1
Filed Pursuant to Rule 424(b)(4)
Registration No. 33-51317
PROSPECTUS
$145,000,000
[LOGO]
8 1/4% SUBORDINATED NOTES DUE 2002
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INTEREST PAYABLE FEBRUARY 1 AND AUGUST 1
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Lear Seating Corporation ("Lear" or the "Company") is offering $145,000,000
aggregate principal amount of its 8 1/4% Subordinated Notes due 2002 (the
"Notes"). Interest on the Notes will be payable on February 1 and August 1 of
each year, commencing August 1, 1994. The Notes will be redeemable at the option
of Lear, in whole or in part, on or after February 1, 1998, at the redemption
prices set forth herein, plus accrued and unpaid interest to the date of
redemption. The Notes will not be subject to any mandatory sinking fund payment.
Each holder of the Notes may require Lear to repurchase such holder's Notes
in the event of a Change of Control Triggering Event (as defined herein) at 101%
of the principal amount thereof, plus accrued interest to the date of
repurchase.
The Notes will be general unsecured obligations of Lear, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of Lear. As of October 2, 1993, and after giving effect to the Pro Forma
Transactions (as defined herein), the aggregate amount of Senior Indebtedness of
Lear was approximately $431.9 million, including obligations under the Credit
Agreement (as defined herein) and the Senior Subordinated Notes (as defined
herein). Additionally, certain of Lear's subsidiaries have outstanding
indebtedness that effectively ranks prior to the claims of the holders of the
Notes. As of October 2, 1993, and after giving effect to the Pro Forma
Transactions, Lear's subsidiaries would have had outstanding approximately $31.2
million of indebtedness. See "Description of the Notes."
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SEE "CERTAIN CONSIDERATIONS" FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
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Per Note............................... 100% 2.75% 97.25%
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Total.................................. $145,000,000 $3,987,500 $141,012,500
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(1) Plus accrued interest, if any, from February 3, 1994.
(2) Lear has agreed to indemnify the several Underwriters and certain other
persons against certain liabilities including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by Lear estimated at $1,000,000.
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The Notes offered by this Prospectus are offered by the Underwriters
subject to prior sale, withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to certain
further conditions. It is expected that delivery of the Notes will be made at
the offices of Lehman Brothers Inc., New York, New York, on or about February 3,
1994.
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LEHMAN BROTHERS
BT SECURITIES CORPORATION
CHEMICAL SECURITIES INC.
JANUARY 28, 1994
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), pursuant to Section 15(d)
thereof, and in accordance therewith files periodic reports and other
information with the Securities and Exchange Commission (the "Commission"). The
registration statement (the "Registration Statement") (which term encompasses
any amendments thereto) and the exhibits thereto filed by the Company with the
Commission, as well as the reports and other information filed by the Company
with the Commission, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and is also available for inspection and copying at
the regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Company will send
to each holder of the Notes annual reports containing audited consolidated
financial statements of the Company and a report thereon by independent public
accountants and quarterly reports for the first three quarters of each fiscal
year containing unaudited condensed consolidated financial information, in
compliance with the terms of the Indenture pursuant to which the Notes will be
issued.
The Company has filed with the Commission the Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
the Notes. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement, or other document referred to are not necessarily
complete. With respect to each such contract, agreement, or other document filed
as an exhibit to the Registration Statement, reference is hereby made to the
exhibit for a more complete description of the matter involved and each such
statement shall be deemed qualified in its entirety by such reference.
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[LOGO]
LEAR SEATING CORPORATION
_______________________________ GM Suburban assembled
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Lear conducts long-range product | |
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Southfield, Michigan (shown) and _________________________________
Rietberg, Germany.
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Lear Seating Corporation was founded in 1917.
(PHOTOGRAPHS)
(SEE APPENDIX A)
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Ford Mustang - 1994 Motor Trend Car-of-the-Year
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Dodge Ram - 1994 Motor Trend Jaguar - Lear began production
Truck-of-the-Year January 1994
(PHOTOGRAPHS)
(SEE APPENDIX A)
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus. As used in this Prospectus, unless the context otherwise requires,
the "Company" or "Lear" refers to Lear Seating Corporation and its consolidated
subsidiaries after giving effect to the Merger (as defined herein) or, with
respect to periods prior to the 1988 Acquisition (as defined herein), the
companies comprising the business of the Seating Group (as defined herein).
THE COMPANY
The Company is the largest independent supplier of automobile and light
truck seat systems and seat components in North America and is one of the
largest independent suppliers of such systems and components worldwide. The
Company's principal products include finished automobile and light truck seat
systems, automobile and light truck seat frames, seat covers and other seat
components. The Company's seat systems, which are designed, manufactured and
assembled at the Company's manufacturing facilities, are shipped to customer
assembly plants on a just-in-time ("JIT") basis for installation in vehicles
near the end of the assembly process. This JIT process enables the Company to
optimize inventory turnover and deliver products to its customers on as little
as 90 minutes notice. In fiscal 1993, approximately 65% of Lear's net sales were
generated from sales in the United States and Canada, with the balance of sales
being primarily in Europe and Mexico. The Company's present customers include 16
original equipment manufacturers ("OEMs"), the most significant of which are
Ford, General Motors, Chrysler, Volvo, Volkswagen, Saab and Mazda.
The Company's net sales have grown rapidly from approximately $159.8
million in fiscal 1983 to approximately $1.8 billion in fiscal 1993, a ten-year
average compound annual growth rate of approximately 27.1%. The Company has
expanded its operations to facilitate such growth primarily through capital
expenditures necessary to construct or acquire new facilities and to enhance
existing facilities. This growth in sales is attributable primarily to the trend
in the North American automotive industry to "outsource" more of its
requirements for automotive components, particularly high cost components such
as seat systems. Outsourcing has been increased in response to competitive
pressures on OEMs to improve quality and reduce capital needs and the costs of
labor, overhead and inventory. The outsourced market for automobile and light
truck seat systems in North America is approximately 58% of the total North
American seat systems market (approximately 80% taking into account future
seating programs that have been awarded).
In addition to outsourcing the production of seat systems, United States
automotive manufacturers are increasingly transferring the primary
responsibility for design, engineering and quality control of these products to
suppliers, such as Lear, with proven design, engineering and JIT program
management and manufacturing capabilities. Suppliers that design, engineer,
manufacture and conduct quality control testing are generally referred to as
"Tier I" suppliers. The Company believes that early involvement in the design
and engineering of new seating products as a Tier I supplier affords the Company
a competitive advantage in securing new business and provides its customers
significant cost reduction opportunities through the coordination of the design,
development and manufacturing processes.
As a result of the Company's demonstrated capabilities as a full-service
Tier I supplier, it has captured approximately one-third of the outsourced
market for automobile and light truck seat systems and seat components in North
America and has become a leading supplier to this market in Europe. The
Company's reputation with OEMs for timely delivery, customer service and quality
products at competitive prices has resulted in many of the Company's facilities
winning recognition awards from its customers. The Company's continued expansion
as a Tier I supplier has resulted in new business which has recently begun or
will begin production over the next twelve months. Such business includes new
passenger car and light truck programs for the Dodge Ram Pick-up Truck, the Ford
Mustang, the Ford Windstar Minivan, the BMW 300 Series and all Jaguar models, as
well as the GM Opel Omega, the Chevrolet Cavalier and the Oldsmobile Aurora. In
addition, the Company was recently awarded the seat system assembly
responsibility for the Ford Taurus/Mercury Sable vehicle lines for seat systems
scheduled to begin production in early 1995. Ford Taurus has been the best
selling car line in the United States for the past two years.
On November 1, 1993, the Company significantly expanded its operations in
North America by purchasing certain portions of the North American seat cover
and seat systems business (the "NAB") of the
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Ford Motor Company ("Ford") for $185.0 million in cash and approximately $10.5
million in notes payable to Ford or its affiliates (the "NAB Acquisition"). The
NAB consists of an integrated United States and Mexican operation which produces
seat covers for approximately 80% of Ford's North American vehicle production
and manufactures seat systems for Ford's Crown Victoria and Grand Marquis
vehicles. For the fiscal year ended June 30, 1993, and after giving effect to
the pro forma adjustments related to the NAB Acquisition, the NAB generated
approximately $547.1 million in gross sales and approximately $50.0 million in
EBITDA (as defined herein).
In connection with the NAB Acquisition, the Company entered into a five
year supply agreement with Ford covering models for which the NAB currently
produces seat covers and seat systems, establishing the Company as Ford's
leading seat systems supplier. In addition, the Company believes that as a
result of the NAB Acquisition its relationship with Ford will be enhanced,
enabling Lear to be more involved in the planning and design of seat systems and
related products for future automobile models.
Lear believes that the same competitive pressures that contributed to the
rapid expansion of its business in North America will require auto makers in
Europe to outsource more of their seating requirements. The outsourced market
for automobile and light truck seat systems in Europe is approximately 50% of
the total European seat systems market. Over the past four years, the Company
has aggressively pursued expansion in Europe both with its existing and new
customers. As a result of its efforts, the Company has been awarded significant
business in Sweden, Germany, Austria and England from General Motors-Adam Opel,
Saab, Volvo, Chrysler, Volkswagen and Jaguar.
The Company has also positioned itself as the leading supplier of seat
systems and seat components in Mexico through its ownership of Central de
Industrias S.A. de C.V. ("CISA"), the largest independent automotive seat
systems manufacturer in Mexico serving Mexican domestic producers. As a result
of its presence in Mexico, the Company believes that it will benefit from the
growing activity of United States-based and German-based OEMs in Mexico. The
Company also believes that it will benefit from the additional business
opportunities resulting from the passage of the North American Free Trade
Agreement ("NAFTA").
On December 31, 1993, Lear Holdings Corporation ("Holdings"), the parent of
the Company, merged with and into the Company (the "Merger"), and the separate
corporate existence of Holdings ceased on that date. Unless the context
otherwise indicates, all information contained herein is presented as if the
Merger had occurred as of the date or as of the beginning of the period
indicated. After the Merger, the Company continues to conduct directly its
principal operations in the United States. The Company's subsidiaries conduct
other operations in the United States and all of the Company's foreign
operations. The diagrams below depict the organizational structure of the
Company before and after the Merger.
Prior to the Merger After the Merger
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Holdings Company
(principal domestic operations)
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Company Remaining Foreign Domestic and Foreign
(principal domestic Subsidiaries Subsidiaries
operations)
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Domestic Subsidiaries
and Certain Foreign
Subsidiaries
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The Company is the successor to a seat frame manufacturing business founded
in 1917 that served as a supplier to General Motors and Ford from its inception.
Holdings was organized in August 1988 to effect the leveraged acquisition (the
"1988 Acquisition") of all of the outstanding common stock of Lear Seating
Corporation (formerly known as Lear Siegler Seating Corp.) and certain other
subsidiaries of Lear Siegler Holdings Corp. comprising its seating group (the
companies acquired being collectively referred to herein as the "Seating
Group").
The Company's principal executive offices are located at 21557 Telegraph
Road, Southfield, Michigan 48034. Its telephone number at that location is (810)
746-1500. The Company was incorporated in Delaware on January 13, 1987.
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THE OFFERING
Securities Offered....... $145,000,000 principal amount of 8 1/4% Subordinated Notes due
2002.
Maturity Date............ February 1, 2002.
Interest Payment Dates... February 1 and August 1, commencing August 1, 1994.
Optional Redemption...... The Notes will be redeemable at the option of the Company, in
whole or in part, on or after February 1, 1998, at the redemption
prices set forth herein, plus accrued and unpaid interest to the
date of redemption.
Mandatory Sinking Fund... None.
Subordination............ The Notes will be subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in
"Description of the Notes -- Certain Definitions") of the Company
and will be senior in right of payment to or pari passu with all
other subordinated indebtedness of the Company. As of October 2,
1993, and after giving effect to the Pro Forma Transactions, the
aggregate amount of Senior Indebtedness of the Company (including
its obligations under the Credit Agreement and the Senior
Subordinated Notes), would have been approximately $431.9
million. In addition, certain of the Company's subsidiaries have
outstanding indebtedness that effectively ranks prior to the
claims of the holders of the Notes. As of October 2, 1993, and
after giving effect to the Pro Forma Transactions, the Company's
subsidiaries would have had outstanding approximately $31.2
million of indebtedness. See "Description of the Notes --
Subordination."
Change of Control
Triggering Event....... Upon a Change of Control Triggering Event (as defined herein),
each holder of the Notes may require the Company to repurchase
such holder's Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase. See
"Description of the Notes -- Certain Covenants -- Repurchase of
Notes Upon a Change of Control Triggering Event."
Certain Covenants........ The Indenture under which the Notes will be issued will contain
certain covenants that will restrict, among other things, the
incurrence of additional indebtedness, the payment of dividends,
the repurchase of capital stock and the making of certain other
Restricted Payments (as defined herein), the creation of liens,
the creation of any restriction on the ability of subsidiaries of
the Company to pay dividends or to make any other distributions,
sales of assets, the issuance of preferred stock, transactions
with affiliates and certain mergers and consolidations. See
"Description of the Notes -- Certain Covenants."
Use of Proceeds.......... All of the net proceeds from the sale of the Notes, together with
borrowings under the Credit Agreement (as defined in "Certain
Transactions"), will be used to finance the redemption of all of
the outstanding 14% Subordinated Debentures due 2000 of the
Company (the "14% Subordinated Debentures"), at a redemption
price equal to 105.40% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date of redemption,
and to pay the fees and expenses associated therewith. See "Use
of Proceeds."
CERTAIN CONSIDERATIONS
Investment in the Notes involves certain risks discussed under "Certain
Considerations" that should be considered by prospective purchasers.
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SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following summary consolidated financial and other data were derived
from the consolidated financial statements of the Company. The consolidated
financial statements of the Company for the nine months ended June 30, 1989 and
for each of fiscal years 1990, 1991, 1992 and 1993 have been audited by Arthur
Andersen & Co. The consolidated financial statements of the Company for the
three months ended October 3, 1992 and October 2, 1993 are unaudited; however,
in the Company's opinion, such financial statements 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 three months ended October 2, 1993 are not necessarily indicative of the
results to be expected for the full fiscal year. The summary financial data
below should be read in conjunction with the consolidated financial statements
of the Company and the notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Company."
COMPANY -- CONSOLIDATED
---------------------------------------------------------------------------------------------------
NINE MONTHS THREE MONTHS THREE MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, OCTOBER 3, OCTOBER 2,
1989 1990 1991 1992 1993 1992 1993(1)
----------- ---------- ---------- ---------- ---------- ------------ ------------
OPERATING DATA:
Net sales.................. $ 807,365 $1,067,878 $1,085,319 $1,422,740 $1,756,510 $359,136 $399,066
Gross profit............... 81,632 104,707 101,429 115,641 152,499 19,921 21,827
Selling, general and
administrative
expenses................. 19,584 29,600 42,949 50,062 61,898 12,890 12,695
Amortization............... 10,174 13,838 13,810 8,746 9,548 2,187 2,187
--------- ---------- ---------- ---------- ---------- -------- -------
Operating income........... 51,874 61,269 44,670 56,833 81,053 4,844 6,945
Interest expense, net(2)... 50,982 61,184 61,676 55,158 47,832 14,173 11,418
Other expense (income),
net(3)................... 2,141 4,044 2,144 5,837 5,260 (30) 1,070
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Income (loss) before taxes
on income and
extraordinary items...... (1,249) (3,959) (19,150) (4,162) 27,961 (9,299) (5,543)
Income taxes............... 7,409 16,630 14,019 12,968 17,847 1,687 5,286
--------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss) before
extraordinary items(4)... $ (8,658) $ (20,589) $ (33,169) $ (17,130) $ 10,114 $(10,986) $(10,829)
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Ratio of earnings to fixed
charges.................. -- -- -- -- 1.55x -- --
--------- ---------- ---------- ---------- ---------- -------- ---------
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Fixed charges in excess of
earnings................. $ (1,249) $ (4,344) $ (20,743) $ (6,484) -- $ (9,679) $ (4,937)
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BALANCE SHEET DATA:
Current assets............. $ 200,002 $ 223,212 $ 213,806 $ 282,864 $ 325,199 $292,075 $277,744
Total assets............... 734,582 747,583 729,670 799,884 820,209 807,151 766,549
Current liabilities........ 201,117 254,514 287,111 344,169 374,950 337,212 317,564
Long-term debt............. 433,336 402,800 386,655 348,331 321,116 407,997 340,209
Common stock subject to
limited redemption
rights, net.............. 1,770 1,795 1,770 3,465 3,885 3,885 3,885
Stockholders' equity....... 48,876 35,292 4,335 49,317 75,101 58,057 61,669
OTHER DATA:
EBITDA(5).................. $ 74,826 $ 94,252 $ 81,428 $ 91,807 $ 121,707 $ 14,788 $ 17,243
Depreciation............... 12,778 19,145 22,948 26,228 31,106 7,757 8,111
Capital expenditures....... 11,353 14,906 20,892 27,926 31,595 10,158 11,149
Number of facilities(6).... 30 33 40 45 48 45 49
Ratio of EBITDA to interest
expense, net(2)(5)....... 1.47x 1.54x 1.32x 1.66x 2.54x 1.04x 1.51x
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(1) On July 1, 1993, the Company adopted SFAS 106 (as defined herein). As a
result, the fiscal quarter ended October 2, 1993 represents the first period
during which the Company began to incur additional expense associated with
the adoption of SFAS 106. The expense for this period was $1,600.
(2) Includes non-cash charges for amortization of deferred financing fees of
approximately $6,041, $4,514, $4,096, $3,198, $2,972, $679 and $570 for the
nine months ended June 30, 1989, each of the fiscal years ended June 30,
1990 through June 30, 1993 and each of the fiscal quarters ended October 3,
1992 and October 2, 1993, respectively.
(3) Consists of foreign currency exchange gain or loss, minority interest in net
income of subsidiaries, equity in (income) loss of affiliates and other
expense.
(4) The Company incurred extraordinary losses of $535 in the fiscal quarter
ended October 2, 1993 and $5,100 in the fiscal year ended June 30, 1992
resulting from the prepayment of debt.
(5) "EBITDA" is operating income (loss) plus depreciation and amortization. The
Company believes that EBITDA provides additional information for determining
its ability to meet debt service requirements. EBITDA does not represent and
should not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles, and
EBITDA does not necessarily indicate whether cash flow will be sufficient
for cash requirements.
(6) Includes facilities operated by the Company's less than majority-owned
affiliates.
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SUMMARY PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following summary pro forma financial and other data were derived from
and should be read in conjunction with the pro forma financial data included
elsewhere in this Prospectus. The following summary pro forma financial data
give effect to (i) the NAB Acquisition and the related incurrence of debt to
finance such acquisition, (ii) the incurrence of indebtedness under the Credit
Agreement to retire the GECC Mortgage Loan (as defined in "Certain
Transactions") and to refinance the term loans outstanding under the Company's
Original Credit Agreement (as defined in "Certain Transactions") and (iii) the
issuance of the Notes offered hereby (the "Offering") and the application of the
net proceeds therefrom (collectively, the "Pro Forma Transactions") as if such
transactions had occurred at the beginning of the periods presented below for
purposes of the operating and other data and as of the date presented below for
purposes of the balance sheet data. The following summary pro forma financial
data do not purport to represent (i) the actual historical results of operations
or financial condition of the Company, (ii) the actual results of operations or
financial condition of the Company had the Pro Forma Transactions occurred at
the beginning of the periods presented below or (iii) the results to be expected
in the future.
COMPANY --
CONSOLIDATED
-------------------------
THREE MONTHS
YEAR ENDED ENDED
JUNE 30, OCTOBER 2,
1993 1993(1)
---------- ------------
OPERATING DATA:
Net sales............................................ $2,235,150 $ 503,632
Gross profit......................................... 212,399 34,362
Selling, general and administrative expenses......... 80,607 17,130
Amortization......................................... 11,834 2,759
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Operating income..................................... 119,958 14,473
Interest expense, net(2)............................. 51,327 12,452
Other expense, net(3)................................ 7,111 1,729
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Income (loss) before taxes on income................. 61,520 292
Income taxes......................................... 30,058 7,398
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Net income (loss).................................... $ 31,462 $ (7,106)
---------- ------------
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Ratio of earnings to fixed charges................... 2.12x 1.07x
BALANCE SHEET DATA:
Current assets....................................... $ 320,037
Total assets......................................... 997,982
Current liabilities.................................. 359,046
Long-term debt....................................... 534,362
Common stock subject to limited redemption rights,
net............................................... 3,885
Stockholders' equity................................. 53,905
OTHER DATA:
EBITDA(4)............................................ $ 171,677 $ 27,538
Depreciation......................................... 39,885 10,306
Number of facilities(5).............................. 53 54
Ratio of EBITDA to interest expense, net (2)(4)...... 3.34x 2.21x
- -------------------------
(1) The Company's business is seasonal in nature and the Company's results of
operations have historically been weakest in its first fiscal quarter. See
Note 15, "Quarterly Financial Data," in the consolidated financial
statements included elsewhere in this Prospectus.
(2) Includes non-cash charges for amortization of deferred financing fees of
approximately $2,383 and $617 for the fiscal year ended June 30, 1993 and
the fiscal quarter ended October 2, 1993, respectively.
(3) Consists of foreign currency exchange gain or loss, minority interest in net
income of subsidiaries, equity in (income) loss of affiliates and other
expense.
(4) "EBITDA" is operating income (loss) plus depreciation and amortization. The
Company believes that EBITDA provides additional information for determining
its ability to meet debt service requirements. EBITDA does not represent and
should not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles, and
EBITDA does not necessarily indicate whether cash flow will be sufficient
for cash requirements.
(5) Includes facilities operated by the Company's less than majority-owned
affiliates.
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CERTAIN CONSIDERATIONS
A prospective investor should consider carefully all of the information
contained in this Prospectus before deciding whether to purchase the Notes and,
in particular, should consider the following:
LEVERAGE
Substantially all of the funds needed to finance the 1988 Acquisition and
the NAB Acquisition were raised through borrowings. As a result, the Company has
debt that is substantial in relation to its stockholders' equity and a
significant portion of the Company's cash flow from operations is required for
debt service. As of October 2, 1993, after giving effect to the Pro Forma
Transactions, the Company would have had total long-term debt of $534.4 million,
common stock subject to limited redemption rights of $3.9 million, net of
related notes receivable, and stockholders' equity of $53.9 million, resulting
in a total capitalization of $592.2 million. See "Capitalization"; "Selected
Financial Data."
The Company anticipates that it will be required to use substantial amounts
of its cash flow from operations to meet its debt service obligations. If the
Company is unable to generate sufficient cash flow to meet its debt service
obligations, it will have to adopt one or more alternatives, such as reducing or
delaying planned expansion and capital expenditures, selling assets, obtaining
additional equity capital or restructuring debt. There is no assurance that any
of these strategies could be effected on satisfactory terms.
