and Consent, dated as of May 28, 1996 to the Credit
Agreement dated as of August 17, 1995, among Lear Corporation, the several
financial institutions party thereto (the "Banks"), Chemical Bank, as
administrative agent for the Banks, and the Managing Agents, Co-Agents and
Lead Managers identified therein (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K dated June 27, 1996).
10.2 Third Amendment, dated as of June 27, 1996, to the Credit Agreement,
dated as of August 17, 1995, among Lear Corporation, the several financial
institutions parties thereto (the "Banks"), Chemical Bank, as
administrative agent for the Banks, and the Managing Agents, Co-Agents and
Lead Managers identified therein (incorporated by reference to Exhibit
99.2 to the Company's Current Report on Form 8-K dated June 27, 1996).
10.3 Credit Agreement, dated as of June 27, 1996, among Lear Corporation, the
several financial institutions parties thereto (collectively, the
"Banks"), Chemical Bank, as administrative agent for the Banks
(incorporated by reference to Exhibit 99.3 to the Company's Current Report
on Form 8-K dated June 27, 1996).
10.4 Masland Holdings, Inc. 1991 Stock Purchase and Option Plan (incorporated
by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K
dated June 27, 1996).
10.5 Masland Corporation 1993 Stock Option Incentive Plan (incorporated by
reference to Exhibit 99.5 to the Company's Current Report on Form 8-K
dated June 27, 1996).
10.6 Form of Option Assumption Agreement (incorporated by reference to Exhibit
99.6 to the Company's Current Report on Form 8-K dated June 27, 1996).
18
19
10.7 Employment Agreement, dated as of May 29, 1996, by and among Dr. Frank J.
Preston and Masland Corporation (incorporated by reference to Exhibit 99.7
to the Company's Current Report on Form 8-K dated June 27, 1996).
10.8 Termination, Consulting and Non-Compete Agreement dated May 29, 1996,
among Lear Corporation, Masland Corporation, and the other party signatory
thereto (incorporated by reference to Exhibit 99.8 to the Company's
Current Report on Form 8-K dated June 27, 1996).
10.9 Shareholders' Agreement, dated as of June 29, 1995, by and among Sommer
Allibert Industrie A.G., Allibert Industrie (U.K.) Limited, Masland
Industries, Inc., Masland (U.K.) Limited and Sommer Allibert Industrie
(U.K.) Limited (incorporated by reference to Exhibit 99.9 to the Company's
Current Report on Form 8-K dated June 27, 1996).
10.10 Lear Corporation 1996 Stock Option Plan (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No.
333-03383)).
27.1 Financial Data Schedule for the quarter ended June 29, 1996, filed
herewith.
19
5
1,000,000
6-MOS
DEC-31-1996
JAN-01-1996
JUN-29-1996
32
0
1,052
9
200
1,499
1,040
262
3,836
1,557
1,393
0
0
1
672
3,836
3,025
3,025
2,737
2,737
114
0
48
126
50
76
0
0
0
76
1.27
1.26