In addition, because certain of the Company's obligations under the Credit
Agreement bear interest at floating rates, an increase in interest rates could
adversely affect the Company's ability to meet its debt service obligations. As
of October 2, 1993, the Company was not a party to any interest rate swaps or
similar arrangements; however, in the future the Company may determine to enter
into such arrangements on all or a portion of its floating rate debt. Although
any interest rate swaps or similar arrangements entered into by the Company
would effectively cap or fix associated interest rates, such arrangements could
have the effect of increasing total interest expense. See "Description of
Certain Indebtedness -- Credit Agreement."
NET LOSSES
The Company has experienced net losses during two of its last three
completed fiscal years, principally as a result of the significant interest
charges on the debt incurred in connection with the 1988 Acquisition. The
Company experienced net losses of approximately $33.2 million and $22.2 million
for fiscal 1991 and 1992, respectively, net income of $10.1 million in fiscal
1993 and a net loss of $11.4 million for the first quarter of fiscal 1994. The
Company had significant non-cash charges to income during these periods,
including charges for depreciation and amortization of $36.8 million, $35.0
million, $40.7 million and $10.3 million for fiscal 1991, 1992, 1993 and for the
first quarter of fiscal 1994, respectively. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company" and the Company's Statements of Cash Flows included
elsewhere in this Prospectus.
SUBORDINATION
Payments under the Notes are subordinated to all existing and future Senior
Indebtedness of Lear. As of October 2, 1993, and after giving effect to the Pro
Forma Transactions, the aggregate amount of Senior Indebtedness of Lear would
have been approximately $431.9 million, comprised of $293.1 million outstanding
under the Company's Credit Agreement (of which $35.6 million would have been
outstanding under letters of credit), $125.0 million of Senior Subordinated
Notes, $10.5 million in notes payable related to the NAB Acquisition and $3.3
million in guarantees of indebtedness of less than majority-owned affiliates.
In addition, certain of the Company's subsidiaries have outstanding
indebtedness and may incur indebtedness in the future. Holders of such
indebtedness will have a claim against the assets of such subsidiaries that will
rank prior to the claims of the holders of the Notes. As of October 2, 1993, and
after giving effect to the Pro Forma Transactions, the Company's subsidiaries
would have had outstanding approximately $31.2 million of indebtedness.
Because of the subordination provisions of the Notes, and after the
occurrence of certain events, creditors whose claims are senior to the Notes may
recover more, ratably, than the holders of the Notes. Substantially
9
12
all of the assets of the Company are pledged under the Credit Agreement.
Consequently, in the event of a default under the Credit Agreement, such assets
could be subject to foreclosure by the lenders under the Credit Agreement. See
"Description of Certain Indebtedness -- Credit Agreement."
CYCLICAL NATURE OF AUTOMOTIVE INDUSTRY
The Company's principal operations are directly related to domestic and
foreign automotive vehicle production. Automobile sales and production in North
America and Europe are cyclical and can be affected by the strength of a
country's general economy and by other factors which may have an effect on the
level of the Company's sales to automobile and light truck manufacturers.
RELIANCE ON MAJOR CUSTOMERS AND SELECTED CAR MODELS
Two of Lear's customers, General Motors and Ford, accounted for
approximately 48% and 22%, respectively, of the Company's net sales during
fiscal 1993. The Company's net sales to General Motors and Ford in fiscal 1993,
after giving pro forma effect to the NAB Acquisition as if it had occurred at
the beginning of such period, would have been approximately 38% and 34%,
respectively, of its total net sales. Although the Company has long-term
purchase orders from many of its customers, such purchase orders generally
provide for supplying the customers' annual requirements for a particular model
or assembly plant, renewable on a year-to-year basis, rather than for
manufacturing a specific quantity of products. In addition, certain of the
Company's manufacturing and assembly plants are dedicated to a single customer
automobile assembly plant. The customer's decision to close any such plant would
require the Company to obtain alternate supply agreements, relocate existing
business to such facility or close such facility. To date, neither model
discontinuances nor plant closings have had a material adverse effect on the
Company because of the breadth of the Company's product lines and the ability of
the Company to relocate its manufacturing operations with minimal capital
expenditures. There can be no assurances that the Company's loss of business
with respect to either a particular automobile model or a particular assembly
plant would not have a material adverse effect on the Company's financial
condition in the future. See "Business -- Customers."
CONTROL BY LEHMAN BROTHERS HOLDINGS INC.
Certain merchant banking partnerships affiliated with Lehman Brothers
Holdings Inc. (the "Lehman Funds") own an aggregate of approximately 61.4% of
Lear's outstanding Common Stock (assuming the exercise of all outstanding
Warrants (as defined herein) and employee stock options). Pursuant to the
Amended and Restated Stockholders and Registration Rights Agreement dated as of
September 27, 1991 (the "Stockholders Agreement") among the Company, the Lehman
Funds, FIMA Finance Management Inc., an affiliate of IFINT S.A. ("FIMA"), and
certain members of management listed therein (the "Management Investors"), the
Lehman Funds, FIMA and the Management Investors have the right to appoint six,
three and two directors of the Company, respectively. The Stockholders Agreement
also contains certain restrictions on transfers of Common Stock, registration
rights and certain voting arrangements. As a result of the stock ownership by
the Lehman Funds and related arrangements, the Lehman Funds can effectively
control the affairs and policies of the Company. See "Certain Transactions."
LIMITATION ON THE COMPANY'S CHANGE OF CONTROL REPURCHASE OBLIGATION
Transactions which would otherwise constitute a Change of Control under the
Indenture for the Notes will not constitute a Change of Control if consummated
by the Lehman Funds, FIMA, the Management Investors and/or their affiliates
("Permitted Investors"). Such a transaction could result in the Company becoming
more leveraged. As a result of this exclusion from the definition of a Change of
Control, holders of Notes will not be able to require the Company to repurchase
their Notes upon the consummation of a transaction by Permitted Investors that
would otherwise constitute a Change of Control.
10
13
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
Lear has no plans to list the Notes on a securities exchange. Lear has been
advised by each of the Underwriters that they presently intend to make a market
in the Notes; however, none of them is obligated to do so. Any such
market-making activity, if initiated, may be discontinued at any time, for any
reason, without notice. If any Underwriter ceases to act as a market maker for
the Notes for any reason, there can be no assurance that another firm or person
will make a market in the Notes. There can be no assurance that an active market
for the Notes will develop or, if a market does develop, at what prices the
Notes will trade.
USE OF PROCEEDS
All of the net proceeds from the Offering, estimated to be $140.0 million,
together with borrowings under the Credit Agreement, will be used to finance the
redemption of all of the outstanding 14% Subordinated Debentures due 2000 at a
redemption price equal to 105.40% of the principal amount thereof, plus accrued
and unpaid interest thereon to the date of redemption, and to pay the fees and
expenses associated therewith.
The estimated sources and uses of funds (in millions) are shown below:
SOURCES OF FUNDS
Net proceeds from the Offering..................................... $140.0
Borrowings under Credit Agreement.................................. 8.7
------
$148.7
------
------
USES OF FUNDS
Redemption of 14% Subordinated Debentures.......................... $135.0
Prepayment premium on 14% Subordinated Debentures.................. 7.3
Estimated accrued interest on 14% Subordinated Debentures.......... 6.4
------
$148.7
------
------
11
14
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the capitalization of the Company at October
2, 1993, and after giving effect to the Pro Forma Transactions (as defined in
"Summary Pro Forma Financial Data"). See "Use of Proceeds" and "Pro Forma
Financial Data."
AS OF OCTOBER 2, 1993
------------------------------------
ADJUSTED FOR
ACTUAL PRO FORMA TRANSACTIONS
-------- ----------------------
Short-term debt:
Short-term notes payable.................................. $ 3,202 $ 48,617(1)
Current maturities of term loans.......................... 1,202 1,202
-------- -----------
Total short-term debt.................................. $ 4,404 $ 49,819
-------- -----------
-------- -----------
Long-term debt, less current portion:
Term loans................................................ $ 29,209 $ 6,909(2)
Revolving credit loans.................................... 31,000 257,453(3)
GECC mortgage loan due 2001............................... 20,000 --(4)
11 1/4% senior subordinated notes due 2000................ 125,000 125,000
8 1/4% subordinated notes due 2002........................ -- 145,000(5)
14% subordinated debentures due 2000...................... 135,000 --(6)
-------- -----------
Total long-term debt, less current portion............. 340,209 534,362
-------- -----------
Common stock subject to redemption, par value $.01 per
share; 30,001 shares issued and outstanding, net of notes
receivable from the sale of common stock.................. 3,885 3,885
-------- -----------
Stockholders' equity:
Common stock, par value $.01 per share; 2,000,000 shares
authorized, 1,145,757 shares issued(7)................. 12 12
Additional paid-in capital................................ 150,993 150,993
Warrants to purchase common stock......................... 10,000 10,000
Treasury stock, 100,000 shares of common stock............ (10,000) (10,000)
Retained deficit.......................................... (85,896) (93,660)(8)
Minimum pension liability adjustment...................... (3,240) (3,240)
Cumulative translation adjustment......................... (200) (200)
-------- -----------
Total stockholders' equity............................. 61,669 53,905
-------- -----------
Total capitalization................................. $405,763 $592,152
-------- -----------
-------- -----------
- -------------------------
(1) Reflects borrowings of $15,000 and $10,500 to finance a portion of the NAB
Acquisition and the assumption of a note payable of $19,915 in connection
therewith. See "Business -- Facilities".
(2) Reflects the retirement of outstanding term loans of $22,300 under the
Company's Original Credit Agreement.
(3) Reflects borrowings under the Credit Agreement of: (i) $170,000 to finance a
portion of the NAB Acquisition, (ii) $22,300 to refinance the outstanding
term loans under the Company's Original Credit Agreement, (iii) $20,000 to
retire the GECC Mortgage Loan, and (iv) $14,153 to pay a portion of the
accrued and unpaid interest on the 14% Subordinated Debentures and the fees
and expenses related to the Pro Forma Transactions. The amount reflected
above does not include $20,646 in outstanding unfunded letters of credit
and $15,000 in outstanding letters of credit backing a note payable
included under short-term notes payable above.
(4) Reflects the retirement of amounts outstanding under the GECC Mortgage Loan
of $20,000 in connection with the refinancing of the Company's Original
Credit Agreement.
(5) Reflects the issuance of the Notes offered hereby.
(6) Reflects the redemption of $135,000 in aggregate principal amount of the 14%
Subordinated Debentures.
(7) Reflects the capitalization of the Company after giving effect to the
Merger.
(8) Reflects the prepayment premium on the 14% Subordinated Debentures of $7,290
and the write-off of deferred financing fees related to the redemption of
the 14% Subordinated Debentures and the retirement of the GECC Mortgage
Loan of $4,474, net of the tax benefit of these expenses of $4,000.
12
15
PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated statements of operations and
consolidated balance sheet (collectively, the "Pro Forma Statements") of the
Company were prepared to illustrate the estimated effects of (i) the NAB
Acquisition and the related incurrence of debt to finance such acquisition, (ii)
the incurrence of indebtedness under the Credit Agreement to retire the GECC
Mortgage Loan and to refinance the term loans outstanding under the Company's
Original Credit Agreement and (iii) the Offering and the application of the net
proceeds therefrom (collectively, the "Pro Forma Transactions"), as if the Pro
Forma Transactions had occurred for statement of operations purposes as of the
beginning of each period presented and for balance sheet purposes as of October
2, 1993.
The Pro Forma Statements do not purport to represent what the Company's
financial position or results of operations would actually have been if such
transactions in fact had occurred on such date or at the beginning of the
periods indicated or to project the Company's financial position or results of
operations for any future date or period.
The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable. The Pro Forma
Statements and accompanying notes should be read in conjunction with the
historical financial statements of the Company and the NAB, including the notes
thereto, and other financial information pertaining to the Company and the NAB,
including "Capitalization" and related notes thereto included elsewhere in the
Prospectus.
The NAB Acquisition will be accounted for using the purchase method of
accounting. The total purchase price of $195.5 million plus estimated
acquisition costs of approximately $1.5 million will be allocated to the assets
and liabilities of the NAB based upon their respective fair market values, with
the remainder allocated to goodwill. Such allocations will be made based upon
valuations and other studies which have not been finalized. Accordingly, the
allocation of the purchase price included in the following Pro Forma Statements
is preliminary. The final values may differ from those set forth in the
historical financial statements of the NAB and from those set forth herein.
In early December, a local Detroit publication incorrectly attributed to
Lear a statement to the effect that the Company's expected sales for fiscal 1994
would be $2.3 billion. The statement was intended as a preliminary estimate of
the Company's fiscal 1993 sales after giving effect to the NAB Acquisition and
not a projection of fiscal 1994 sales. As set forth below, the Company's fiscal
1993 sales after giving effect to the Pro Forma Transactions, which include the
NAB Acquisition, were $2.235 billion.
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PRO FORMA STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30, 1993
-------------------------------------------------------------------------------------------------------
EXCLUDED CONSOLIDATION
COMPANY NAB NAB OPERATIONS NAB AND FINANCING
HISTORICAL HISTORICAL(1) BUSINESS(2) ADJUSTMENTS(3) ADJUSTED ADJUSTMENTS PRO FORMA
---------- ------------- ----------- -------------- -------- ------------- ----------
Sales.................. $1,756,510 $ 701,901 $ (56,000) $ (98,798) $547,103 $ (68,463)(4) $2,235,150
Cost of sales.......... 1,604,011 498,648 (31,360) 19,915 487,203 (68,463)(4) 2,022,751
---------- ------------- ----------- -------------- -------- ------------- ----------
Gross profit........... 152,499 203,253 (24,640) (118,713) 59,900 -- 212,399
Selling, general and
administrative
expenses............. 61,898 11,048 -- 7,661 18,709 -- 80,607
Amortization........... 9,548 -- -- 2,286 2,286 -- 11,834
---------- ------------- ----------- -------------- -------- ------------- ----------
Operating income....... 81,053 192,205 (24,640) (128,660) 38,905 -- 119,958
---------- ------------- ----------- -------------- -------- ------------- ----------
Interest expense,
net.................. 47,832 2,964 -- -- 2,964 531(5) 51,327
Other expense.......... 5,260 1,851 -- -- 1,851 -- 7,111
---------- ------------- ----------- -------------- -------- ------------- ----------
Income before provision
for income taxes..... 27,961 187,390 (24,640) (128,660) 34,090 (531) 61,520
Provision for income
taxes................ 17,847 66,359 (8,673) (45,288) 12,398 (187) 30,058
---------- ------------- ----------- -------------- -------- ------------- ----------
Net income (loss)...... $ 10,114 $ 121,031 $ (15,967) $ (83,372) $ 21,692 $ (344) $ 31,462(6)
---------- ------------- ----------- -------------- -------- ------------- ----------
---------- ------------- ----------- -------------- -------- ------------- ----------
Depreciation........... $ 31,106 $ 10,054 $ -- $ (1,275) $ 8,779 -- $ 39,885
EBITDA(7).............. 121,707 202,259 (24,640) (127,649) 49,970 -- 171,677
THREE MONTHS ENDED OCTOBER 2, 1993
-------------------------------------------------------------------------------------------------------
EXCLUDED CONSOLIDATION
COMPANY NAB NAB OPERATIONS NAB AND FINANCING
HISTORICAL HISTORICAL(1) BUSINESS(2) ADJUSTMENTS(3) ADJUSTED ADJUSTMENTS PRO FORMA
---------- ------------- ----------- -------------- -------- ------------- ----------
Sales.................. $ 399,066 $ 156,060 $ (14,000) $ (14,145) $127,915 $ (23,349)(4) $ 503,632
Cost of sales.......... 377,239 118,692 (7,840) 4,528 115,380 (23,349)(4) 469,270
---------- ------------- ----------- -------------- -------- ------------- ----------
Gross profit........... 21,827 37,368 (6,160) (18,673) 12,535 -- 34,362
Selling, general and
administrative
expenses............. 12,695 3,142 -- 1,293 4,435 -- 17,130
Amortization........... 2,187 -- -- 572 572 -- 2,759
---------- ------------- ----------- -------------- -------- ------------- ----------
Operating income....... 6,945 34,226 (6,160) (20,538) 7,528 -- 14,473
Interest expense,
net.................. 11,418 675 -- -- 675 359(5) 12,452
Other expense.......... 1,070 659 -- -- 659 -- 1,729
---------- ------------- ----------- -------------- -------- ------------- ----------
Income before provision
for income taxes and
extraordinary
items................ (5,543) 32,892 (6,160) (20,538) 6,194 (359) 292
Provision for income
taxes................ 5,286 11,907 (2,230) (7,435) 2,242 (130) 7,398
---------- ------------- ----------- -------------- -------- ------------- ----------
Net income (loss)
before extraordinary
items................ (10,829) 20,985 (3,930) (13,103) 3,952 (229) (7,106)
Extraordinary loss on
early extinguishment
of debt.............. 535 -- -- -- -- (535)(8) --
---------- ------------- ----------- -------------- -------- ------------- ----------
Net income (loss)...... $ (11,364) $ 20,985 $ (3,930) $ (13,103) $ 3,952 $ 306 $ (7,106)(6)
---------- ------------- ----------- -------------- -------- ------------- ----------
---------- ------------- ----------- -------------- -------- ------------- ----------
Depreciation........... $ 8,111 $ 2,457 $ -- $ (262) $ 2,195 -- $ 10,306
EBITDA(7).............. 17,243 36,683 (6,160) (20,228) 10,295 -- 27,538
- -------------------------
(1) The NAB historical information represents amounts derived from the unaudited
quarterly financial statements of the NAB, including an allocation of
year-end adjustments.
(2) Reflects elimination of the approximate sales and cost of sales associated
with a non-seating product line of the NAB that the NAB will continue to
produce until its anticipated phase-out in the third quarter of calendar
year 1994.
(3) Operations adjustments consist of pro forma adjustments to the historical
revenues and expenses of the NAB to reflect (i) the Company's estimates of
the impact of product pricing reductions negotiated as part of the NAB
Acquisition, (ii) estimated actual expenses associated with ongoing
engineering activities in support of Ford seating programs and the
reallocation of the NAB engineering expenses among financial statement
categories for consistency with the financial statements of the Company,
(iii) incremental ongoing overhead and administrative expenses associated
with the NAB Acquisition, including amounts to be paid to Ford for
continuation of certain support
14
17
functions, (iv) estimated adjustments to amortization and depreciation
expense resulting from the revaluation of NAB assets and (v) the estimated
income tax effects of these items. The adjustments include the following
items:
THREE MONTHS
YEAR ENDED ENDED
JUNE 30, OCTOBER 2,
1993 1993
---------- ------------
Effects of product pricing agreements negotiated between the Company and
Ford in the NAB Acquisition............................................... $ 98,798 $ 14,145
Incremental ongoing NAB engineering, overhead and administrative expenses... 28,851 6,083
Amortization of goodwill resulting from the NAB Acquisition................. 2,286 572
Decrease in NAB depreciation expense........................................ (1,275) (262)
Estimated income tax effects of operations adjustments...................... (45,288) (7,435)
---------- ------------
$ 83,372 $ 13,103
---------- ------------
---------- ------------
The estimated effects of the product pricing adjustments were derived by
management through the application of agreed upon average price reductions
effective as of the date of the NAB Acquisition to the historical revenues
of the NAB by product line. The adjustment is proportionately greater for
the year ended June 30, 1993 than for the three months ended October 2, 1993
due to additional pro forma adjustments in the year ended June 30, 1993 to
reflect price reductions from the NAB to Ford which were effective as of
January 1, 1993.
(4) Reflects the elimination in consolidation of sales from the NAB to other
Lear locations.
(5) Reflects interest expense changes as follows:
THREE MONTHS
YEAR ENDED ENDED
JUNE 30, OCTOBER 2,
1993 1993
---------- ------------
Estimated interest on borrowings under the Credit Agreement to finance the
NAB Acquisition........................................................... $ 7,969 $ 1,953
Interest expense on the Notes............................................... 11,963 2,991
Elimination of interest expense on the 14% Subordinated Debentures.......... (18,900) (4,725)
Interest expense on short-term notes payable used to finance the NAB
Acquisition, at 8%........................................................ 1,200 300
Elimination of interest expense on Favesa note payable prepaid in connection
with the NAB Acquisition.................................................. (1,476) (369)
Difference between interest expense on Favesa note payable at 6% prior to
acquisition, 11.5% subsequent............................................. 1,095 274
Net reduction in interest expense due to refinancing of the Original Credit
Agreement and retirement of the GECC Mortgage Loan........................ (1,362) (265)
Interest on borrowings under the Credit Agreement to finance fees and
expenses related to the Pro Forma Transactions............................ 631 153
Change in deferred financing fee amortization due to refinancing of the
Original Credit Agreement, issuance of the Notes, retirement of the GECC
Mortgage Loan and redemption of the 14% Subordinated Debentures........... (589) 47
---------- ------------
Net increase in interest expense........................................ $ 531 $ 359
---------- ------------
---------- ------------
(6) Net income excludes extraordinary losses due to the redemption of the 14%
Subordinated Debentures and the refinancing of the Original Credit Agreement
as follows:
THREE MONTHS
YEAR ENDED ENDED
JUNE 30, OCTOBER 2,
1993 1993
---------- ------------
Write-off of unamortized deferred financing fees related to the Original
Credit Agreement.......................................................... $ 2,452 $ 763
Write-off of unamortized deferred financing fees related to the 14%
Subordinated Debentures................................................... 4,207 3,664
Write-off of unamortized deferred financing fees related to the GECC
Mortgage Loan............................................................. 1,192 995
Prepayment premium on redemption of 14% Subordinated Debentures............. 7,290 7,290
Estimated income tax effects................................................ (5,148) (4,322)
---------- ------------
$ 9,993 $ 8,390
---------- ------------
---------- ------------
(7) "EBITDA" is operating income (loss) plus depreciation and amortization. The
Company believes that EBITDA provides additional information for determining
its ability to meet debt service requirements. EBITDA does not represent and
should not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles, and
EBITDA does not necessarily indicate whether cash flow will be sufficient
for cash requirements.
(8) Reflects the elimination of the extraordinary loss on the refinancing of the
Original Credit Agreement which was recorded in the first quarter of fiscal
1994. Such loss would have been incurred in a prior period had the NAB
Acquisition taken place at the beginning of the periods presented.
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18
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED, DOLLARS IN THOUSANDS)
AS OF OCTOBER 2, 1993
ACQUISITION
COMPANY NAB EXCLUDED NAB AND VALUATION FINANCING
HISTORICAL HISTORICAL NAB ITEMS(1) ADJUSTED OF NAB(2) ADJUSTMENTS PRO FORMA
--------- ---------- ------------ -------- ------------- ----------- ---------
ASSETS
Current Assets:
Cash............................. $ 42,531 $ 2,743 $ -- $ 2,743 $(185,000) $ 185,000(3) $ 45,274
Accounts receivable, net......... 176,099 30,037 (30,037) -- -- -- 176,099
Inventories...................... 43,177 36,864 -- 36,864 -- -- 80,041
Other current assets............. 15,937 2,686 -- 2,686 -- -- 18,623
--------- ---------- ------------ -------- ------------- ----------- ---------
277,744 72,330 (30,037) 42,293 (185,000) 185,000 320,037
--------- ---------- ------------ -------- ------------- ----------- ---------
Property, Plant And Equipment:
Land............................. 12,979 7,119 -- 7,119 9,987 -- 30,085
Buildings and improvements....... 73,331 49,616 -- 49,616 (10,803) -- 112,144
Machinery and equipment.......... 186,086 75,980 -- 75,980 (41,790) -- 220,276
--------- ---------- ------------ -------- ------------- ----------- ---------
272,396 132,715 -- 132,715 (42,606) -- 362,505
Less: Accumulated depreciation... (109,582) (53,381) -- (53,381) 53,381 -- (109,582)
--------- ---------- ------------ -------- ------------- ----------- ---------
162,814 79,334 -- 79,334 10,775 -- 252,923
--------- ---------- ------------ -------- ------------- ----------- ---------
Other Assets:
Goodwill, net.................... 306,978 -- -- -- 91,450 -- 398,428
Deferred finance fees and
other.......................... 19,013 1,597 -- 1,597 -- 5,984(4) 26,594
--------- ---------- ------------ -------- ------------- ----------- ---------
325,991 1,597 -- 1,597 91,450 5,984 425,022
--------- ---------- ------------ -------- ------------- ----------- ---------
$ 766,549 $ 153,261 $(30,037) $123,224 $ (82,775) $ 190,984 $ 997,982
--------- ---------- ------------ -------- ------------- ----------- ---------
--------- ---------- ------------ -------- ------------- ----------- ---------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings............ $ 3,202 $ 44,529 $(24,614) $ 19,915 $ 10,500 $ 15,000 $ 48,617
Cash overdrafts.................. 26,153 -- -- -- -- -- 26,153
Accounts payable................. 193,593 32,401 (32,401) -- -- -- 193,593
Accrued liabilities.............. 93,414 47,238 (42,266) 4,972 1,500 (10,405)(5) 89,481
Current portion of long-term
debt........................... 1,202 -- -- -- -- -- 1,202
--------- ---------- ------------ -------- ------------- ----------- ---------
317,564 124,168 (99,281) 24,887 12,000 4,595 359,046
--------- ---------- ------------ -------- ------------- ----------- ---------
Long-Term Liabilities:
Long-term debt................... 340,209 -- -- -- -- 194,153(6) 534,362
Deferred national income taxes... 11,962 -- -- -- -- -- 11,962
Other............................ 31,260 3,562 -- 3,562 -- -- 34,822
--------- ---------- ------------ -------- ------------- ----------- ---------
383,431 3,562 -- 3,562 -- 194,153 581,146
--------- ---------- ------------ -------- ------------- ----------- ---------
Common stock subject to limited
redemption, net.................. 3,885 -- -- -- -- -- 3,885
--------- ---------- ------------ -------- ------------- ----------- ---------
Stockholders' Equity:
Common stock..................... 12 -- -- -- -- -- 12
Additional paid-in capital....... 150,993 -- -- -- -- -- 150,993
Warrants......................... 10,000 -- -- -- -- -- 10,000
Common stock held in treasury.... (10,000) -- -- -- -- -- (10,000)
Retained deficit................. (85,896) -- -- -- -- (7,764)(7) (93,660)
Minimum pension liability
adjustment..................... (3,240) -- -- -- -- -- (3,240)
Cumulative translation
adjustment..................... (200) -- -- -- -- -- (200)
Equity and advances account --
NAB............................ -- 25,531 69,244 94,775 (94,775) -- --
--------- ---------- ------------ -------- ------------- ----------- ---------
61,669 25,531 69,244 94,775 (94,775) (7,764) 53,905
--------- ---------- ------------ -------- ------------- ----------- ---------
$ 766,549 $ 153,261 $(30,037) $123,224 $ (82,775) $ 190,984 $ 997,982
--------- ---------- ------------ -------- ------------- ----------- ---------
--------- ---------- ------------ -------- ------------- ----------- ---------
- -------------------------
(1) The assets acquired and liabilities assumed by the Company in the NAB
Acquisition excluded accounts receivable, accounts payable, certain
short-term borrowings, and certain accrued liabilities (primarily accrued
income taxes).
(2) The purchase price of $195,500 included $185,000 in cash and $10,500 in
promissory notes. The acquisition cost also included fees and expenses
estimated at $1,500. The NAB Acquisition will be
16
19
accounted for using the purchase method of accounting and the total
purchase cost will be allocated first to assets and liabilities based upon
their respective fair values, with the remainder allocated to goodwill.
Historical NAB equity balances are eliminated for purposes of the pro forma
consolidated balance sheet. The allocation of the purchase price reflected
above is based on estimates and may differ from the final allocation.
(3) Reflects proceeds of borrowings under the Credit Agreement of $170,000, and
borrowings under short-term notes payable of $15,000.
(4) Reflects fees of $10,458 related to the refinancing of the Original Credit
Agreement and the Offering, net of the write-off of unamortized fees of
$4,474 related to the redemption of the 14% Subordinated Debentures and the
retirement of the GECC Mortgage Loan.
(5) Reflects payment of accrued and unpaid interest of $6,405 on the 14%
Subordinated Debentures, together with the tax benefit of the loss of
$4,000 on the redemption of the 14% Subordinated Debentures and the
retirement of the GECC Mortgage Loan.
(6) Reflects the effects of the Pro Forma Transactions as follows:
Borrowings under the Credit Agreement to finance a portion of the
NAB Acquisition................................................. $ 170,000
Issuance of the Notes............................................. 145,000
Redemption of the 14% Subordinated Debentures..................... (135,000)
Borrowings under the Credit Agreement to pay a portion of the
accrued and unpaid interest on the 14% Subordinated Debentures
and the fees and expenses related to the Pro Forma
Transactions.................................................... 14,153
---------
Net increase in long-term debt............................... $ 194,153
---------
---------
(7) Reflects loss on the redemption of the 14% Subordinated Debentures and the
retirement of the GECC Mortgage Loan, which includes the prepayment premium
on the redemption of the 14% Subordinated Debentures of $7,290, and the
write-off of deferred financing fees of $4,474, net of the related tax
benefit of $4,000.
17
20
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following income statement and balance sheet data were derived from the
consolidated financial statements of the Company. The consolidated financial
statements of the Company for the nine months ended June 30, 1989 and for each
of fiscal years 1990, 1991, 1992 and 1993 have been audited by Arthur Andersen &
Co. The consolidated financial statements of the Company for each of the three
months ended October 3, 1992 and October 2, 1993 are unaudited; however, in the
Company's opinion, reflect all adjustments, consisting only of normal recurring
items, necessary for a fair presentation of the financial position and results
of operations of such periods. The results for the three months ended October 2,
1993 are not necessarily indicative of the results to be expected for the full
fiscal year. The selected financial data below should be read in conjunction
with the consolidated financial statements of the Company and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company."
COMPANY -- CONSOLIDATED
---------------------------------------------------------------------------------------------------
NINE MONTHS THREE MONTHS THREE MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, OCTOBER 3, OCTOBER 2,
1989 1990 1991 1992 1993 1992 1993(1)
----------- ---------- ---------- ---------- ---------- ------------ ------------
OPERATING DATA:
Net sales.................. $ 807,365 $1,067,878 $1,085,319 $1,422,740 $1,756,510 $359,136 $399,066
Gross profit............... 81,632 104,707 101,429 115,641 152,499 19,921 21,827
Selling, general and
administrative
expenses................. 19,584 29,600 42,949 50,062 61,898 12,890 12,695
Amortization............... 10,174 13,838 13,810 8,746 9,548 2,187 2,187
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income........... 51,874 61,269 44,670 56,833 81,053 4,844 6,945
Interest expense, net(2)... 50,982 61,184 61,676 55,158 47,832 14,173 11,418
Other expense (income),
net(3)................... 2,141 4,044 2,144 5,837 5,260 (30) 1,070
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes
on income and
extraordinary items...... (1,249) (3,959) (19,150) (4,162) 27,961 (9,299) (5,543)
Income taxes............... 7,409 16,630 14,019 12,968 17,847 1,687 5,286
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before
extraordinary items(4)... $ (8,658) $ (20,589) $ (33,169) $ (17,130) $ 10,114 $(10,986) $(10,829)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of earnings to fixed
charges.................. -- -- -- -- 1.55x -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Fixed charges in excess of
earnings................. $ (1,249) $ (4,344) $ (20,743) $ (6,484) -- $ (9,679) $ (4,937)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Current assets............. $ 200,002 $ 223,212 $ 213,806 $ 282,864 $ 325,199 $292,075 $277,744
Total assets............... 734,582 747,583 729,670 799,884 820,209 807,151 766,549
Current liabilities........ 201,117 254,514 287,111 344,169 374,950 337,212 317,564
Long-term debt............. 433,336 402,800 386,655 348,331 321,116 407,997 340,209
Common stock subject to
limited redemption
rights, net.............. 1,770 1,795 1,770 3,465 3,885 3,885 3,885
Stockholders' equity....... 48,876 35,292 4,335 49,317 75,101 58,057 61,669
OTHER DATA:
EBITDA(5).................. $ 74,826 $ 94,252 $ 81,428 $ 91,807 $ 121,707 $ 14,788 $ 17,243
Depreciation............... 12,778 19,145 22,948 26,228 31,106 7,757 8,111
Capital expenditures....... 11,353 14,906 20,892 27,926 31,595 10,158 11,149
Number of facilities(6).... 30 33 40 45 48 45 49
Ratio of EBITDA to interest
expense, net(2)(5)....... 1.47x 1.54x 1.32x 1.66x 2.54x 1.04x 1.51x
- -------------------------
(1) On July 1, 1993, the Company adopted SFAS 106. As a result, the fiscal
quarter ended October 2, 1993 represents the first period during which the
Company began to incur additional expense associated with the adoption of
SFAS 106. The expense for this period was $1,600.
(2) Includes non-cash charges for amortization of deferred financing fees of
approximately $6,041, $4,514, $4,096, $3,198, $2,972, $679 and $570 for the
nine months ended June 30, 1989, each of the fiscal years ended June 30,
1990 through June 30, 1993 and each of the fiscal quarters ended October 3,
1992 and October 2, 1993, respectively.
(3) Consists of foreign currency exchange gain or loss, minority interest in net
income of subsidiaries, equity in (income) loss of affiliates and other
expense.
(4) The Company incurred extraordinary losses of $535 in the fiscal quarter
ended October 2, 1993 and $5,100 in the fiscal year ended June 30, 1992
resulting from the prepayment of debt.
(5) "EBITDA" is operating income (loss) plus depreciation and amortization. The
Company believes that EBITDA provides additional information for determining
its ability to meet debt service requirements. EBITDA does not represent and
should not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles, and
EBITDA does not necessarily indicate whether cash flow will be sufficient
for cash requirements.
(6) Includes facilities operated by the Company's less than majority-owned
affiliates.
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21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
Lear has expanded its net revenues at an annual compound growth rate of
approximately 27.1% since fiscal 1983. Since fiscal 1990 the Company has
increased its net sales by 64.5% by building upon its existing business in the
United States and Canada and significantly expanding its operations in Europe
and Mexico.
As a result of significant new business added since fiscal 1990, the
Company has experienced substantial up-front costs for new programs and new
facilities. Such costs consist of administrative expenses in Europe, engineering
and design expenses for new seating programs and new facility costs, including
pre-production expenses and inefficiencies incurred until the customer reaches
normal operating levels. New business which has been added since fiscal 1990
includes seat systems for the GM-Suburban, Saab, Volvo, GM-Opel (2 facilities),
Chrysler-Europe, Hyundai and Volkswagen-Mexico, as well as a seat cover
manufacturing facility in Mexico. The Company expenses such non-recurring
pre-production expenses as they are incurred.
The Company's financial results in fiscal 1993 improved over prior years as
a result of improved operating efficiencies obtained at new facilities which
impacted prior year results unfavorably and strong performance at established
facilities. Together these facilities offset new program costs associated with
the Dodge Ram Pick-up Truck, the Ford Mustang, the Ford Windstar Minivan and the
GM Opel Omega and facility costs relating to new programs for BMW and Jaguar,
which will begin production in the current fiscal year.
The Company's financial results for the fiscal year ended June 30, 1993 do
not include the NAB Acquisition. After giving effect to the Pro Forma
Transactions, the Company's net revenues and EBITDA would have been
approximately $2.2 billion and $171.7 million, respectively. See "Business --
NAB Acquisition."
Results for the quarter ended October 2, 1993 do not include the NAB
Acquisition and do include additional expense due to the adoption by the
prospective method of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-retirement Benefits Other than Pensions" ("SFAS
106"). The implementation of SFAS 106 had an unfavorable impact in the current
quarter on gross profit of $1.4 million, operating income of $1.6 million and
net income of $1.6 million. See the consolidated financial statements of the
Company included elsewhere in this Prospectus.
The Company's performance is dependent on automobile production, which is
seasonal in nature. The Company's first fiscal quarter is historically its
weakest quarter due to the impact of customer plant shutdowns for vacation and
model changeover which affect automotive production in both North America and
Europe. See Note 15 to the consolidated financial statements of the Company
included elsewhere in this Prospectus.
The Company is currently considering changing its fiscal year end from June
30 to December 31. If this change is made prior to February 14, 1994, the
Company will not file a Form 10-Q for its fiscal quarter ended December 31,
1993, but will file a Form 10-K for the period ended December 31, 1993 on or
before March 31, 1994.
19
22
The following chart shows operating results of the Company by principal
geographic area.
GEOGRAPHIC OPERATING RESULTS
THREE THREE
MONTHS MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, OCTOBER 3, OCTOBER 2,
1991 1992 1993 1992 1993
---------- ---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
NET SALES:
United States................................. $ 468,808 $ 597,160 $ 765,652 $ 151,547 $ 195,713
Canada........................................ 349,931 403,351 372,045 76,140 85,835
Europe........................................ 145,540 268,175 432,546 88,167 76,881
Mexico........................................ 121,040 154,054 186,267 43,282 40,637
---------- ---------- ---------- ----------- -----------
Net sales................................. $1,085,319 $1,422,740 $1,756,510 $ 359,136 $ 399,066
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
OPERATING INCOME (LOSS):
United States................................. $ 6,181 $ 32,002 $ 51,752 $ 5,577 $ 5,255
Canada........................................ 35,303 14,695 15,308 (23) 6,119
Europe........................................ (3,667) 2,952 (3,907) (2,897) (7,449)
Mexico........................................ 8,206 7,172 17,900 2,187 3,020
Unallocated corporate expense................. (1,353) 12 -- -- --
---------- ---------- ---------- ----------- -----------
Operating income.......................... $ 44,670 $ 56,833 $ 81,053 $ 4,844 $ 6,945
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
EBITDA........................................ $ 81,428 $ 91,807 $ 121,707 $ 14,788 $ 17,243
First Fiscal Quarter Ended October 2, 1993 Compared With First Fiscal Quarter
Ended October 3, 1992.
Net sales of $399.1 million in the first quarter of fiscal 1994 surpassed
the first quarter of fiscal 1993 by $39.9 million or 11.1% despite the effect of
depressed automobile sales on existing seating programs in Europe. Net sales
benefitted from new business in the United States and Europe and from
incremental volume on established domestic seating programs.
Net sales in the United States of $195.7 million in the first quarter ended
October 2, 1993 increased as compared to the comparable period in the prior year
by $44.2 million or 29.1%, reflecting vehicle production increases on
established seating programs by OEMs and incremental sales generated by a new
lead vendor program under which the Company assumed management of components for
a seat program with Ford.
First quarter net sales in Canada of $85.8 million exceeded such sales
during the comparable period in the prior fiscal year by $9.7 million or 12.7%,
which reflected the effect of extended downtime on a GM passenger car program
during the prior year period.
Net sales in Europe of $76.9 million declined in relation to the first
quarter of fiscal 1993 by $11.3 million or 12.8% due to reduced vehicle
production requirements for carryover seating programs in Sweden and Finland and
unfavorable exchange rate fluctuations. Partially offsetting the decrease in
sales were the contribution of new business in Germany and additional volume on
established seating programs in Germany and Austria.
Net sales in Mexico of $40.6 million decreased in the first quarter of
fiscal 1994 as compared to the first quarter of fiscal 1993 by $2.6 million or
6.1% due to reduced passenger car production on established Ford programs.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of net sales) were $21.8 million and 5.5% for the first quarter
of fiscal 1994 as compared to $19.9 million and 5.5% in the prior comparable
period. Gross profit in the first quarter of fiscal 1994 benefitted from the
overall growth in sales activity in North America, productivity improvement
programs and favorable foreign exchange effects in Canada. Partially offsetting
the increase in gross profit were reduced capacity utilization in Europe,
preproduction costs for future seating programs in Canada and England and the
devaluation of the Swedish
20
23
krona. The adoption in the first quarter of fiscal 1994 of SFAS 106 had an
unfavorable impact in the current quarter of $1.4 million.
Selling, general and administrative expenses decreased to 3.2% of net sales
for the first quarter of fiscal 1994 as compared to 3.6% for the comparable
period in the prior fiscal year because actual expenditures remained essentially
unchanged while net sales increased.
Operating income and operating margin (operating income as a percentage of
net sales) were $6.9 million and 1.7% for the first quarter of fiscal 1994 as
compared to $4.8 million and 1.3% during the comparable period in the prior
fiscal year. The increase in operating income was due to incremental domestic
car and truck production and productivity improvements which offset lower margin
contribution in Europe and the adoption of SFAS 106. Non-cash depreciation and
amortization charges were $10.3 million and $9.9 million for the first quarter
of fiscal 1994 and 1993, respectively.
Interest expense for the first quarter of fiscal 1994 declined in relation
to the comparable period in the prior fiscal year due to lower borrowings and
the refinancing of certain subordinated debt at a lower interest rate.
Other expense for the first quarter of fiscal 1994, including foreign
exchange loss, minority interest in income of subsidiaries and equity in income
of affiliates, increased in comparison to the comparable period in the prior
fiscal year due to foreign exchange losses and reduced income from joint
ventures accounted for under the equity method.
A net loss of $11.4 million was recognized for the first quarter of fiscal
1994 as compared to a net loss of $11.0 million in the prior comparable period.
The net loss of $11.4 million in the first quarter of fiscal 1994 reflects a
$4.7 million provision for foreign national income taxes as compared to a $1.3
million provision in the comparable period in the prior fiscal year, $1.6
million in additional expense related to the adoption of SFAS 106 and a $0.5
million extraordinary charge associated with the refinancing of the Company's
Original Credit Agreement effective October 25, 1993.
Fiscal Year Ended June 30, 1993 Compared With Fiscal Years Ended June 30, 1992
And 1991
Net sales of $1.8 billion in fiscal 1993 represents the twelfth consecutive
year of increased sales. Net sales increased $333.8 million or 23.5% over fiscal
1992 and $671.2 million or 61.8% as compared to fiscal 1991. Net sales in fiscal
1993 as compared to fiscal 1992 benefitted from new business in the United
States and Europe, full year production of a second facility in Sweden for
Volvo, of which the Company assumed control in November 1991, and from
incremental volume on domestic and Mexican programs. In comparison to fiscal
1991, net sales increased in fiscal 1992 by $337.4 million or 31.1% due to the
contribution of new business in North America and Europe, volume increases in
domestic and foreign carryover programs, including production of replacement
programs, and the acquisition of existing operations from Saab and Volvo to
handle new programs.
Gross profit and gross margin were $152.5 million and 8.7% in fiscal 1993,
$115.6 million and 8.1% in fiscal 1992 and $101.4 million and 9.3% in fiscal
1991. Gross profit and gross margin in fiscal 1993 surpassed that of the prior
year due to the benefit of incremental volume, including production of new
business programs, productivity improvement programs and improved operating
performance at new facilities in North America, Europe and Mexico. Partially
offsetting the increase in gross profit were participation in customer cost
reduction programs, plant shutdown costs at a dedicated facility in Finland and
nonrecurring favorable foreign exchange effect on sales and a retroactive price
increase recognized in the first and second quarters of fiscal 1992. Gross
profit in fiscal 1992 increased as compared to fiscal 1991 as the overall growth
in sales activity coupled with productivity improvements more than offset
customer cost reduction programs. Comparing the same periods, gross margin
declined as a result of the incurrence of start-up costs at several new
facilities.
Selling, general and administrative expenses as a percentage of net sales
remained unchanged at 3.5% in fiscal 1993 as compared to the prior year. The
increase in actual expenditures was largely the result of research and
development costs for future seating programs in the United States, Canada and
Europe. Further contributing to the increase in expenditures were administrative
support expenses for Mexican operations and
21
24
costs associated with the establishment of customer business units in North
America. In comparison to fiscal 1991, selling, general and administrative
expenses in fiscal 1992 increased due to design and development costs for future
seat systems and technical and administrative support for new and existing
European and Mexican operations.
Operating income and operating margin were $81.1 million and 4.6% in fiscal
1993, $56.8 million and 4.0% in fiscal 1992 and $44.7 million and 4.1% in fiscal
1991. The growth in operating income in fiscal 1993 as compared to the prior
year was due to incremental volume on established seating programs and improved
performance at new seat and seat cover facilities. Partially offsetting the
increase in operating income were pre-production and facility costs for programs
to be introduced in fiscal 1994, plant shutdown costs and nonrecurring prior
year adjustments noted above. As compared to fiscal 1991, operating income in
fiscal 1992 increased due to the benefit of vehicle production increases by
automotive manufacturers on established programs in North America and Europe
which offset customer cost reduction programs and start-up costs associated with
the introduction of new seat systems within established business programs.
Non-cash depreciation and amortization charges were $40.7 million in fiscal
1993, $35.0 million in fiscal 1992 and $36.8 million in fiscal 1991.
Interest expense in fiscal 1993 declined in relation to fiscal 1992 and
fiscal 1991 due to lower interest rates on bank debt, refinancing of certain
subordinated debt at a lower interest rate and the application of funds received
from the capital infusions initiated on September 27, 1991 and July 30, 1992.
See Notes 3 and 4 of the consolidated financial statements of the Company
included in this Prospectus for additional information regarding these
transactions.
Other expense, including foreign exchange gain or loss, minority interests
and equity in income of affiliates, decreased in fiscal 1993 in comparison to
fiscal 1992 as reduced income derived from joint ventures accounted for under
the equity method coupled with the Company's write off of its $1.7 million
investment in Probel S.A., a Brazilian company, were more than offset by the
expense portion of nonrecurring capitalization and related costs of $3.2 million
associated with the 1991 Transactions (as defined under "Certain Transactions")
which were incurred in fiscal 1992. Other expense in fiscal 1992 increased in
comparison to fiscal 1991 due to costs related to the 1991 Transactions.
Net income of $10.1 million was realized in fiscal 1993 as compared to a
net loss of $22.2 million in fiscal 1992. The net income of $10.1 million in
fiscal 1993 reflects an $11.9 million provision for foreign national income
taxes as compared to an $8.2 million provision in fiscal 1992. In comparison to
a net loss of $33.2 million in fiscal 1991, the net loss of $22.2 million in
fiscal 1992 reflects a $13.0 million provision for national income taxes as
compared to a provision of $14.0 million in the previous fiscal year and to a
$5.1 million extraordinary loss on the early retirement of debt.
United States Operations
Net sales in the United States were $765.7 million, $597.2 million and
$468.8 million in fiscal years 1993, 1992 and 1991, respectively. Net sales in
fiscal 1993 surpassed fiscal 1992 due to improved domestic car and truck
production on established seating programs in the second half of fiscal 1993
coupled with a new Ford passenger car program and the attainment of targeted
production levels for a General Motors truck program introduced in the fall of
1991. Net sales in fiscal 1992 reflect vehicle production increases from prior
year's depressed operating levels by OEMs on certain established seating
programs and the launch of a new General Motors truck program.
Operating income and operating margin were $51.8 million and 6.8% in fiscal
1993, $32.0 million and 5.4% in fiscal 1992 and $6.2 million and 1.3% in fiscal
1991. The growth in operating income and operating margin was due to the
benefits derived from incremental volume on established and new seating
programs, productivity improvements and improved operating performance at new
seat systems and seat cover facilities. Partially offsetting the increase in
operating income was participation in customer cost reduction programs and
preproduction costs associated with a new seating program scheduled to begin
production in mid-1994. Operating income and operating margin in fiscal 1992
increased as compared to fiscal 1991 due to the transfer
22
25
of component production from Canada in order to benefit from lower operating
costs and incremental volume on established seating programs.
Canadian Operations
Net sales from Canadian operations were $372.0 million in fiscal 1993,
$403.4 million in fiscal 1992 and $349.9 million in fiscal 1991. Net sales in
fiscal 1993 were adversely impacted by market demand and vehicle inventories as
General Motors announced temporary plant shutdowns and production adjustments on
existing passenger car and light truck programs. In comparison to fiscal 1991,
net sales in fiscal 1992 benefitted from incremental volume on carryover General
Motors car and truck programs and to the launch of a new Hyundai passenger car
program, which was partially offset by the transfer of component production from
Canada to the United States.
Operating income and operating margin were $15.3 million and 4.1% in fiscal
1993, $14.7 million and 3.6% in fiscal 1992 and $35.3 million and 10.1% in
fiscal 1991. Operating income in fiscal 1993 as compared to the prior fiscal
year benefitted from productivity improvement programs, favorable exchange rate
fluctuations and improved operating performance at a new seat facility.
Partially offsetting the increase in operating income were reduced vehicle
production schedules on existing programs and engineering costs associated with
a future Ford seating program. Operating income in fiscal 1992 declined in
relation to fiscal 1991 due to a shift in component production to the Company's
United States facilities in order to take advantage of lower operating costs,
participation in customer cost reduction programs, incremental costs associated
with the start-up of a new seat facility and to design and development costs
related to a future Ford seat system.
European Operations
Net sales in Europe were $432.5 million in fiscal 1993, $268.2 million in
fiscal 1992 and $145.5 million in fiscal 1991. Net sales in fiscal 1993 exceeded
the prior year due to the addition of new operations in Germany and Austria, the
full year impact resulting from the acquisition of facilities in Sweden and
Finland and incremental volume on carryover programs in Germany. Partially
offsetting the increase in net sales were reduced vehicle production schedules
for established seating programs in Sweden and unfavorable exchange rate
fluctuations. Net sales in fiscal 1992 surpassed net sales in the prior year due
to additional volume on an existing program in Sweden and the acquisition of
facilities in Sweden and Finland in November 1991 and January 1992,
respectively, while demand for existing programs in Germany remained essentially
unchanged.
The Company's European operations sustained an operating loss of $3.9
million in fiscal 1993 as compared to operating income of $3.0 million in fiscal
1992 and an operating loss of $3.7 million in 1991. The $6.9 million unfavorable
variance in fiscal 1993 was the result of lower margin products introduced at an
established facility in Germany, technical and administration costs required to
support European manufacturing facilities, a retroactive price increase
recognized in the first half of fiscal 1992 and the devaluation of the Swedish
krona, which was partially offset by the favorable impact of foreign exchange
rates. Also contributing to the decrease in operating income were reserves
established by the Company for the anticipated plant shutdown costs at a
dedicated facility in Finland due to the customer transfer of production to
alternative locations in Europe. Partially offsetting the decrease in operating
income was the overall growth in sales activity, including production from new
programs in Germany and Austria and to the full year contribution of facilities
in Sweden and Finland of which the Company assumed control in fiscal 1992.
Operating income of $3.0 million in fiscal 1992 increased by $6.6 million as
compared to fiscal 1991 due to improved pricing on an existing program,
incremental volume on carryover programs and improved operating performance at
an established facility in Sweden which combined to more than offset
preproduction, technical and administrative costs necessary to support new
facilities opened as a result of seating programs awarded.
Mexican Operations
Net sales in Mexico were $186.3 million in fiscal 1993, $154.1 million in
fiscal 1992 and $121.0 million in fiscal 1991. Net sales in fiscal 1993
surpassed fiscal 1992 and fiscal 1991 due to increased production activity on
established General Motors, Ford, Volkswagen and Chrysler programs.
23
26
Operating income and operating margin in Mexico were $17.9 million and 9.6%
in fiscal 1993, $7.2 million and 4.7% in fiscal 1992 and $8.2 million and 6.8%
in fiscal 1991. The increase in operating income and operating margin in fiscal
1993 as compared to the prior year was due to the benefit of additional sales,
productivity improvement programs and improved manufacturing performance at a
seat cover facility. Operating income and operating margin in fiscal 1992
declined in relation to fiscal 1991 as a result of the Company's participation
in a customer cost reduction program and incremental start-up costs associated
with a new seat cover facility.
LIQUIDITY AND FINANCIAL CONDITION
On October 25, 1993, the Company amended and restated the Original Credit
Agreement (as amended and restated, the "Credit Agreement"), increasing the
Company's total availability to $425.0 million and enabling the Company to
refinance all of its then outstanding indebtedness under the Company's Original
Credit Agreement, retire the GECC Mortgage Loan and finance a portion of the NAB
Acquisition. As of October 2, 1993, and after giving effect to the Pro Forma
Transactions (as defined under "Pro Forma Financial Data"), the Company would
have had $293.1 million outstanding under the Credit Agreement ($35.6 million of
which would have been outstanding under letters of credit), resulting in $131.9
million unused and available. The Company also had term loans outstanding in
Germany of $8.1 million.
Amounts available under the Credit Agreement will be reduced by $40.0
million every six months beginning October 31, 1996, and the Credit Agreement
will expire on October 31, 1998. The Company's scheduled term loan principal
payments are $1.2 million in each of the next five fiscal years and $2.1 million
thereafter.
Net cash provided by operating activities increased to $94.5 million in
fiscal 1993, compared to $48.0 million and $33.5 million in fiscal 1992 and
fiscal 1991, respectively. The increase in cash flow in fiscal 1993 reflected
higher operating earnings and reduced working capital requirements. The reduced
working capital requirements were primarily the result of improved management of
inventories, customer tooling and accounts payable. Inventories declined by 12%
in fiscal 1993 despite record net sales in that year.
During fiscal 1993, cash generated from operations and funds available
under the Original Credit Agreement were sufficient to meet the Company's debt
service and capital expenditure requirements. The Company believes that cash
flows from operations and funds available from existing credit facilities
(principally the Credit Agreement) will be sufficient to meet its future debt
service obligations, projected capital expenditures and working capital
requirements.
In fiscal 1993, the Company took advantage of the favorable interest rate
environment by refinancing a substantial portion of its long-term debt. The
Company refinanced $85.0 million in aggregate principal amount of its 14 1/4%
Senior Subordinated Discount Notes by issuing $125.0 million aggregate principal
amount of 11 1/4% Senior Subordinated Notes. The additional proceeds were used
to prepay $15.0 million of term loans and temporarily reduce outstanding
revolving loans under the Original Credit Agreement and for general corporate
purposes.
In fiscal 1993 and 1992, gross proceeds of $20.4 and $75.0 million,
respectively, were received from the issuance of common stock. The common stock
proceeds were used to reduce borrowings under the Original Credit Agreement in
each year, as well as fund the Company's expansion.
CAPITAL EXPENDITURES
For the fiscal year ended June 30, 1993, capital expenditures of the
Company were $31.6 million. For the fiscal years ended June 30, 1992 and June
30, 1991, capital expenditures of the Company were $27.9 million and $20.9
million, respectively. The Company estimates that it spent, in the aggregate,
between $10.0 million and $15.0 million in fiscal 1992 and fiscal 1993,
respectively, for equipment replacement and refurbishment. The Company
anticipates that during fiscal 1994 capital expenditures will aggregate
approximately $60.0 million, of which approximately $30 million relates to the
addition of new facilities and the completion of previously started facilities
required to support new seat systems programs. The remainder will be used to
24
27
establish new programs in existing facilities and for ongoing maintenance
requirements. The Company anticipates that cash generated from operations and
borrowings under the Credit Agreement will provide sufficient funds for planned
capital expenditures.
ENVIRONMENTAL MATTERS
The Company is subject to local, state, federal and foreign laws,
regulations and ordinances (i) which govern activities or operations that may
have adverse environmental effects and (ii) that impose liability for the costs
of cleaning up and certain damages resulting from sites of past spills, disposal
or other releases of hazardous substances. The Company currently is engaged in
the cleanup of hazardous substances at certain sites owned, leased or operated
by the Company, including soil and groundwater cleanup at its facility in
Mendon, Michigan. Management believes that the Company will not incur compliance
costs or cleanup costs at its facilities with known contamination that would
have a material adverse effect on the Company's consolidated financial position
or future results of operations.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination
from hazardous substances at three Superfund sites where liability has not been
determined. The Company also may incur indemnification obligations for cleanup
at two sites which are the subject of Superfund proceedings. Management believes
that the Company is, or may be, responsible for less than one percent, if any,
of the total costs at each site. The Company has set aside reserves which
management believes are adequate to cover any such potential liabilities.
Management believes that such matters will not result in liabilities that will
have a material adverse effect on the Company's consolidated financial position
or future results of operations.
INFLATION AND ACCOUNTING POLICIES
Lear's contracts with its major customers generally provide for an annual
productivity price reduction and provide for the recovery of increases in
material and labor costs in some contracts. Cost reduction through design
changes, increased productivity and similar programs with the Company's
suppliers generally have offset changes in selling prices. The Company's cost
structure is comprised of a high percentage of variable costs. The Company
believes that this structure provides it with additional flexibility during
economic cycles.
In December 1990, the Financial Accounting Standards Board issued SFAS 106,
which sets forth new standards on accounting for post-retirement benefits other
than pensions. This standard requires that the expected cost of these benefits
must be charged to expense during the years in which the employees render
service. The Company has prospectively adopted the new standard for its domestic
plans effective July 1, 1993 and will adopt the standard no later than required
for its foreign plans. The Company's actuaries estimate the domestic transition
obligation at July 1, 1993 to be approximately $24.0 million before income
taxes, which will be amortized over 20 years. The Company's results for the
three months ended October 2, 1993 reflect an increase of approximately $1.6
million for post-retirement benefits as computed under this new standard than
would have been recorded under the Company's previous method, which recognized
these costs on a cash basis. The additional expense of $1.6 million includes
approximately $300,000 of amortization of the Company's transition obligation.
In November 1992, the Financial Accounting Standards Board issued SFAS 112,
"Employers Accounting for Post-Employment Benefits." This statement requires
that employers accrue the cost of post-employment benefits during the employees'
active service. The Company has not yet adopted this statement, which must be
implemented no later than fiscal year 1995. The Company believes that the
adoption of this statement will not have a material effect on its financial
position or results of operations.
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BUSINESS
GENERAL
Lear is the largest independent supplier of automobile and light truck seat
systems in North America and is one of the largest independent suppliers of such
systems and components worldwide. The Company's principal products include
finished automobile and light truck seat systems, seat frames, seat covers and
other seat components. The Company's seat systems, which are designed,
manufactured and assembled at the Company's manufacturing facilities, are
shipped to customer assembly plants on a JIT basis for installation in vehicles
near the end of the assembly process.
Lear's sales have grown rapidly from approximately $159.8 million in fiscal
1983 to approximately $1.8 billion in fiscal 1993, a ten-year average compound
annual growth rate of approximately 27.1%. The Company has expanded its
operations to facilitate such growth primarily by constructing, acquiring and
leasing new facilities and expanding the output of existing facilities. Capital
expenditures by the Company during the same period averaged $23.2 million per
year. Funding for this expansion was provided by cash generated from operations
and borrowings under credit facilities. The Company's growth in sales is
attributable primarily to the trend in the North American automotive industry to
outsource more of its requirements for automotive components in response to
competitive pressures on OEMs to improve quality and reduce capital needs and
the costs of labor, overhead and inventory. OEMs have outsourced increasingly
larger percentages of their requirements for seat systems, which represent the
most expensive automotive component widely outsourced.
The principal beneficiaries of the trend to outsourcing have been
independent suppliers, such as the Company, with proven design, engineering and
JIT program management and manufacturing capabilities. The Company has captured
approximately one-third of the outsourced market for automobile and light truck
seat systems and seat components in North America and has become a leading
supplier to this market in Europe based on contracts awarded during the past
three years.
Lear has demonstrated its ability to substantially reduce the cost and
increase the quality of seat systems through the coordination of design,
development and manufacturing as a Tier I supplier. The Company believes that
OEMs in North America and Europe will continue to pursue outsourcing as a means
of cost reduction.
BUSINESS STRATEGY
To take advantage of additional business opportunities, the Company has
positioned itself as a global Tier I supplier of entire seat systems to OEMs.
Tier I status typically means that the supplier is awarded the seat program for
a particular vehicle in the early stages of the vehicle's design. The Tier I
supplier becomes responsible for total seat program management, including
design, development, component sourcing, quality assurance procedures,
manufacture and delivery to the OEM's assembly plant. The OEM benefits from
lower costs, improved quality, timely delivery and the administrative
convenience of being able to treat seating as a single component instead of as
numerous individual components. The Company believes that its early involvement
in the design and engineering of new seat products as a Tier I supplier affords
the Company a competitive advantage in securing new business. The Company has
become a significant Tier I supplier by implementing a strategy based upon the
following elements:
-- Strong Relationships with the OEMs. The Company's management has
developed strong relationships with its OEM customers which allow Lear to
identify business opportunities and react to customer needs in the early stages
of vehicle design. The Company maintains an excellent reputation with the OEMs
for timely delivery and customer service and for providing world class quality
at a competitive price. Many of the Company's facilities have won awards from
OEMs and others, including the General Motors Mark of Excellence Award, the
General Motors Supplier of the Year Award, the General Motors Top Supplier Award
in Mexico, the Ford Q-1 Award at 11 plants, the General Motors of Europe 1991
and 1992 Supplier of the Year Award, the Chrysler Quality Excellence Award, the
Saab 100% Supplier Performance Award and the Mazda Most Valuable Supplier Award.
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-- Product Technology and Product Design Capability. Lear has made
substantial investments in product technology and product design capability to
support its products, including the building of two technical centers (one in
the United States in 1988 and one in Europe in 1991) and upgrading the Company's
computer aided design/computer aided manufacturing ("CAD/CAM") systems. In
addition, the Company is in the process of investing approximately $6.0 million
to substantially broaden its engineering capabilities, including all aspects of
safety and functional testing and comfort assessment. The Company's strong
product focus and global business base provide it access to worldwide seat
technology. The Company's participation with customers in the early phase of
product design enable it to improve the quality of the product and to meet
target costs. Furthermore, the Company has established formal programs which
provide for an ongoing review of product design and production in order to
establish the means of obtaining additional cost improvement.
-- Lean Manufacturing Philosophy. Lear has adopted a "lean manufacturing"
philosophy that seeks to eliminate waste and inefficiency in its own operations
and in those of its customers. The Company believes that it provides superior
quality seating products at lower costs than the OEMs. The Company, whose
facilities are linked by computer directly to those of its suppliers and
customers, receives components from its suppliers, and delivers seat systems and
components to its customers on a JIT basis, which minimizes inventories and
fixed costs and enables the Company to deliver products on as little as 90
minutes notice. In the past year, the Company's overall annual inventory
turnover rate was 33 times and at least 100 times in the case of certain of the
Company's JIT plants. The Company also minimizes fixed costs by using the
existing suppliers to the OEMs and the OEMs themselves for certain components
instead of attempting to produce such components itself. In cases where one of
the Company's manufacturing facilities is underutilized, the Company is able to
redistribute products to increase facility utilization.
Another example of the Company's "lean manufacturing" philosophy is the
establishment of a "Champion Program" in fiscal 1993 whereby individual members
of management are responsible for working with a specific vendor to aggressively
reduce costs. The success of the program has allowed the Company to negotiate
on-going cost reduction agreements with its customers. The Champion Program was
expanded in fiscal 1994 to Europe and to product design.
NAB ACQUISITION
On November 1, 1993, Lear significantly strengthened its position in the
North American automotive seating market by purchasing the NAB from Ford for
$185.0 million in cash and approximately $10.5 million in notes payable to Ford
or its affiliates. The NAB Acquisition included the machinery, equipment, real
property and other assets used in the operations of the NAB as well as the stock
of Favesa S.A. de C.V. ("Favesa"), an operation located in Juarez, Mexico.
The NAB consists of an integrated United States and Mexican operation which
produces seat covers for approximately 80% of Ford's North American vehicle
production and manufactures seat systems for Ford's Crown Victoria and Grand
Marquis vehicles. The NAB Acquisition increased the Company's United States and
Canadian revenues as a percentage of total revenues from approximately 65% to
72% in fiscal 1993 on a pro forma basis. The cost structure of the NAB is very
similar to the Company's current business in that costs are largely variable
and, therefore, responsive to demand. Prior to the NAB Acquisition, the Company
outsourced a significant portion of its seat cover requirements. The expansion
of the Company's seat cover business allows the Company better control over the
costs and quality of one of the critical components of a seat system. Because of
the Company's belief in its ability to produce seat covers and seat systems at
attractive margins, the NAB Acquisition is expected to improve the Company's
operating performance.
For the fiscal year ended June 30, 1993, after giving pro forma effect to
the NAB Acquisition, the NAB would have generated approximately $547.1 million
in gross sales and approximately $50.0 million in EBITDA. After giving effect to
the Pro Forma Transactions, the Company's ratio of EBITDA to interest expense,
net, would have improved from 2.54 times to 3.34 times. See "Pro Forma Financial
Data."
In connection with the NAB Acquisition, the Company entered into a five
year supply agreement with Ford covering models for which the NAB currently
produces seat covers and seat systems at agreed upon prices. The Company also
assumed during the term of the supply agreement primary engineering
responsibility
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for a substantial portion of Ford's car models. As a result, the NAB Acquisition
establishes the Company as Ford's leading seat systems supplier and strengthens
the Company's relationship with one of its two largest customers and the world's
second largest automobile manufacturer. In addition, the Company believes that
because of the NAB Acquisition it will be further integrated by Ford into the
planning and design of seat systems and related products for future automobile
models. After giving effect to the NAB Acquisition, the Company expects that its
net sales to Ford and General Motors will be roughly equivalent. The NAB
Acquisition also provides the Company with a prototype for enhancing its
relationships with OEMs in a manner that allows OEMs to take better advantage of
the Company's engineering, design and manufacturing expertise than is currently
afforded under conventional supply agreements.
The sale of the NAB was conducted on an auction basis in which Ford
determined that the Company was one of only two qualified final bidders based
upon technical resources, capabilities and expertise in automotive and light
truck seat systems. The selection of the Company as the successful bidder
highlights the Company's position as a leading supplier of quality seat systems.
The NAB incorporates both U.S. and Mexican operations. The manufacture of
seat covers and seat systems takes place in Juarez, Mexico at the NAB's
maquiladora subsidiary, Favesa. Favesa's maquiladora status allows the NAB to
produce seat systems and seat covers in Mexico for sale in the United States
without paying import or export duties as raw materials and finished goods cross
the United States/Mexican border. To maintain its maquiladora status, Favesa
must return its production to the United States, where it is sold by the NAB.
This maquiladora arrangement is in direct contrast to the Company's other
Mexican subsidiary, CISA, a non-maquiladora operation, whose sales are almost
entirely to Mexican plants. The Company believes that the passage of NAFTA will
present additional business opportunities as current maquiladora operations are
gradually allowed to produce product for use in Mexico.
PRODUCTS
Lear's products have evolved from the Company's many years of experience in
the seat frame market where it has been a major supplier to General Motors and
Ford since its inception in 1917. The seat frame has structural and safety
requirements which make it the basis for overall seat design and was the logical
first step to the Company's emergence as a dominant supplier of entire seat
systems.
All of the Company's products are manufactured using JIT inventory control,
and most of the Company's products, including all seating, are delivered to the
OEMs on a JIT basis. The concept of JIT inventory control, first broadly
utilized by Japanese automobile manufacturers, is the cornerstone of the
Company's manufacturing and supply strategy. This strategy involves many of the
principles of the Japanese system, but was redeveloped for compatibility with
the greater volume requirements and geographic distances of the North American
market. The Company first developed JIT operations in the early 1980s at its
seat frame manufacturing plants in Morristown, Tennessee and Kitchener, Ontario.
These plants previously operated under traditional manufacturing practices,
resulting in relatively low inventory turnover rates, significant scrap and
rework, a high level of indirect labor costs and long production set-up times.
As a result of JIT inventory controls, the Company was able to consolidate
plants, increase capacity and significantly increase inventory turnover, quality
and productivity.
The JIT principles first developed at Lear's seat frame plants in 1983 were
next applied to the Company's growing seat systems business. The Company's
seating plants are typically no more than 30 minutes from its customers'
assembly plants and manufacture seats for delivery to the customer's facility in
as little as 90 minutes. Orders for the Company's seats are received on a weekly
basis, pursuant to blanket purchase orders for annual requirements. These orders
detail the customers' needs for the ensuing week. In addition, on each work day,
constant computer and other communication is maintained between personnel at the
Company's plants and personnel at the customers' plants to keep production
current with the customer's demand.
Typically, the cost of starting a new seat systems facility is between $6.0
million and $9.0 million. The principal costs are land, construction of the
building and conveyor systems. If the Company decides to lease
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the new seat systems facility, the upfront costs would be reduced by $3.0
million to $5.0 million. Since most seat assembly work is manual and does not
require complex equipment, capital costs are relatively low.
During fiscal 1993, the net revenues of the Company fell into the following
categories: seat systems, 80%; seat frames, 15%; seat components, 4%; and seat
covers, 1%.
Seat Systems. The seat systems business consists of the manufacture,
assembly and supply of entire seating requirements for a vehicle or assembly
plant. The Company produces seat systems for automobiles and light trucks that
are fully finished and ready to be installed in a vehicle. Included within the
Company's seat systems production are high performance seats for luxury versions
of the OEM's specialty cars, such as the Chevrolet Corvette, the Ford Taurus
SHO, the Mercury Cougar XR7, the Ford Thunderbird Super Coupe, the Ford Mustang
GT and the Dodge Viper. High performance seats are fully assembled seats,
ergonomically designed by the Company to achieve maximum passenger comfort. They
have a wide range of manual and power comfort features such as lumbar supports,
cushion and back bolsters and leg and thigh supports that are typically used to
provide product differentiation for specialty vehicles. As OEMs continue to view
seat systems as a distinguishing marketing feature, the advanced features
incorporated initially in high performance seats are more frequently becoming
standard features in a wider variety of later production vehicles.
The market for seat systems developed as a result of North American
automobile manufacturers' need to restructure assembly plant methods in response
to vigorous foreign competition in the early 1980's. The Company was positioned
to take advantage of this growing market through its long standing relationships
with customers. These relationships have been fostered through the Company's
performance in seat frame manufacturing over the years and its demonstrated
ability to supply and manage total seat systems. The Company believes that its
position in the seat systems market will only improve as seats with advanced
features become an increasingly important criterion for distinguishing between
competing automobiles. Seat systems are shipped to customers in the order in
which they are installed in vehicles.
The Company's major seat systems customers include Ford, General Motors,
Chrysler, Volvo, Volkswagen, Saab and Mazda. In addition, through its joint
ventures with NHK Spring Co., Ltd., the Company supplies seat systems to SIA (a
joint venture between Fuji Heavy Industries (Subaru) and Isuzu) and to CAMI (a
joint venture between Suzuki and General Motors). The Company and its affiliates
serve assembly plants for these customers through 17 different dedicated JIT
facilities.
The Company's fiscal 1993 seat systems sales broke down into the following
vehicle categories: 33% light truck, 31% mid-size, 14% luxury, 12% full size and
5% each for sport and compact vehicles. These vehicles included the Chevy/GMC
Suburban, the Chevy/GMC Pick-up, the Ford Explorer, the Oldsmobile Delta 88, the
Buick LeSabre, the Chevrolet Lumina, the Buick Regal, the Mercury Cougar XR7,
the Saab 9000 and the Chevrolet Corvette. As part of the NAB Acquisition, the
Company has also assumed seat systems responsibility for the Ford Crown Victoria
and the Mercury Grand Marquis and has assumed Tier I engineering
responsibilities for the Ford Escort, the Lincoln Town Car, the Mercury Tracer
and the Mercury Grand Marquis.
As a result of its product technology and product design strengths, the
Company can provide ergonomic designs which offer styling flexibility at low
cost. In addition, the Company is able to incorporate many convenience features
and safety improvements into its seat designs, such as storage armrests, rear
seat fold down panels, integrated restraint systems and child restraint seats.
Lear's position as a market leader in seat systems is largely attributable
to seating programs on new vehicle models launched in the past five years. The
Company believes that supplying seating for these new vehicle models will
provide it with a long-term revenue stream throughout the lives of these models.
The Company is currently working with customers in the development of a number
of seat systems products to be introduced by car manufacturers in the late
1990's, which it expects will lead to an increase in outsourcing opportunities
in the future. The Company has been awarded several new programs which have
recently begun or are scheduled to begin production in fiscal 1994 through 1996.
Such business includes new passenger car and light truck programs for the Dodge
Ram Pick-up Truck, the Ford Mustang, the Ford Windstar Minivan, the BMW 300
Series, all Jaguar models, as well as the GM Opel Omega, the Chevrolet Cavalier
and the
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Oldsmobile Aurora. In addition, the Company was recently awarded the seat system
assembly responsibility for the Ford Taurus/Mercury Sable vehicle lines for seat
systems scheduled to begin production in early 1995. Ford Taurus has been the
best selling car line in the United States for the past two years.
Seat Frames. Lear produces steel and aluminum seat frames for passenger
cars and light and medium trucks. Seat frames are primarily manufactured using
precision stamped, tubular steel and aluminum components joined together by
highly automated, state-of-the-art welding and assembly techniques. The
manufacture of seat frames must meet strict federal safety standards.
The Company's seat frames are either delivered to its own plants where they
become part of a completed seat that is sold to the OEM customer, to
customer-operated assembly plants or to other independent seating suppliers
where they are used in the manufacture of assembled seating systems.
The Company's product development engineers continue to advance its
technological position with such innovative material applications as aluminum
and plastic frames and new seat designs which dramatically reduce seat weight
while increasing usable automobile interior space or increasing safety.
Seat Covers. Lear produces seat covers at its Fairhaven, Michigan and
Saltillo, Mexico facilities, which deliver seat covers primarily to other
Company plants. In addition, pursuant to the NAB Acquisition, the Company
acquired a portion of Ford's North American seat cover and seat systems business
and will be producing approximately 80% of the seat covers for Ford's North
American vehicles. After the NAB Acquisition, the Company's major customers for
seat covers (in addition to itself) are Ford and other independent suppliers.
The expansion of the Company's seat cover business allows the Company better
control over the costs and quality of one of the critical components of a seat
system. Typically, seat covers comprise approximately 30% of the aggregate cost
of a seat system.
Seat Components. The Company designs and manufacturers plastic storage
armrests for inclusion in seat systems at its plant in Mendon, Michigan.
Vehicles in which these are found are the Dodge Ram Truck, the Ford F-Series
Pick-up Truck, the Buick LeSabre and the Oldsmobile Delta 88. The Company also
manufactures decorative chrome plated, painted and assembled injection molded
components at the Mendon facility that are used in automobile interiors.
MANUFACTURING
Lear has developed a comprehensive manufacturing philosophy for seat
systems that allows it to make optimal use of its manufacturing facilities in a
high volume market. This concept, based on JIT manufacturing techniques, was
developed in the early 1980's to meet the requirements of its customers seeking
to reduce costs and improve quality. The Company has over ten years of
experience in JIT management and manufacturing. See "Products" above.
Seat and component assembly techniques fall into two major categories,
traditional assembly methods (in which fabric is affixed to a frame using
velcro, wire or other material) and more advanced bonding processes. There are
two bonding techniques employed by the Company, the Company's patented SureBond
process, a technique in which fabric is affixed to the underlying foam padding
using adhesives, and the Company's licensed foam-in-place process, in which foam
is injected into a fabric cover. The SureBond process has several major
advantages when compared to traditional methods, including design flexibility,
increased quality and lower cost. The SureBond process, unlike alternative
bonding processes, results in a more comfortable seat in which air can circulate
freely. The SureBond process, moreover, is reversible, so that seat covers that
are improperly installed can be removed and repositioned properly with minimal
materials cost. In addition, the SureBond process is not capital intensive when
compared to competing technologies.
The seat assembly process begins with pulling the requisite components from
inventory. Inventory at each plant is kept at a minimum, with each component's
requirement monitored on a daily basis. This allows the plant to devote the
maximum space to production, but also requires precise forecasts of the day's
output. Seats are assembled by three or four person teams, then tested and
packaged for shipment. The Company operates its own specially designed trailer
fleet that accommodates the off-loading of vehicle seats at the assembly plant.
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Lear obtains steel, aluminum and foam chemicals used in its seat systems
from various producers under various supply arrangements. Leather, fabric and
purchased components are generally purchased from various suppliers under
contractual arrangements typically lasting no longer than one year. All such
materials are readily available. Some of the purchased components are obtained
through the Company's own customers.
CUSTOMERS
Lear serves the worldwide automobile and light truck market, which produces
over 30 million vehicles annually. The outsourced market for automobile and
light truck seat systems in North America is approximately 58% of the total
North American seat systems market, which total market is estimated to have
annual revenues of approximately $6.2 billion. The outsourced market for seat
systems in Europe is approximately 50% of the total European seat systems
market, which total market is estimated to have annual revenues of approximately
$5.4 billion. The Company believes that the same competitive pressures that
contributed to the rapid expansion of its business in North America since 1983
will continue to encourage auto makers in the North American and the European
markets to outsource more of their seating requirements. Over the past three
years, the Company has aggressively pursued expansion in Europe, both with its
existing and new customers. Approximately 65%, 70% and 75% of Lear's net
revenues were from sales in the United States and Canada in fiscal 1993, 1992
and 1991, respectively, with the balance of sales being primarily in Europe and
Mexico. On a pro forma basis as if the NAB Acquisition had occurred at the
beginning of fiscal 1993, net revenues in the United States and Canada would
have amounted to approximately 72% of the Company's total net revenues in fiscal
1993.
The Company's OEM customers currently include Ford, General Motors,
Chrysler, Volvo, Volkswagen, Saab, Mazda, BMW and Jaguar. The Company and its
affiliates also supply products to Audi, Subaru, Isuzu, Suzuki, Daimler-Benz,
Renault and Peugeot. For additional information regarding customers and foreign
and domestic operations and sales, see Note 14, "Geographic Segment Data," to
the consolidated financial statements of the Company included in this
Prospectus.
In the past six years, in the course of retooling and reconfiguring plants
for new models and model changeovers, OEMs have eliminated seating production
from certain of their facilities, thereby committing themselves to purchasing
seat systems and components from outside suppliers. During this period, the
Company became a supplier of these products for a significant number of new
models, many on a JIT basis.
The purchase of seat systems on a JIT basis has allowed the Company's
customers to realize a competitive advantage as a result of (i) a reduction in
labor costs since suppliers like the Company generally enjoy lower direct labor
rates, (ii) the elimination of working capital and personnel costs associated
with the production of seat systems by the OEM, (iii) a reduction in net
overhead expenses and capital investment due to the availability of
approximately 60,000 to 80,000 square feet of plant space for expansion of other
manufacturing operations which was previously associated with seat production at
the OEM facilities and (iv) a reduction in transaction costs because of the
customer's ability to deal with a limited number of sophisticated system
suppliers as opposed to numerous individual component suppliers. In addition,
the Company offers improved quality and on-going cost reductions to its
customers through design improvements and its Champion Programs.
The Company receives blanket purchase orders from its customers that
normally cover annual requirements for seats to be supplied for a particular car
model. Such supply relationships typically extend over the life of the model,
which is generally four to seven years, and do not require the purchase by the
customer of any minimum number of seats. In order to reduce its reliance on any
one model, the Company produces
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complete seat systems and components for a broad cross-section of both new and
more established models. Vehicles with seat systems sold by the Company and its
affiliates in the indicated locations include:
UNITED STATES AND CANADA:
OEM/MODELS OEM/MODELS
---------- ----------
FORD: GENERAL MOTORS:
Ford Crown Victoria Buick LeSabre
Ford Explorer Sports Bucket Buick Regal
Eddie Bauer & Limited Edition Chevrolet Corvette
Ford F-Series Pick-up Truck Chevrolet Lumina
Ford Lightning Pick-up Truck Chevy Blazer/GMC Yukon
Ford Mustang GT & LX Chevy C/K Pick-up Truck
Ford Probe Chevy Kodiak
Ford Ranger Supercab/STX Chevy Sport Van
Ford Taurus SHO Chevy/GMC G-Van
Ford Windstar Minivan Chevy/GMC Pick-up Truck
Mercury Cougar XR7 Chevy/GMC Suburban
Mercury Grand Marquis GMC Rally/Vandura Van
GMC Sierra Crew Cab
CHRYSLER: GMC Sierra Pick-up Truck
Dodge Dakota Pick-up Truck GMC Top Kick
Dodge Ram Charger Oldsmobile Delta 88
Dodge Ram Pick-up Truck
Dodge Viper FUJI/ISUZU:
Isuzu Trucks
CAMI -- GENERAL MOTORS/SUZUKI: Legacy
Geo Metro
Geo Tracker
Suzuki Sidekick
Suzuki Swift
EUROPE:
OEM/MODELS OEM/MODELS
---------- ----------
GENERAL MOTORS: SAAB:
Opel Astra Saab 900
Opel Calibra Saab 9000
Opel Corsa
Opel Omega VOLVO:
Opel Senator 800 Series
Opel Vectra 900 Series
CHRYSLER: JAGUAR:
Eurostar Minivan XJS
XJ6
MEXICO:
OEM/MODELS OEM/MODELS
---------- ----------
FORD: GENERAL MOTORS:
Ford Escort Chevrolet S-10 Blazer
Ford F-Series Chevy Cavalier
Ford Thunderbird
Mercury Cougar VOLKSWAGEN:
Mercury Grand Marquis Golf
Mercury Tracer Jetta
Vanagon Minivan
CHRYSLER:
Club Cab Pick-up Truck
Dodge Ram Pick-up Truck
Because of the economic benefits inherent in the JIT manufacturing process
and the costs associated with reversing a decision to purchase seat systems from
an outside supplier, the Company believes that automobile manufacturers' level
of commitment to purchasing seating from outside suppliers, particularly on a
JIT basis,
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will increase. However, under the contracts currently in effect in the United
States between each of General Motors, Ford and Chrysler with the United
Automobile, Aerospace and Agricultural Implement Workers of America (the "UAW"),
in order for any of such manufacturers to obtain components that it currently
produces itself from external sources, it must first notify the UAW of such
intention. If the UAW objects to the proposed outsourcing, some agreement will
have to be reached between the UAW and the OEM. Factors that will normally be
taken into account by the UAW and the OEM include whether the proposed new
supplier is technologically more advanced than the OEM, cost and whether the OEM
will be able to reassign union members whose jobs are being displaced to other
jobs within the same factories. As part of its long-term agreement with General
Motors, the Company operates its Grand Rapids, Michigan facility with General
Motors employees and reimburses General Motors for the wages of such employees
on the basis of the Company's employee wage structure. The Company enters into
these arrangements to enhance its relationship with its customers.
The Company's contracts with its major customers generally provide for an
annual productivity price reduction and, in some cases, provide for the recovery
of increases in material and labor costs. Cost reduction through design changes,
increased productivity and similar programs with the Company's suppliers have
generally offset changes in selling prices. The Company's cost structure is
comprised of a high percentage of variable costs. The Company believes that this
structure provides it with additional flexibility during economic cycles.
General Motors and Ford, the two largest automobile and light truck
manufacturers in the world, are also the Company's two largest customers,
accounting for 48% and 22%, respectively, of the Company's net sales during
fiscal 1993. As a result of the NAB Acquisition, the Company believes that net
sales to Ford and General Motors will be roughly equivalent in fiscal 1994.
MARKETING AND SALES
Lear markets its products by maintaining strong relationships with its
customers fostered during its 76-year history through strong technical and
product development capabilities, reliable delivery of high quality products,
strong customer service, innovative new products and a competitive cost
structure. Close personal communication with automobile manufacturers from the
corporate to the plant level is an integral part of the Company's marketing
strategy. Automobile manufacturers have increasingly reduced their number of
suppliers as part of their move to purchase systems rather than discrete
components. This process favors suppliers, like the Company, with established
ties to automobile manufacturers and the demonstrated ability to adapt to the
new competitive environment in the automotive industry.
The Company's sales are originated almost entirely by its sales staff. This
marketing effort is augmented by design and manufacturing engineers who work
closely with automobile manufacturers from the preliminary design to the
manufacture and supply of a seating system. Manufacturers have increasingly
looked to suppliers like the Company to assume responsibility for the
introduction of product innovation, to shorten the development cycle of new
models, decrease tooling investment and labor costs, reduce the number of costly
design changes in the early phases of production and improve seat comfort and
functionality. Once the Company is engaged to develop the design for the seating
of a specific car model, it is also generally engaged to supply the automobile
with seating when the car goes into production. The Company has responded to
this trend by improving its engineering and technical capabilities and building
technical centers in the United States in 1988 and in Europe in 1991 at a cost
of approximately $8.0 million in the aggregate. The Company is also currently in
the process of investing approximately $6.0 million in developing full-scope
engineering capabilities, including all aspects of safety and functional testing
and comfort assessment. In addition, the Company has established ten remote
engineering sites in close proximity to several of its OEM customers to enhance
customer relationships and design activity. As part of the NAB Acquisition, the
Company is assuming during the five-year term of the agreement responsibility
for a substantial portion of Ford's seat systems design capability and,
accordingly, is building a 75,000 square foot dedicated engineering facility in
Dearborn, Michigan to service Ford products.
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TECHNOLOGY
Lear conducts advanced product design and development at its technical
centers in Southfield, Michigan and Rietberg, Germany. At the technical centers,
the Company tests its products to determine compliance with applicable safety
standards, the products' quality and durability, response to environmental
conditions and user wear and tear. In the past, the Company has developed a
number of designs for innovative seat features which it has patented, including
ergonomic features such as adjustable lumbar supports and bolster systems and
adjustable thigh supports. In addition, the Company incorporates many
convenience, comfort and safety features into its seat designs, including
storage armrests, rear seat fold down panels, integrated restraint systems and
child restraint seats. The Company has recently invested to further upgrade its
CAD/CAM systems including three-dimensional color graphics, customer
telecommunications and direct interface with customer CAD systems. Research and
development costs incurred in connection with the development of new products
and manufacturing methods (not including additional research and development
costs paid for by the customer) amounted to approximately $18.2 million, $11.4
million, and $7.9 million for fiscal 1993, 1992 and 1991, respectively.
Lear uses its patented SureBond process (the patent for which has a 11-year
remaining duration) in bonding seat cover materials to the foam pads used in
certain of its seats. The Sure-Bond process is used to bond a pre-shaped cover
to the underlying foam to minimize the need for sewing and achieve new seating
shapes, such as concave shapes, which were previously difficult to manufacture.
The Company, through its wholly-owned subsidiary, Progress Pattern Corp.
("Progress Pattern"), produces patterns and tooling for use in the automotive
casting industry. Its capabilities include foundry and vacuum form tooling,
porous mold design and lost foam tooling production. The pattern operation is
also integral to the Company's seating design programs, including independent
product design and development, contract design, engineering services,
manufacturing feasibility and engineering cost studies. Progress Pattern also
manufactures production tooling for the Company's plastic and foam molding
operations. In addition to providing support for the Company's continuing seat
design, Progress Pattern provides services to its own customers, including Ford
and General Motors. It produced the casting tooling for the General Motors
Saturn engine.
The Company holds a number of mechanical and design patents covering its
automotive seating products and has numerous applications for patents currently
pending. In addition, the Company holds several trademarks relating to various
manufacturing processes. The Company also licenses its technology to a number of
seating manufacturers.
The Company has and will continue to dedicate resources to research and
development to maintain its position as a leading developer of technology in the
automotive seating industry.
JOINT VENTURES AND MINORITY INTERESTS
Lear conducts a portion of its business through joint ventures in order to
facilitate the exchange of technical information and the establishment of
business relationships with foreign automakers. The joint ventures in which the
Company participates include: (i) General Seating of America, a joint venture
with NHK Spring Co., Ltd. of Japan, which supplies trimmed seating to SIA (a
joint venture between Fuji Heavy Industries (Subaru) and Isuzu) and (ii) General
Seating of Canada Limited, a joint venture with NHK Spring Co., Ltd. of Japan,
which supplies trimmed seating from a plant in Woodstock, Ontario to CAMI (a
joint venture between Suzuki and General Motors). In addition, the Company has a
31% interest in Probel, S.A., a Brazilian automotive seat component and
furniture manufacturer, and a 20% interest in Pacific Trim Corp. Ltd., a Thai
manufacturer of automobile seat systems and seat covers. See Note 6,
"Investments in Affiliates," to the consolidated financial statements of the
Company included in this Prospectus.
COMPETITION
Lear is one of the two primary suppliers in the outsourced North American
seat systems market. The Company's main independent competitor is Johnson
Controls, Inc., and it competes, to a lesser extent, with Douglas & Lomason
Company and Magna International, Inc. The Company's major competitors in Europe,
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besides Johnson Controls, Inc., are Bertrand Faure (headquartered in France) and
Keiper Recaro (headquartered in Germany). The Company also competes with the
OEMs' in-house seating suppliers. The Company competes on the basis of technical
expertise, reliability, quality and price. The Company believes its technical
resources, product design capabilities and customer responsiveness are the key
factors that allow it to compete successfully in the seat system market.
SEASONALITY
Lear's principal operations are directly related to the automotive
industry. Consequently the Company may experience seasonal fluctuation to the
extent automobile production slows, including times such as the summer months as
plants close for model year changeovers and vacation and around Christmas when
plants close for approximately 1.5 weeks. Historically, the Company's sales have
been the strongest in the second calendar quarter (the fourth quarter in the
Company's fiscal year). In fiscal year 1993 sales by fiscal quarter broke down
as follows: 1st quarter, 20%; 2nd quarter, 26%; 3rd quarter, 26%; and 4th
quarter, 28%. Operating profit of the Company has historically been strongest in
the Company's fourth fiscal quarter and the weakest in its first fiscal quarter.
See Note 15, "Quarterly Financial Data," in the consolidated financial
statements included elsewhere in this Prospectus.
EMPLOYEES
After giving effect to the NAB Acquisition, the Company employs
approximately 4,600 persons in the United States, 10,000 in Mexico, 1,500 in
Canada, 1,400 in Germany, 800 in Sweden, 90 in Austria and 80 in France. Of
these, about 2,700 are salaried employees and the balance are paid on an hourly
basis. Approximately 9,600 of the Company's employees are members of unions. The
Company has collective bargaining agreements with several unions including the
UAW; National Automobile, Aerospace and Agricultural Implement Workers Union of
Canada; the Confederation of Mexican Workers; the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen, and Helpers of America; and the Pattern
Makers Association of Detroit and vicinity, AFL-CIO and Pattern Makers League of
North America. Each of the Company's facilities has a separate contract with the
union which represents the workers employed there, with each such contract
having an expiration date independent of the Company's other labor contracts.
The Company has experienced some labor disputes at its plants, none of which has
significantly disrupted production or had a materially adverse effect on its
operations. The Company has been able to resolve all such labor disputes and
believes its relations with its employees are good.
FACILITIES
The Company's operations are conducted through 54 facilities, including
five facilities acquired as part of the NAB Acquisition and six facilities
operated by the Company's less than majority-owned affiliates. The Company's
management is headquartered in Southfield, Michigan. The headquarters building,
which accommodates both the main office and the technical center, was completed
in June 1988. Seventeen of the plants are dedicated to providing seat systems to
a nearby assembly plant on a JIT basis. The others focus on the production of
seat systems for multiple assembly plants, metal seat frames and stampings.
Substantially all owned facilities secure borrowings under the Company's various
debt agreements. See "Description of Certain Indebtedness."
The Company's facilities are located in appropriately designed buildings
which are kept in good repair with sufficient capacity to handle present
volumes. The Company has designed its facilities to provide for efficient JIT
manufacturing of its products. No facility is materially underutilized.
Management believes substantially all of the Company's property and equipment is
in good condition and that it has sufficient capacity to meet its current and
expected manufacturing and distribution needs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company --
Capital Expenditures."
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The following table provides certain information regarding the Company's 54
facilities:
OWNED/ BUILDING LEASE
FACILITY LEASED SQ. FEET FUNCTION EXPIRATION
- ------------------------------- ------ -------- ------------------------------ ---------------
UNITED STATES:
Southfield, MI................. O 70,000 administrative offices and --
technical center
Detroit, MI.................... O 156,800 manufacture of seat systems --
Romulus, MI I.................. O 89,600 manufacture of seat systems --
Romulus, MI II................. O 88,200 manufacture of seat systems --
Fenton, MI..................... O 75,800 manufacture of seat systems --
Morristown, TN................. O 235,900 manufacture of seat components --
Lorain, OH..................... L 42,100 manufacture of seat systems July 1998
Mendon, MI..................... O 168,500 manufacture of seat components --
and other plastic products
Southfield, MI................. O 65,000 manufacture of seat tooling --
Grand Rapids, MI............... (1) 66,560 manufacture of seat frames --
Southfield, MI................. O 19,000 technical center --
Louisville, KY................. L 72,000 manufacture of seat systems January 1995
Janesville, WI................. O 120,000 manufacture of seat systems --
Fair Haven, MI................. L 61,000 manufacture of seat covers July 1995
Dearborn, MI................... L 22,250 engineering offices July 1997
Flint, MI...................... L 10,083 engineering offices August 1996
CANADA:
Kitchener, Ontario............. O 343,044 manufacture of seat frames --
Ajax, Ontario.................. O 120,000 manufacture of seat systems --
Whitby, Ontario................ O 187,400 manufacture of seat systems --
Cowansville, Quebec............ L 50,750 manufacture of seat systems February 1994
Oakville, Ontario.............. O(2) 90,000 manufacture of seat systems --
EUROPE:
Meaux, France.................. O 48,300 manufacture of seat components --
Paris, France.................. L 2,500 administrative offices January 1995
Blere, France.................. O 14,300 manufacture of wire components --
Rietberg, Germany.............. O 193,143 manufacture of seat components --
Rietberg, Germany.............. O 17,635 technical center --
Quakenbruck, Germany........... O 139,500 manufacture of seat components --
Gustavsburg, Germany........... L 177,000 manufacture of seat systems June 2002
Eisenach, Germany.............. O 77,500 manufacture of seat systems --
Schwalbach, Germany............ L 10,500 administrative offices October 1996
Koflach, Austria............... L 63,307 manufacture of seat systems January 1995
Trollhattan, Sweden............ L 135,102 manufacture of seat systems December 1996
Bengtsfors, Sweden............. L 246,726 manufacture of seat systems September 2007
Coventry, England.............. L(3) January 1994
MEXICO:
Saltillo....................... L 91,025 manufacture of seat covers January 1998
Mexico City.................... L 4,300 administrative offices June 1997
Tlahuac........................ O 339,000 manufacture of seat components --
L 8,900 warehouse June 1997
Naucalpan...................... L 66,000 manufacture of seat systems August 1994
Cuautitlan..................... L 75,000 manufacture of seat systems March 1994
Puebla......................... L 81,000 manufacture of seat systems February 1994
Hermosillo..................... O 121,000 manufacture of seat systems --
Atoto.......................... L 18,275 manufacture of seat systems March 1994
Rio Bravo...................... O(4) 202,700 manufacture of seat covers --
San Lorenzo.................... O(4) 287,000 manufacture of seat covers --
La Cuesta...................... O(4) 392,500 manufacture of seat covers --
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OWNED/ BUILDING LEASE
FACILITY LEASED SQ. FEET FUNCTION EXPIRATION
- ------------------------------- ------ -------- ------------------------------ ---------------
El Jarudo...................... O(5) 122,000 manufacture of seat covers --
Omega.......................... O(5) 270,000 manufacture of seat systems --
AFFILIATES OR MINORITY INTERESTS:
Woodstock, Ontario; Canada..... O(6) 120,000 manufacture of seat systems --
Frankfort, Indiana............. O(6) 82,000 manufacture of seat systems --
Khorat; Thailand............... L(6) 30,000 manufacture of seat covers --
Suzano, Sao Paulo; Brazil...... O(6) 344,448 manufacture of seat components --
Ipiranga, Sao Paulo; Brazil.... L(6) 355,212 manufacture of seat components --
Jaguare, Sao Paulo; Brazil..... L(6) 96,876 manufacture of seat components --
- -------------------------
(1) This facility is operated for General Motors.
(2) Plant currently under construction.
(3) A new 42,000 square foot manufacturing facility is currently under
construction, which will be dedicated to the manufacture of seat systems.
(4) Acquired as part of the NAB Acquisition.
(5) As part of the NAB Acquisition, the Company and Ford each have the option of
providing that Ford purchase these facilities in consideration of Ford
cancelling $19.9 million of indebtedness owing by Favesa to Ford.
(6) Owned or leased by affiliates or minority interests of the Company.
LITIGATION
Management of the Company does not believe that any of the litigation in
which the Company is currently engaged, either individually or in the aggregate,
will have a material effect on the Company's consolidated financial position or
future results of operation.
ENVIRONMENTAL
The Company is subject to various laws, regulations and ordinances which
govern activities such as discharges to the air and water, as well as handling
and disposal practices for solid and hazardous wastes and which impose costs and
damages associated with spills, disposal or other releases of hazardous
substances. The Company believes that it is in substantial compliance with such
requirements. Management does not believe that it will incur compliance costs
pursuant to such requirements that would have a material adverse effect on the
Company's consolidated financial position or future results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Environmental Matters."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the individuals who are
directors and executive officers of the Company.
YEARS WITH THE
COMPANY OR
NAME AGE POSITION PREDECESSOR
- ------------------------- --- -------------------------------------------- --------------
Kenneth L. Way........... 54 Chairman of the Board and Chief Executive 27(1)
Officer of the Company
Robert E. Rossiter....... 47 President, Chief Operating Officer and 22(1)
Director of the Company
James H. Vandenberghe.... 44 Executive Vice President, Chief Financial 21(2)
Officer and Secretary of the Company
James A. Hollars......... 49 Senior Vice President -- International 20(2)
Operations of the Company
Barthold H. Hoemann...... 54 Senior Vice President -- North American JIT 13(3)
Operations of the Company
Theodore E. Melson....... 50 Senior Vice President -- Manufacturing 6(2)
Planning of the Company
Donald J. Stebbins....... 36 Vice President and Treasurer of the Company 2(3)
Larry W. McCurdy......... 58 Director of the Company (1)
Jeffrey P. Hughes........ 53 Director of the Company (4)
David P. Spalding........ 39 Director of the Company (4)
James A. Stern........... 43 Director of the Company (5)
Eliot Fried.............. 61 Director of the Company (5)
Robert W. Shower......... 56 Director of the Company (6)
Gordon C. Davidson....... 66 Director of the Company (7)
N. Peter Ruys............ 44 Director of the Company (8)
Gian Andrea Botta........ 40 Director of the Company (9)
- -------------------------
(1) Member of the Board of Directors of the Company since 1988.
(2) Officer of the Company since 1988.
(3) Officer of the Company since 1992.
(4) Member of the Board of Directors of the Company since September 1991.
(5) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from September 1991 until the Merger.
(6) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from November 1991 until the Merger.
(7) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from August 1992 until the Merger.
(8) Member of the Board of Directors of the Company since February 1993.
(9) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from July 1993 until the Merger.
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Set forth below is a description of the business experience of each
director and executive officer of the Company.
Kenneth L. Way. Mr. Way was elected to and has held the position of
Chairman of the Board and Chief Executive Officer of the Company since 1988.
Prior to this he served as Corporate Vice President, Automotive Group of Lear
Siegler Industries, Inc. ("LSI") since October 1984. During the previous six
years, Mr. Way was President of LSI's General Seating Division. Prior to this,
he was President of LSI's Metal Products Division in Detroit for three years.
Other positions held by Mr. Way during his 27 years with LSI include
Manufacturing Manager of the Metal Products Division and Manager of Production
Control for the Automotive Division in Detroit. Mr. Way also serves as a
director of Hayes Wheels International Incorporated.
Robert E. Rossiter. Mr. Rossiter became President of the Company in 1984
and a Director and the Chief Operating Officer of the Company in 1988. He joined
LSI in 1971 in the Material Control Department at the Automotive Division, then
joined the Metal Products Division of LSI as Production Control Manager, and
subsequently moved into sales and sales management. In 1979, he joined the
General Seating Division as Vice President of Sales and worked in that position,
as well as Vice President of Operations, until 1984.
James H. Vandenberghe. Mr. Vandenberghe was appointed Senior Vice President
- -- Finance, Secretary and Chief Financial Officer of the Company in 1988. He was
appointed Executive Vice President of the Company in 1993. He joined LSI's
Automotive Division in 1973 as a financial analyst and was promoted to positions
at the Metal Products Division and the Automotive Group office, and in 1978 was
named the Vice President -- Finance for the Plastics Division. In 1983, Mr.
Vandenberghe was appointed Vice President -- Finance for General Seating
Division. Prior to 1988, Mr. Vandenberghe had been responsible for project
management, United States operations, and international operations of the
Company.
James A. Hollars. Mr. Hollars is currently Senior Vice President --
International Operations of the Company. He was promoted to Vice President --
International upon the sale of LSI's Power Equipment Division to Lucas
Industries in 1988. Mr. Hollars joined LSI's Metal Products Division in 1973 as
the Manufacturing Manager and later served as Vice President -- Manufacturing
for No-Sag Spring Division. In 1979, he was named President of the Foam Products
Division and was subsequently promoted to President at the Anchorlok Division in
1985 and the Power Equipment Division in 1986.
Barthold H. Hoemann. Mr. Hoemann is Senior Vice President of JIT Operations
of the Company. He was promoted to this position in 1993. Previously he served
as Vice President -- Component Operations for Seating in 1992 and 1993 and as
Vice President and General Manager of Lear's subsidiary, Lear Plastics
Corporation, in 1991 and 1992. From 1988 until 1991, Mr. Hoemann was the Chief
Executive Officer of Peerless Corporation. Mr. Hoemann has over 30 years
experience as a senior manager and officer in manufacturing companies such as
the AC Spark Plug Division of General Motors and the Plastics and Peerless
Divisions of LSI.
Theodore E. Melson. Mr. Melson is Senior Vice President -- Manufacturing
Planning of the Company. Mr. Melson was promoted to Senior Vice President in
1992, before which he was responsible for all North American JIT Operations of
the Company. Mr. Melson joined Seating in 1987 after 25 years with General
Motors. His latest assignment at General Motors was as Director of Materials
Management at the Willow Run assembly plant. During his General Motors career,
he worked for Fisher Body Division, Chevrolet Division, General Motors Assembly
Division and Buick-Olds-Cadillac Division. He held positions in many areas of
Materials, Manufacturing Systems Development, Forward Planning and Industrial
Engineering.
Donald J. Stebbins. Mr. Stebbins is currently Vice President and Treasurer
of the Company. He joined the Company in June 1992 from Bankers Trust Company,
New York where he was Vice President for four years. Prior to his tenure at
Bankers Trust, Mr. Stebbins held positions at Citibank and The First National
Bank of Chicago.
Larry W. McCurdy. Mr. McCurdy became a Director of the Company in 1988. Mr.
McCurdy has been the President and Chief Executive Officer of Moog Automotive,
Inc. since November 1985, and prior thereto President and Chief Operating
Officer of Echlin, Inc. ("Echlin"), since August 1983, after serving as Vice
President of Finance from February 1983. Prior to joining Echlin, he served in
various material positions with
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Tenneco, Inc. He was formerly Chairman of the Board of Directors of the Motor
and Equipment Manufacturing Association (MEMA). At the present time he serves as
a director of Mohawk Industries, Inc., Breed Technologies, Inc. and as a trustee
of Millikin University.
Jeffrey P. Hughes. Mr. Hughes became a Director of the Company in September
1991. He has been a Managing Director of Lehman Brothers Inc. for more than five
years, and is a Director of Sun Distributors, L.P. and Parisian, Inc.
David P. Spalding. Mr. Spalding became a Director of the Company in
September 1991. He has been a Managing Director of Lehman Brothers Inc. since
February 1991. Previously he held the position of Senior Vice President of
Lehman Brothers Inc. from September 1988 to February 1991. From April 1987 to
September, 1988 he was Senior Vice President of General Electric Capital
Corporation Corporate Finance Group, Inc. Prior to 1987 he was Vice President of
The First National Bank of Chicago. Mr. Spalding is a Director of Parisian,
Inc., American Marketing Industries Group Inc. and SLB/GP Inc.
James A. Stern. Mr. Stern became a Director of the Company on December 31,
1993 upon consummation of the Merger. From September 1991 until the Merger, Mr.
Stern was a Director of Holdings. He has been a Managing Director of Lehman
Brothers Inc. for more than five years. He is also a director of K&F Industries
Inc., Loral Aerospace Holdings, Inc., American Marketing Industries Group Inc.,
Infinity Broadcasting Corporation, R.P. Scherer Corporation and Noel Group, Inc.
Eliot Fried. Mr. Fried became a Director of the Company on December 31,
1993 upon consummation of the Merger. From September 1991 until the Merger, Mr.
Fried was a Director of Holdings. He has been a Managing Director of Lehman
Brothers Inc. for more than five years. Mr. Fried is a director of Bridgeport
Machines, Inc., Energy Ventures Corporation and American Marketing Industries
Group Inc.
Robert W. Shower. Mr. Shower became a Director of the Company on December
31, 1993 upon consummation of the Merger. From November 1991 until the Merger,
Mr. Shower was a Director of Holdings. Mr. Shower was appointed Senior Vice
President and Chief Financial Officer of Seagull Energy Corporation in March
1992, elected a director in May 1992, and recently named Executive Vice
President. Prior thereto, he served as Senior Vice President of Corporate
Development at Albert Fisher, Inc. in 1991 and 1992, Vice President of Finance
and CFO at AmeriServ in 1990 and 1991 and as a Managing Director of Corporate
Finance with Lehman Brothers Inc. from 1986 to 1990. From 1964 to 1986, Mr.
Shower served in a variety of financial executive positions with The Williams
Companies where he was a member of the Board of Directors and Executive Vice
President of Finance and Administration from 1977 to 1986.
Gordon C. Davidson. Mr. Davidson became a Director of the Company on
December 31, 1993 upon consummation of the Merger. From August 1992 until the
Merger, Mr. Davidson was a Director of Holdings. Mr. Davidson is currently a
partner with Lubar & Co. Incorporated. Prior to that, Mr. Davidson was President
and Director of NML Corp., a subsidiary of Northwestern Mutual Life Insurance
Company and is a former director of Mortgage Guaranty Insurance Corp., Capital
Court Corp., First Mortgage Company of Texas, Inc. and Futura Gear Works, Inc.
N. Peter Ruys. Mr. Ruys became a Director of the Company in 1993. Since
1993, Mr. Ruys has been Chief Financial Officer of IFINT S.A., the international
investment company of IFI S.p.A., the parent company of the Agnelli Group. Since
1981, Mr. Ruys has been Secretary and Treasurer of IFINT-USA Inc., a subsidiary
of IFINT S.A. Mr. Ruys is a Trustee of Corporate Property Investors.
Gian Andrea Botta. Mr. Botta became a Director of the Company on December
31, 1993 upon consummation of the Merger. Prior to the Merger, Mr. Botta was a
Director of Holdings. Mr. Botta serves as President of IFINT-USA, a subsidiary
of IFINT S.A., the international investment company of IFI S.p.A. ("IFI"), the
parent company of the Agnelli Group. He joined IFINT in New York in 1981, and
was previously an executive on the Corporate Staff of IFI. Mr. Botta is a member
of the Board of Directors of Kendall International, ICF International, and
Chartwell Re Corporation.
All directors hold office until the annual meeting of stockholders next
following their election, or until their successors are elected and qualified.
Pursuant to the Stockholders Agreement, Messrs. Hughes,
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Spalding, Stern, Fried, Davidson and Shower serve on the Board of Directors of
the Company as representatives of the Lehman Funds, Messrs. Ruys, Botta and
McCurdy serve as representatives of FIMA and Messrs. Way and Rossiter serve as
representatives of the Management Investors. Officers are elected by the Board
of Directors and serve at the discretion of the Board. Messrs. Way, Rossiter,
Vandenberghe, Melson and Hollars have employment agreements with the Company.
See "Executive Compensation -- Employment Agreements."
Directors of the Company who are not currently receiving compensation as
officers or employees of the Company or any of its affiliates (including Lehman
Brothers Inc. and IFINT S.A.) receive an annual fee of $16,000 and a fee of
$1,000 for each meeting of the respective board of directors or any committee
that they attend, provided that directors will not be paid a fee for any
additional meetings which are held on the same day. Directors are also
reimbursed for their expenses incurred in attending meetings.
EXECUTIVE COMPENSATION
The following table summarizes information concerning annual and long-term
cash and non-cash compensation paid to or accrued for the benefit of the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company (collectively, the "named officers") for all services
rendered in all capacities to the Company for each of the Company's fiscal years
ending June 30, 1991, 1992 and 1993.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------------
AWARDS
---------------------- PAYOUTS
ANNUAL COMPENSATION -------
------------------------------------ RESTRICTED
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
SALARY BONUS(1) COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL -------- -------- ------------ ---------- -------- ------- ------------
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ----------------------------- ---- -------- -------- ------------ ---------- -------- ------- ------------
Kenneth L. Way............... 1993 $462,000 $450,000 (2) (3) 5,500 (3) $9,000
Chairman of the Board and 1992 452,000 315,000 0
CEO of the Company 1991 415,000 205,000 0
Robert E. Rossiter........... 1993 335,000 325,000 3,500 5,000
President, Chief Operating 1992 325,000 220,000 0
Officer and Director of the 1991 300,000 145,000 0
Company
James H. Vandenberghe........ 1993 223,000 175,000 2,600 5,000
Executive Vice President, 1992 218,000 120,000 0
Chief Financial Officer and 1991 200,000 82,000 0
Secretary of the Company
James A. Hollars............. 1993 230,000 125,000 2,000 3,000
Senior Vice President -- 1992 208,000 100,000 0
International Operations of 1991 198,000 60,000 0
the Company
Theodore E. Melson........... 1993 212,000 102,000 2,000 5,000
Senior Vice President -- 1992 211,000 90,000 0
Manufacturing Planning of 1991 200,000 60,000 0
the Company
- -------------------------
(1) Pursuant to the Company's Senior Executive Incentive Compensation Plan, the
Company awards annual bonuses to its executive officers based on the
attainment of financial and nonfinancial objectives. All bonuses set forth
in this column were awarded pursuant to the Senior Executive Incentive
Compensation Plan. For a description of the Senior Executive Incentive
Compensation Plan and the criteria used for the determination of awards
thereunder, see "Management -- Senior Executive Incentive Compensation
Plan."
(2) "Other Annual Compensation" is below the level where disclosure would be
required.
(3) The Company does not have restricted stock award plans or long-term
incentive plans and has not granted stock appreciation rights ("SARs").
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The following table provides information, with respect to the Chief
Executive Officer and the named officers of the Company, concerning the grants
of stock options during the last completed fiscal year and the potential value
of unexercised options on an aggregated basis.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------- POTENTIAL
% OF REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ------------------------
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
---- ------- ---------- -------- ---------- ---------- ----------
Kenneth L. Way..................... 5,500 13.2% $165 6-1-2002 $ 501,000 $1,232,000
Robert E. Rossiter................. 3,500 8.4% $165 6-1-2002 $ 319,000 $ 784,000
James H. Vandenberghe.............. 2,600 6.2% $165 6-1-2002 $ 237,000 $ 582,000
James A. Hollars................... 2,000 4.8% $165 6-1-2002 $ 182,000 $ 448,000
Theodore E. Melson................. 2,000 4.8% $165 6-1-2002 $ 182,000 $ 448,000
- -------------------------
(1) For a discussion of the options granted, see "Management -- 1992 Stock
Option Plan" below.
The following table provides information, with respect to the Chief
Executive Officer and named officers, concerning the exercise or settlement of
options during the last fiscal year and unexercised options held as of the end
of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FY-END(#) AT FY-END($)
--------------------- --------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------- --------------------- --------------------
Kenneth L. Way................ -- -- 11,765/5,500 $ 1,441,000/$0
Robert E. Rossiter............ -- -- 7,059/3,500 $ 865,000/$0
James H. Vandenberghe......... -- -- 4,471/2,600 $ 548,000/$0
James A. Hollars.............. -- -- 4,471/2,000 $ 548,000/$0
Theodore E. Melson............ -- -- 4,471/2,000 $ 548,000/$0
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Merger, the Company's compensation policies were determined
and executive officer compensation decisions were made by the Holdings' Board of
Directors and its Compensation Committee (the "Compensation Committee"). The
Compensation Committee was comprised of three non-employee directors: Mr.
Hughes, Mr. McCurdy and Mr. Spalding. Mr. Hughes and Mr. Spalding are both
Managing Directors of Lehman Brothers Inc., an affiliate of the Lehman Funds.
The Lehman Funds beneficially own approximately 61.4% of the outstanding Common
Stock of the Company (assuming the exercise of all outstanding Warrants and
employee stock options). It is anticipated that the Board of Directors of the
Company will appoint a compensation committee comprised of the same individuals
who served on the Compensation Committee prior to the Merger.
During fiscal 1993, the Compensation Committee made recommendations to the
Board of Directors concerning the remuneration plans for senior management. In
addition, the Compensation Committee exercised administrative power with respect
to the Company's remuneration plans. The Board of Directors of Holdings neither
rejected nor modified any recommendation made by the Compensation Committee.
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SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN
Lear has established a Senior Executive Incentive Compensation Plan
effective July 1, 1989 (the "Senior Executive Incentive Plan"). The Senior
Executive Incentive Plan provides for the assignment of target annual awards
expressed as a percentage of a participant's annual salary, and the actual
award, unless modified by the Board of Directors, will vary from 0% to 160% of
the target award opportunity based on attainment of financial and nonfinancial
objectives. The financial criteria, representing 60% of the bonus potential, are
based on achievement of a targeted level of pre-tax operating income and cash
flow for the overall Company based on the approved operating budget. An overall
average threshold is calculated, based on the ratio that the actual pre-tax
operating income and actual cash flow bear to the budget pre-tax operating
income and the budget cash flow. No payments are made unless 85% of that
threshold is attained, and a maximum attainment is set at 120% of that
threshold. The nonfinancial criteria, representing 40% of the bonus potential,
are based on the achievement of specific individual objectives that are
determined by the Chief Executive Officer and approved by the Board of Directors
of Lear. Participants in the Senior Executive Incentive Plan were selected by an
Administrative Committee from executives who were in positions to materially
influence the annual financial results of Lear in the targeted areas. In fiscal
1994, the target award opportunities under the Senior Executive Incentive Plan
for each of Messrs. Way, Rossiter, Vandenberghe, Hollars and Melson are
$285,000, $207,000, $153,000, $115,000 and $112,500, respectively.
MANAGEMENT INCENTIVE COMPENSATION PLAN
Lear has established a Management Incentive Compensation Plan effective
July 1, 1989 (the "Management Incentive Plan") for certain individuals who are
not participants in the Senior Executive Incentive Plan. The Management
Incentive Plan provides for the assignment of target annual awards expressed as
a percentage of a participant's annual salary, and the actual award will vary
from 0% to 140% of the target award opportunity based on attainment of financial
and nonfinancial objectives. The financial criteria, representing 50% of the
bonus potential, are based on achievement of a targeted level of pre-tax
operating income and cash flow for the overall Company based on the approved
operating budget. An overall average threshold is calculated, based on the ratio
that the actual pre-tax operating income and actual cash flow bear to the budget
pre-tax operating income and the budget cash flow. No payments are made unless
85% of that threshold is attained, and a maximum attainment is set at 120% of
that threshold. The nonfinancial criteria, representing 50% of the bonus
potential, are based on the achievement of specific individual objectives that
are determined by the senior management and approved by the Chief Executive
Officer of Lear. Participants in the Management Incentive Plan were selected by
an Administrative Committee from managers who were in positions to materially
influence the annual financial results of Lear in the targeted areas.
PENSION PLAN AND BENEFITS
The executive officers (as well as other employees of Lear) participate in
the Lear Seating Corporation (LSC) Pension Plan (the "Pension Plan"). The
Pension Plan is a qualified pension plan under the Internal Revenue Code, which
is integrated with Social Security benefits. Any active employee of Lear who was
a participant in the Lear Siegler Diversified Holding Corp. Pension Plan on
September 29, 1988, is eligible to participate, and each other eligible employee
(non-union employees not covered by another pension plan and certain union
employees) becomes a participant on the July 1st or January 1st following
completion of one year of service. The benefits are funded by employer
contributions that are determined under accepted actuarial principles and
applicable Federal tax law.
The Pension Plan contains three sets of benefit provisions: the Lear
provisions, the Fabricated Products Operations ("FPO") provisions, and the
Progress Pattern provisions. The Lear provisions are the principal provisions of
the Pension Plan (see below). The FPO and Progress Pattern provisions are
grandfathering provisions carried forward from the Lear Siegler Diversified
Holdings Corp. Pension Plan, and apply to those participants who were covered by
such provisions of that plan.
Under the Lear formula, pension benefits are based on a participant's
"final average earnings", which is the average compensation for the highest five
consecutive calendar year earnings of the last 15 years of
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employment. Compensation includes all cash compensation reported for federal
income tax purposes excluding sales incentive bonuses. Assuming retirement at
age 65, the annual retirement benefit (based on a life annuity) is equal to the
greater of:
a. 1.10% times final average earnings times credited service (to a
maximum of 25 years) plus 0.65% times final average earnings in excess of
covered compensation times credited service (to a maximum of 25 years), or
b. $177.00 times credited service.
Covered compensation is a 35 year average of the Social Security Taxable
Wage Base as defined in I.R.S. Notice 89-70.
Participants who are former FPO employees (as of December 31, 1985), or are
former employees of Progress Pattern Corporation (as of November 30, 1984), are
eligible to have their pension determined through the application of a floor
provision, which guarantees a minimum pension benefit. Pension benefits will be
calculated in two ways, using first the new Pension Plan formula, and then using
the floor provision. If the pension benefits are greater by applying the floor
provision, then the participants will receive benefits under the floor
provision.
Assuming retirement at age 65, by applying the floor provision the benefit
will be:
a. 0.8% times final average earnings times credited service plus
b. 0.65% times final average earnings in excess of $10,000 times
credited service (to a maximum of 35 years).
Participants formerly covered by the Progress Pattern provisions were
covered by the FPO provisions on and after October 1, 1989.
The benefits under the Pension Plan become vested if a participant was
fully vested in the Lear Siegler Diversified Holdings Corp. Pension Plan, or
upon the attainment of five years of combined vesting service under the Lear
Siegler Diversified Holdings Corp. Pension Plan, and the Pension Plan, or upon
completion of five years of service.
The following table indicates estimated annual benefits payable upon normal
retirement at age 65, based on a life annuity for various compensation levels
and years of service classification, under the Lear provisions:
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED*
ANNUAL COVERED -------------------------------------------
COMPENSATION COMPENSATION 10 15 20 25
------------ ------------ ------- ------- ------- -------
$200,000 $ 55,500 $31,393 $47,089 $62,785 $78,481
250,000 55,500 36,443 54,665 72,886 91,108
300,000 55,500 36,443 54,665 72,886 91,108
350,000 55,500 36,443 54,665 72,886 91,108
400,000 55,500 36,443 54,665 72,886 91,108
450,000 55,500 36,443 54,665 72,886 91,108
500,000 55,500 36,443 54,665 72,886 91,108
and over
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* The maximum annual retirement benefit under the Pension Plan for 1993 is
$91,108 and the maximum average compensation which can be considered in the
determination of annual compensation for 1993 is $228,860.
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The following table indicates estimated annual benefits payable upon normal
retirement at age 65, based on a life annuity for various compensation levels
and years of service classifications under FPO provisions:
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED*
-------------------------------------------
ANNUAL SALARY 10 15 20 25
------------- ------- ------- ------- -------
$ 200,000 $28,350 $42,525 $56,700 $70,875
250,000 32,535 48,802 65,069 81,337
300,000 32,535 48,802 65,069 81,337
350,000 32,535 48,802 65,069 81,337
400,000 32,535 48,802 65,079 81,337
450,000 32,535 48,802 65,069 81,337
500,000 32,535 48,802 65,069 81,337
and over
- -------------------------
* The maximum annual retirement benefit under the Pension Plan for 1993 is
$81,337 and the maximum average compensation which can be considered in the
determination of annual compensation for 1993 is $228,860.
Kenneth L. Way, Theodore E. Melson, and James A. Hollars are covered by the
Lear provisions, and Robert E. Rossiter and James H. Vandenberghe are covered by
the FPO provisions. At age 65, it is estimated that Kenneth L. Way will have 15
years of service with Lear; Robert E. Rossiter will have 21 years; Theodore E.
Melson will have 19 years; James H. Vandenberghe will have 25 years; and James
A. Hollars will have 20 years. The average annual compensation for participants
covered by the Lear provisions is substantially similar to the compensation
reported in the Summary Compensation Table. The compensation covered under the
Pension Plan for the fiscal year ending June 30, 1993 was $228,860 for Robert E.
Rossiter and James H. Vandenberghe, both of whom are covered under the FPO
provisions.
The Pension Plan grants credit for all years of pension service with Lear
Siegler Diversified Holdings Corp. and with Lear, and offsets the retirement
benefit payable by the Lear Siegler Diversified Holdings Corp. Pension Plan
against the benefit payable by the Pension Plan.
As an option to normal retirement, a participant who is age 55 or older
with 10 years of service may elect to receive an early retirement benefit
commencing at age 55 or older.
401(K) SAVINGS PLAN
Lear adopted a plan effective February 1, 1989 pursuant to Section 401(k)
of the Internal Revenue Code (the "401(k) Plan") for non-union employees who
have completed a three month period of service and attained the age of
twenty-one. Under the 401(k) Plan, each eligible employee may elect to defer a
portion of their salary each year. The portion deferred will be paid by the
Company to the trustee under the 401(k) Plan. Lear makes a matching contribution
to the plan each month on behalf of each participant in an amount equal to 50%
of such participant's salary deferral contributions which are not in excess of
4% of such participant's compensation, provided however, that the matching
contribution for a participant in any year may not exceed $1,150. Matching
contributions become vested under the 401(k) Plan at a rate of 20% for each full
year of service. For the period ending June 30, 1993, each of the Chief
Executive Officer and the named officers of the Company received the maximum
matching contribution under the plan of $1,150.
STOCK OPTION PLAN
Under a stock option plan dated September 29, 1988 (the "Stock Option
Plan"), the Company has outstanding 64,584 options to purchase additional shares
of Common Stock, which are held by the Management Investors. All outstanding
options are fully vested and are exercisable at $42.50 per share.
SUPPLEMENTAL PENSION PLAN
Lear has maintained a supplemental pension plan (the "Supplemental Pension
Plan") originally established for officers of Lear Siegler, Inc. The
Supplemental Pension Plan provides supplemental retirement benefits in excess of
those provided by the Lear and FPO plans previously discussed pursuant to a
formula
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based on final average compensation and credited years of service. Employees of
Lear who were participants in the Supplemental Pension Plan for officers of Lear
Siegler, Inc. at September 30, 1988 are eligible to participate in the
Supplemental Pension Plan. Mr. Way is the only officer of Lear who is a
participant in the Supplemental Pension Plan. At age 65, Mr. Way will have 25
credited years of service under the Supplemental Pension Plan.
The following table indicates estimated supplemental annual benefits
payable upon normal retirement at age 65 based on a life annuity for various
compensation levels and years of service classifications under the Supplemental
Pension Plan provisions:
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED
ANNUAL -----------------------------------------------
SALARY 10 15 20 25
---------- -------- -------- -------- --------
$ 200,000 $ 0 $ 0 $ 0 $ 0
300,000 12,450 18,674 24,899 31,124
400,000 29,950 44,924 59,899 74,874
500,000 47,450 71,174 94,899 118,624
600,000 64,950 97,424 129,899 162,374
700,000 82,450 123,674 164,899 206,124
800,000 99,950 149,924 199,899 219,874
900,000 117,450 176,174 234,899 293,624
1,000,000 134,950 202,424 269,899 337,374
1992 STOCK OPTION PLAN
The Company has adopted the 1992 Stock Option Plan (the "1992 Stock Option
Plan"), pursuant to which management employees are eligible to receive awards of
stock options. Options granted under the 1992 Stock Option Plan are based on the
achievement of certain performance goals ("Performance Goal Options") or may
vest over time ("Time Based Options").
The 1992 Stock Option Plan is administered by the Compensation Committee of
the Company's Board of Directors. Subject to the terms of the 1992 Stock Option
Plan, the committee selects the management employees eligible to receive awards
under the 1992 Stock Option Plan, determines the size of the awards granted
thereunder, and administers and interprets the plan.
Under the 1992 Stock Option Plan, the Company may grant up to 58,000 stock
options to certain management personnel. As of October 2, 1993, 41,700 of the
options have been granted. Of the options granted, 5,400 vest over three years,
and the remainder vest based on specified performance measures over five years.
These options become exercisable at $165 per share as of September 30, 1996. In
the case of certain triggering events, all options under the 1992 Stock Option
Plan will immediately vest and become exercisable should the specified
performance criteria be met.
EMPLOYMENT AGREEMENTS
Lear has entered into employment agreements with the individuals named in
the Summary Compensation Table. The employment agreements, as amended, expire on
October 1, 1995, and provide for, among other things, rates of compensation and
bonuses. Each of Messrs. Way's, Rossiter's and Vandenberghe's employment
agreements provides for an annual base salary of $475,000, $345,000, and
$255,000, respectively. Messrs. Hollars' and Melson's employment agreements
provide for an annual base salary of $265,000 and $225,000, respectively.
Increases in these salaries, as well as bonuses, are at the sole discretion of
the Board of Directors of the Company.
Each employment agreement provides that (i) upon the death of the employee,
Lear will pay to his estate or designated beneficiary his full base salary for
an additional 12 months; (ii) upon termination for disability, the employee will
receive all compensation payable under Lear's disability and medical plans and
programs plus an additional payment from Lear so that the aggregate amount of
salary continuation from all sources equals his base salary through the
remaining term of the agreement; and (iii) upon termination for good reason, the
employee will receive his full base salary to the end of the term of agreement.
If the employment agreement is terminated for cause, the employee is only
entitled to receive unpaid salary and benefits, if any, accrued through the
effective date of the employee's termination.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
After giving effect to the Merger, the following table and accompanying
footnotes set forth the beneficial ownership of the Company's Common Stock as of
November 15, 1993 by holders known to the Company as having beneficial ownership
of more than 5% of the Company's Common Stock and the fully diluted ownership as
of such date.
NUMBER OF
SHARES OF PERCENTAGE OF
THE COMPANY'S THE COMPANY'S FULLY DILUTED
COMMON STOCK COMMON OWNERSHIP
OWNED BENEFICIALLY(1) STOCK PERCENTAGE(2)
--------------------- ------------- -------------
Lehman Funds (3)............................... 784,089 72.9% 61.4%
FIMA Finance Management Inc. (4)............... 261,668 24.3% 20.4%
Management Investors
as a Group (5)............................... 30,001 2.8% 10.6%
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(1) The shares listed herein do not include 100,000 shares of the Company's
Common Stock held in treasury and 106,284 shares of the Company's Common
Stock issuable pursuant to an exercise of all options by Management
Investors.
(2) Assumes the issuance of 100,000 shares of the Company's Common Stock to the
holders of the warrants to acquire the Company's Common Stock (the
"Warrants") and the purchase of 106,284 shares of the Company's Common
Stock pursuant to the exercise of options by Management Investors. Warrants
were issued in exchange for 100,000 shares of the Company's Common Stock
originally issued in connection with the Acquisition. Each Warrant, when
exercisable upon certain triggering events, will entitle the holder to
acquire, for no additional consideration, one share of Common Stock.
(3) Includes 281,635 shares owned by Lehman Brothers Merchant Banking Portfolio
Partnership L.P. and 191,428 shares owned by Lehman Brothers Capital
Partners II, L.P. (each located at Three World Financial Center, New York,
New York 10285); 77,429 shares owned by Lehman Brothers Offshore Investment
Partnership L.P. and 233,597 shares owned by Lehman Brothers Offshore
Investment Partnership-Japan L.P. (each located at Clarendon House, Church
Street, Hamilton HMCX, Bermuda). Lehman Brothers Merchant Banking Partners
Inc. and Lehman Brothers II Investment Inc. are the general partners of
Lehman Brothers Merchant Banking Portfolio Partnership L.P and Lehman
Brothers Capital Partners II, L.P., respectively, and Lehman Brothers
Offshore Partners Ltd. is the general partner of Lehman Brothers Offshore
Investment Partnership-Japan L.P. and Lehman Brothers Offshore Investment
Partnership L.P. Each such general partner may be deemed to own
beneficially the shares directly owned by the entity of which it is the
general partner. Each such general partner is an indirect wholly-owned
subsidiary of Lehman Brothers Group Inc. ("LBG"), which is a wholly owned
subsidiary of Lehman Brothers Holdings Inc. ("Lehman Holdings"). Each of
the partnerships may be deemed to share with Lehman Brothers Merchant
Banking Partners Inc. the power to vote and the power to dispose of the
shares owned by such partnership. The address of Lehman Brothers Merchant
Banking Partners Inc. is Three World Financial Center, New York, New York
10285.
(4) FIMA Finance Management Inc. is an affiliate of IFINT S.A., the
international investment company of IFI S.p.A., the parent company of the
Agnelli Group. The address of FIMA is Citco Building, Wickam's Cay,
Tortola, British Virgin Islands.
(5) Management Investors include thirty-three individuals who are directors,
officers or senior managers of the Company. The foregoing does not include
Warrants, if any, held by the Management Investors. None of the Management
Investors beneficially owns more than 5% of the Company's Common Stock.
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The following table shows the number of shares of the Company's Common
Stock beneficially owned by the directors and/or named officers of the Company,
and by all directors and executive officers as a group, as of November 15, 1993.
Each individual exercises sole investment and voting rights with respect to the
shares of the Company's Common Stock shown in the table unless otherwise stated
in the footnotes.
NUMBER OF SHARES PERCENTAGE OF
OF THE COMPANY'S THE COMPANY'S
COMMON STOCK COMMON
NAME AND POSITION OWNED BENEFICIALLY STOCK(1)
----------------- ------------------ -------------
Kenneth L. Way............................................ 5,510 *
Chairman, Chief Executive Officer and Director of the
Company
Robert E. Rossiter........................................ 3,210 *
President, Chief Operating Officer and Director of the
Company
James H. Vandenberghe..................................... 2,111 *
Executive Vice President, Chief Financial Officer and
Secretary of the Company
James A. Hollars.......................................... 1,900 *
Senior Vice President -- International Operations of the
Company
Theodore E. Melson........................................ 1,900 *
Senior Vice President -- Manufacturing Planning of the
Company
Donald J. Stebbins........................................ 435 *
Vice President and Treasurer of the Company
Total Executive Officers and Directors as a Group......... 15,066 1.4%
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* Less than one percent.
(1) The shares taken into account for purposes of determining the percentage of
the Company's Common Stock beneficially owned do not include 100,000 shares
of the Company's Common Stock held in treasury after exchange for the
Warrants and 106,284 shares of the Company's Common Stock which may be
issued pursuant to the exercise of all options by Management Investors.
No other director beneficially owns shares of the Company's Common Stock.
CERTAIN TRANSACTIONS
THE 1991 TRANSACTIONS
On September 27, 1991, the Company engaged in a series of related
transactions (the "1991 Transactions") for the purpose of raising additional
capital to repay a portion of the Company's outstanding indebtedness under its
credit agreement (the "Original Credit Agreement") and to fund the acquisition
of Lear Seating Sweden, AB ("LS Sweden"). A portion of the payments made under
the Company's Original Credit Agreement increased availability thereunder, which
was used to finance expansion of the Company's operations. As part of the 1991
Transactions, (i) the Company sold an aggregate of 454,545 additional shares of
the Company's Common Stock to the Lehman Funds and FIMA at a price of $165 per
share for an aggregate amount of approximately $75.0 million (the "Stock Sale");
(ii) the Lehman Funds purchased all of the Company's outstanding Common Stock
and Warrants owned by GECC and all of the Company's outstanding Common Stock
owned by INVEST; (iii) the Lehman Funds and FIMA purchased the Company's
outstanding Common Stock held by MH Capital Partners, Inc.; (iv) the Company
entered into certain amendments to the Original Credit Agreement; and (v) the
Company borrowed $20.0 million from GECC, which was secured by a First Mortgage
and Security Agreement covering certain of Lear's domestic facilities, machinery
and equipment (the "GECC Mortgage Loan"), the entire proceeds of which were used
to repay permanently a portion of the term loans outstanding under the Original
Credit Agreement.
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After giving effect to the 1991 Transactions (i) the Lehman Funds owned a
total of 693,180 shares of the Company's Common Stock and Warrants to purchase
an additional 2,539 shares of the Company's Common Stock, or approximately 62.3%
of the Company's outstanding Common Stock (assuming the exercise of all
outstanding Warrants and employee stock options) for an aggregate consideration
of approximately $114.8 million and (ii) FIMA acquired an additional 36,365
shares of the Company's Common Stock at an aggregate consideration of
approximately $6.0 million, for a total of 231,365 shares of the Company's
Common Stock, or approximately 20.7% of the Company's outstanding Common Stock
(assuming the exercise of all outstanding Warrants and employee stock options).
For additional information regarding the 1991 Transactions, see the consolidated
financial statements of the Company included elsewhere in this Prospectus.
Proceeds from the Stock Sale and the GECC Mortgage Loan were utilized to
purchase the stock of LS Sweden from GECC for $100,000, to repay GECC's
financing to LS Sweden of approximately $7.3 million, to pay down term loans
under the Original Credit Agreement by $48.5 million, to pay down borrowings
under the Original Credit Agreement by $32.0 million, and to pay fees and
expenses of approximately $7.7 million related to the 1991 Transactions.
Included in the $7.7 million in fees and expenses is $4.5 million paid to Lehman
Brothers Inc. for fees related to the above transactions. The remainder of the
fees related to legal and administrative expenses incurred by the Company,
Lehman Brothers Inc., FIMA and GECC related to the Stock Sale and the GECC
Mortgage Loan which were paid by the Company.
Subsequent to the 1991 Transactions, on June 1, 1992 a new Bank Act (the
"Bank Act") was enacted in Canada requiring an order of the Minister of Finance
(Canada) to permit the Lehman Funds to continue to hold their existing indirect
investment in Lear's Canadian operations. An application for an order has been
made and, based upon advice of their Canadian counsel, the Lehman Funds
anticipate receipt of such order. Should the application for the order be
denied, Lear could, among other things, move its operations out of Canada or
divest such operations or the Lehman Funds could, among other things, reduce
their indirect ownership of the voting shares of Lear's Canadian companies below
10% to comply with the Bank Act.
SENIOR SUBORDINATED NOTE OFFERING AND EQUITY INVESTMENT
In order to support the Company's future expansion in North America and
Europe, in July 1992, the Company entered into an agreement to sell $20.0
million of Common Stock to its major stockholders, the Lehman Funds and FIMA
(the "Equity Investment"). Simultaneous with the Equity Investment, the Company
effected a public offering of $125.0 million of the Senior Subordinated Notes.
Lehman Brothers Inc., an affiliate of the Lehman Funds, acted as an underwriter
in connection with the offering and received underwriting fees of approximately
$2.2 million. Lehman Brothers Inc. and IFINT S.A. received fees of approximately
$450,000 and $150,000, respectively, for advisory services rendered to the
Company in connection with the Equity Investment and the public offering of the
Senior Subordinated Notes.
THE NAB ACQUISITION AND THE CREDIT AGREEMENT
In connection with the NAB Acquisition and the consummation of the Credit
Agreement, Lehman Brothers Inc., an affiliate of the Lehman Funds, provided
certain advisory and valuation services to the Company for which it received
aggregate fees of approximately $1.0 million. In addition, Lehman Commercial
Paper Inc., an affiliate of the Lehman Funds, is a managing agent and a lender
under the Credit Agreement for which it received and will continue to receive
its proportionate share of payments made by the Company under the Credit
Agreement.
STOCKHOLDERS AGREEMENT
The Stockholders Agreement, which was entered into by the Company, the
Lehman Funds, FIMA, and the Management Investors, which is also binding upon
transferees, prohibits the transfer of the Company's Common Stock held by the
Management Investors until at least September 27, 1994, except in certain
limited circumstances. The Stockholders Agreement provides, among other things,
(i) that the Lehman Funds have the right to nominate up to six members of the
board of directors of the Company, that FIMA has the right to nominate three
directors and that the Management Investors have the right to nominate two
directors; (ii) that certain fundamental corporate actions must be approved by a
supermajority vote of the board of
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directors or by an executive committee of the board of directors (including by
the affirmative vote of one director who shall have been nominated by FIMA); and
(iii) that at the discretion of the Lehman Funds, in order to facilitate certain
transactions, certain of such corporate actions may be approved by a majority
vote of the board of directors under certain circumstances. As a result of the
foregoing and unless the Lehman Funds transfer a substantial portion of the
Company's Common Stock they own, the Lehman Funds will have the ability to
direct the day to day operations of the Company, and under certain circumstances
to veto certain fundamental corporate actions and to direct certain fundamental
corporate events, subject to FIMA's right under certain circumstances to acquire
the shares of the Lehman Funds. In addition, the Stockholders Agreement (i)
places substantial restrictions on the transferability of the shares owned by
the parties thereto or their transferees; (ii) grants the parties thereto
preemptive rights to subscribe for certain additional shares of the Company's
Common Stock and other securities issued by the Company; (iii) grants a right of
first offer to FIMA in respect of the shares of the Lehman Funds under certain
circumstances; (iv) grants a right of first offer to the Lehman Funds in respect
of FIMA's shares under certain circumstances; and (v) empowers the Lehman Funds,
under certain circumstances and subject to FIMA's right of first offer, to cause
a transfer of all of the Company's outstanding Common Stock, cause a merger or
consolidation of the Company or cause a transfer of all or substantially all of
the assets of Seating to another entity.
The Stockholders Agreement also provides that prior to the earlier of (i)
September 27, 1996 or (ii) the existence of a Public Market (as defined below)
after September 27, 1994: (a) if a Management Investor is terminated for Cause
or resigns without Good Reason, the Company will have an option to purchase all
shares of the Company's Common Stock and vested Options owned by such Management
Investor at the lower of Cost or Fair Market Value and (b) if a Management
Investor is terminated without Cause, resigns for Good Reason, dies or incurs a
Disability, such Management Investor or his personal representative will have an
option to sell all shares of the Company's Common Stock and all vested Options
owned by such Management Investor to the Company for the higher of Cost or Fair
Market Value, provided that in the case of the Management Investors who have
employment contracts with the Company (I) if any such Management Investor is
terminated for Cause or resigns without Good Reason, the Company will have an
option to purchase all shares of Company Common Stock and vested Options owned
by such Management Investor at the lower of Cost or Fair Market Value, (II) if
any such Management Investor is terminated without Cause, the Company will have
an option to purchase all shares of the Company's Common Stock and vested
Options owned by such Management Investor at the higher of cost or Fair Market
Value and (III) if any such Management Investor dies, incurs a Disability or
resigns for Good Reason, such Management Investor or his personal representative
will have an option to sell all shares of the Company's Common Stock and all
vested Options owned by such Management Investor at the higher of Cost or Fair
Market Value.
As the foregoing indicates, the Stockholders Agreement places substantial
restrictions on the transferability of the shares owned by the parties thereto
or their transferees, empowers the Lehman Funds to transfer their entire
interests in the Company or to cause the sale of all of the interests in the
Company to a third party and creates conditions pursuant to which FIMA may
acquire all or a substantial portion of the shares of the Lehman Funds. The
Stockholders Agreement also provides that under certain circumstances, the
holders of the Company's Common Stock may require the Company to cause such
stock to be registered with the Commission for public resale. A number of
provisions of the Stockholders Agreement will cease to be effective upon the
establishment of a "Public Market" in the Company's Common Stock, which will
have occurred when at least 15% of the shares of the Company's Common Stock then
outstanding have been sold pursuant to one or more effective registration
statements and the shares of the Company's Common Stock are included for
quotation on the NASDAQ System or are listed on a national securities exchange.
MANAGEMENT EQUITY PARTICIPATION
The Management Investors entered into Management Subscription Agreements
with the Company dated as of September 29, 1988 (collectively, the "Management
Equity Agreement") pursuant to which each of the Management Investors purchased
Common Stock at $100 per share for consideration consisting of cash and/or
recourse or non-recourse promissory notes (the "Management Notes"). As of
October 2, 1993, the outstanding balance of the Management Notes of each of
Messrs. Way and Rossiter was approximately $489,000 and the outstanding balance
of the Management Notes of each of Messrs. Vandenberghe, Hollars
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and Melson was approximately $163,000. Each of the Management Notes, including
accrued interest, matures on January 25, 1997 and bears interest at a rate of
prime plus 1.50%.
In addition, pursuant to Stock Option Agreements dated as of September 29,
1988 (the "Management Option Agreement") between the Company and each of the
Management Investors, the Company may grant the Management Investors options,
exercisable after five years, to acquire an aggregate of up to 70,588 authorized
but unissued shares of the Company's Common Stock (the "Options"), of which
64,584 remain outstanding. The Options of the Management Investors vested over
the course of three years and are exercisable for $42.50 per share, in cash,
which is lower than the $100 per share paid in connection with the 1988
Acquisition. Options must be exercised within ten years of the date of grant.
Under the 1992 Stock Option Plan, the Company may grant up to 58,000 stock
options to certain management personnel. As of October 2, 1993, 41,700 of these
options have been granted, 5,400 of which vest over three years, and the
remainder of which vest based on specified performance measures over five years.
All options under the 1992 Stock Option Plan become exercisable, to the extent
vested, at $165 per share as of September 30, 1996. In the case of certain
triggering events, all options granted under the 1992 Stock Option Plan will
immediately vest and become exercisable should the specified performance
criteria be met.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
The following summary of certain provisions of the Amended and Restated
Credit Agreement dated as of October 25, 1993 (as amended from time to time, the
"Credit Agreement"), by and among Lear, as borrower, the financial institutions
party thereto, Chemical Bank, as Agent (the "Agent"), and Bankers Trust Company,
The Bank of Nova Scotia, Citicorp USA, Inc. and Lehman Commercial Paper Inc., as
Managing Agents, does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the Credit
Agreement, including all of the definitions therein of terms not defined in this
Prospectus. The Credit Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
General. The Credit Agreement currently provides for (i) borrowings in a
principal amount of up to $425.0 million at any one time outstanding, (ii) swing
line loans in a maximum aggregate amount of $30.0 million, the commitment for
which is part of the aggregate Credit Agreement commitment, and (iii) Letters of
Credit in an aggregate face amount of up to $75.0 million, the commitment for
which is part of the aggregate Credit Agreement commitment. Commitments under
the Credit Agreement will be permanently reduced by $40.0 million every six
months beginning October 31, 1996, and the Credit Agreement will expire on
October 31, 1998. Commitments under the Credit Agreement will be also
permanently reduced by a percentage of the fair market value of certain accounts
receivable sold pursuant to a permitted receivables financing program.
Borrowings under the Credit Agreement, including the swing line loans, are
collectively referred to herein as the "Loans." See "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company."
Interest. For purposes of calculating interest, the Loans can be, at the
election of Lear, ABR Loans or Eurodollar Loans or a combination thereof. ABR
Loans bear interest at the ABR (which is basically the prime rate) plus between
0% and 0.50%, depending on whether Lear satisfies certain financial ratios.
Eurodollar Loans bear interest at the Eurodollar Rate plus between 0.75% and
1.50%, depending on whether Lear satisfies certain financial ratios.
Repayment. Subject to the provisions of the Credit Agreement, Lear may,
from time to time, borrow, repay and reborrow under the Credit Agreement. The
entire unpaid balance under the Credit Agreement is payable on October 31, 1998.
Security and Guarantees. The Loans are guaranteed by all of the Company's
direct and indirect domestic subsidiaries. The Loans and such guarantees are
variously secured by (i) a pledge to the Agent for the ratable benefit of the
banks party to the Credit Agreement of all of the capital stock of each of the
Company's domestic subsidiaries, and a pledge of certain stock of the Company's
foreign subsidiaries; (ii) a grant of a
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security interest in substantially all of the assets of the Company and its
domestic subsidiaries; and (iii) the mortgages of substantially all of the
property of the Company and its domestic subsidiaries.
Covenants. The Credit Agreement contains financial covenants relating to
maintenance of consolidated net worth, of ratios of consolidated operating
profit to consolidated cash interest expense and of consolidated operating
profit. The Credit Agreement also contains restrictive covenants pertaining to
the management and operation of the Company. The covenants include, among
others, significant limitations on indebtedness, guarantees, mergers,
acquisitions, fundamental corporate changes, capital expenditures, asset sales,
leases, investments, loans and advances, liens, dividends and other stock
payments, transactions with affiliates, optional payments and modification of
debt instruments, issuance of stock and sale and leaseback transactions.
Events of Default. The Credit Agreement provides for events of default
customary in facilities of this type, including: (i) failure to make payments
when due; (ii) breach of covenants; (iii) breach of representations or
warranties in any material respect when made; (iv) default under any agreement
relating to debt for borrowed money in excess of $5.0 million in the aggregate;
(v) bankruptcy defaults; (vi) judgments in excess of $5.0 million; (vii) ERISA
defaults; (viii) any security document or guarantee ceasing to be in full force
and effect; (ix) the subordination provisions in the instruments pursuant to
which the Senior Subordinated Notes and the 14% Subordinated Debentures (or any
refinancings thereof) were created ceasing to be in full force and effect or
enforceable to the same extent purported to be created thereby; and (x) the
failure of certain stockholders to continue to own or control sufficient number
of shares of capital stock of the Company to elect a majority of the Board of
Directors of the Company.
FOREIGN CREDIT FACILITIES
Certain of the Company's foreign subsidiaries have outstanding credit
facilities in Canada and Germany. In Canada, there is an outstanding revolving
credit facility of up to 10.0 million Canadian dollars (or the approximate
equivalent of U.S. $8.5 million) which bears interest at the prime lending rate
and matures in September 1995 (the "Canadian Loan"). The Canadian Loan is
guaranteed by a letter of credit issued under the Credit Agreement.
In Germany, there is an outstanding term loan (the "German Term Loan") of
13.5 million Deutschemarks (or the approximate equivalent of U.S. $8.1 million),
which bears interest at an effective annual rate of 9.125%, is payable in
Deutschemarks in quarterly installments of 500,000 Deutschemarks through March
2000, and is collateralized by certain assets held by a German subsidiary. The
agreements relating to the Canadian Loan and the German Term Loan also contain
certain covenants.
Two of the Company's European subsidiaries factor their accounts receivable
with a bank subject to limited recourse provisions and are charged a discount
fee equal to the current LIBOR rate plus 1.25%. The amount of such factored
receivables, at October 2, 1993 was approximately $25.7 million.
In addition, certain of the Company's other foreign subsidiaries are
parties to informal lines of credit.
SENIOR SUBORDINATED NOTES
In July 1992, the Company issued $125.0 million of the 11 1/4% Senior
Subordinated Notes due 2000 (the "Senior Subordinated Notes") in a public
offering. The Senior Subordinated Notes are subordinated in right of payment to
all existing and future senior indebtedness of Lear and will be senior in right
of payment to the Notes. Interest is payable in arrears on January 15 and July
15.
The indenture relating to the Senior Subordinated Notes (the "Senior
Subordinated Note Indenture") limits among other things: (i) the making of any
Restricted Payment (as defined in the Senior Subordinated Note Indenture); (ii)
the incurrence of indebtedness with certain exceptions, including among other
things, the indebtedness under the Credit Agreement, the Notes, indebtedness
existing on the date of the Senior Subordinated Note Indenture and certain
indebtedness of foreign subsidiaries; (iii) the creation of liens; (iv) the
incurrence of payment restrictions affecting subsidiaries; (v) entering into
transactions with stockholders and affiliates; (vi) the sale of assets; (vii)
the issuance of preferred stock; and (viii) the merger, consolidation or sale of
substantially all of the assets of the Company. The Senior Subordinated Note
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Indenture also provides that a holder of the Senior Subordinated Notes may,
under certain circumstances, have the right to require that Lear repurchase such
holder's Senior Subordinated Notes upon a change of control of the Company.
The Senior Subordinated Notes mature on July 15, 2000 and may not be
redeemed prior to July 15, 1997. On or after July 15, 1997, Lear may, at its
option, redeem the Senior Subordinated Notes in whole or in part, on at least 30
days' but not more than 60 days' notice to each holder of the Senior
Subordinated Notes to be redeemed, at 100% of their principal amount together
with accrued and unpaid interest (if any) to the redemption date. The Senior
Subordinated Notes are not subject to mandatory redemption prior to maturity.
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture dated as of February 1, 1994
(the "Indenture"), among the Company, as issuer, and The First National Bank of
Boston, as trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as in effect on the date of the Indenture.
The Notes are subject to all such terms, and holders of the Notes are referred
to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. A copy
of the Indenture and a specimen of the Note have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. Capitalized terms
used herein and not otherwise defined below, have the meaning assigned in the
Indenture.
GENERAL
The Notes are direct obligations of the Company, and will be issued in
denominations of $1,000 and integral multiples thereof. The Indenture authorizes
the issuance of $145,000,000 aggregate principal amount of Notes. As described
below under "Subordination", the Notes are subordinated in right of payment to
Senior Indebtedness of the Company.
As of October 2, 1993, the aggregate amount of Senior Indebtedness of the
Company (including its obligations under the Senior Subordinated Notes and
amounts outstanding under the Credit Agreement) would have been approximately
$431.9 million, as adjusted to give effect to the Pro Forma Transactions. In
addition, certain of the Company's subsidiaries have outstanding and may incur
Indebtedness in the future. Holders of such indebtedness will have a claim
against the assets of such subsidiaries that will rank prior to the claims of
the holders of the Notes. As of October 2, 1993, the aggregate indebtedness of
such subsidiaries for money borrowed would have been approximately $31.2
million.
The Notes will bear interest at the rate per annum shown on the cover page
of this Prospectus, payable semiannually on February 1 and August 1 in each year
to holders of record of the Notes at the close of business on January 15 and
July 15, respectively, of such year. The first interest payment date is August
1, 1994. Interest is computed on the basis of a 360-day year of twelve 30-day
months. The Notes mature on February 1, 2002.
Principal and interest on the Notes are payable, and the Notes are
transferable, initially at the offices of the Trustee in New York, New York.
Holders must surrender the Notes to the Paying Agent in order to collect
principal payments. Interest on the Notes may be paid by check mailed to the
registered holders of the Notes. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
with certain transfers or exchanges. Initially, the Trustee will act as Paying
Agent and Registrar under the Indenture. The Company or any of its Affiliates
may act as Paying Agent and Registrar, and the Company may change the Paying
Agent or Registrar without prior notice to holders.
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OPTIONAL REDEMPTION
The Notes may not be redeemed prior to February 1, 1998. On or after such
date, the Company may, at its option, redeem the Notes in whole or in part, from
time to time, at the following redemption prices (expressed in percentages of
the principal amount thereof), in each case together with accrued interest, if
any, to the date of redemption.
If redeemed during the 12-month period commencing February 1:
PERCENTAGE
----------
1998................................................................ 101.65%
1999 and thereafter................................................. 100.00%
The Credit Agreement and the Senior Subordinated Notes contain provisions
that limit the Company's ability to optionally redeem the Notes.
MANDATORY REDEMPTION
The Notes are not subject to mandatory redemption prior to maturity.
SUBORDINATION
The Indebtedness evidenced by the Notes is subordinated to the prior
payment, when due, of all Senior Indebtedness (including the Senior Subordinated
Notes) of the Company but will rank senior to the Indebtedness of the Company
expressly subordinated to the Notes.
Upon any payment or distribution of assets or securities of the Company due
to any dissolution, winding up, total or partial liquidation or reorganization
of the Company or in bankruptcy, insolvency, receivership or other proceedings,
the payment of the principal of and interest on the Notes will be subordinated
in right of payment, as set forth in the Indenture, to the prior payment in full
of all Senior Indebtedness. Upon a default in the payment of any Obligations
with respect to Senior Indebtedness or upon the acceleration of the maturity of
Senior Indebtedness or while any judicial proceeding is pending with respect to
a default on Senior Indebtedness (of which the Trustee has received written
notice), no payment may be made upon or in respect of the Notes until such
default shall have been cured or waived. In addition, during the continuance of
any other event of default with respect to (i) the Credit Agreement pursuant to
which the maturity thereof may be accelerated, upon (a) receipt by the Trustee
of written notice from the Agent Bank (or any Representative of any Senior
Indebtedness which refinances or refunds the Credit Agreement so long as amounts
outstanding under such agreement are in excess of $50,000,000) or (b) if such
event of default results from the acceleration of the Notes, on the date of such
acceleration, no such payment may be made by the Company upon or in respect of
the Notes for a period ("Payment Blockage Period") commencing on the earlier of
the date of receipt of such notice or the date of such acceleration and ending
119 days thereafter (unless such Payment Blockage Period shall be terminated by
written notice to the Trustee from the Agent Bank or any Representative of any
Senior Indebtedness under any agreement which refinances or refunds the Credit
Agreement so long as amounts outstanding under such agreement are in excess of
$50,000,000) or (ii) any other Specified Senior Indebtedness, upon receipt by
the Company of written notice from the Representative for the holders of such
Specified Senior Indebtedness, no such payment may be made by the Company upon
or with respect to the Notes for a Payment Blockage Period commencing on the
date of the receipt of such notice and ending 119 days thereafter (unless such
Payment Blockage Period shall be terminated by written notice to the Company
from such Representative commencing such Payment Blockage Period). In no event
will any one Payment Blockage Period extend beyond 179 days from the date the
payment on the Notes was due. Not more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 360 consecutive days;
provided that as long as amounts outstanding under the Credit Agreement or any
agreement which refinances or refunds the Credit Agreement are in excess of
$50,000,000, the commencement of a Payment Blockage Period by the holders of the
Specified Senior Indebtedness other than the Credit Agreement shall not bar the
commencement of a Payment Blockage Period by the Agent Bank within such period
of 360 days. No event of default which existed or was continuing on the date of
the
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commencement of any Payment Blockage Period with respect to the Specified Senior
Indebtedness initiating such Payment Blockage Period shall be, or be made, the
basis for the commencement of a second Payment Blockage Period by the
Representative of such Specified Senior Indebtedness whether or not within a
period of 360 consecutive days unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days.
If payments with respect to both the Notes and Senior Indebtedness become
due on the same day, then all obligations with respect to such Senior
Indebtedness due on that date shall first be paid in full before any payment is
made with respect to the Notes.
By reason of the subordination provisions described above, in the event of
the Company's insolvency, liquidation, reorganization, dissolution or other
winding-up, funds which would otherwise be payable to holders of Notes will be
paid to the holders of Senior Indebtedness to the extent necessary to pay the
Senior Indebtedness in full. The Indenture limits the amount of additional
Senior Indebtedness which the Company can create, incur, assume or guarantee.
See "Certain Covenants -- Limitation on Indebtedness."
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to the Company, Indebtedness of
a person existing at the time such person becomes a subsidiary of the Company or
assumed in connection with the acquisition by the Company or a subsidiary of the
Company of assets from such person, which assets constitute all of an operating
unit of such person, and not incurred in connection with, or in contemplation
of, such person becoming a subsidiary of the Company or such acquisition.
"Affiliate" means, when used with reference to the Company or another
person, any person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, the Company or such other person, as the
case may be. For the purposes of this definition, "control" when used with
respect to any specified person means the power to direct or cause the direction
of management or policies of such person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
Notwithstanding the foregoing, the term "Affiliate" shall not include any wholly
owned subsidiary of the Company.
"Agent Bank" means Chemical Bank and/or its Affiliates together with any
bank which is or becomes a party to the Credit Agreement or any successor to
Chemical Bank and/or its Affiliates, and any other Agent Bank under the Credit
Agreement.
"Asset Sale" means any sale exceeding $2,000,000, or any series of sales in
related transactions exceeding $2,000,000 in the aggregate, by the Company or
any subsidiary of the Company, directly or indirectly, of properties or assets
other than in the ordinary course of business, including capital stock of a
subsidiary of the Company, except for (i) the sale of receivables by the Company
or any subsidiary of the Company in the ordinary course of business consistent
with past practice of the Company or any of its subsidiaries, or the transfer of
receivables to a special-purpose subsidiary of the Company and the issuance by
such special-purpose subsidiary, on a basis which is non-recourse (except for
representations as to the status or eligibility of such receivables or to the
limited extent described in clause (vii)(B) of the definition of "Permitted
Indebtedness") to the Company or any other subsidiary of the Company, of
securities secured by such receivables, and (ii) any sale-and-lease-back
transaction involving a Capitalized Lease Obligation permitted under the
provisions described under "Limitation on Indebtedness."
"average weighted life" means, as of the date of determination, with
reference to any debt security, the quotient obtained by dividing (i) the sum of
the products of the number of years from the date of determination to the dates
of each successive scheduled principal payment of such debt security multiplied
by the amount of such principal payment by (ii) the sum of all such principal
payments.
"Capitalized Lease Obligation" means any lease obligation of a person
incurred with respect to any property (whether real, personal or mixed) acquired
or leased by such person and used in its business that is accounted for as a
capital lease on the balance sheet of such person in accordance with GAAP.
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"Cash Equivalents" means (A) any evidence of Indebtedness maturing, or
otherwise payable without penalty, not more than 365 days after the date of
acquisition issued by the United States of America or an instrumentality or
agency thereof and guaranteed fully as to principal, premium, if any, and
interest by the United States of America, (B) any certificate of deposit
maturing, or otherwise payable without penalty, not more than 365 days after the
date of acquisition issued by, or time deposit of, a commercial banking
institution that has combined capital and surplus of not less than $300,000,000,
whose debt is rated, at the time as of which any Investment therein is made,
"A2" (or higher) according to Moody's or "A" (or higher) according to S & P, (C)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate or subsidiary of the Company)
organized and existing under the laws of the United States of America or any
jurisdiction thereof, with a rating, at the time as of which any Investment
therein is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P and (D) any money market deposit accounts issued or offered by
any domestic institution in the business of accepting money market accounts or
any commercial bank having capital and surplus in excess of $300,000,000.
"Cash Proceeds" means, with respect to any Asset Sale, cash payments
(including any cash received by way of deferred payment pursuant to a note
receivable or otherwise, but only as and when so received) received from such
Asset Sale.
"Change of Control" means an event or series of events by which (i) a party
other than a Permitted Investor or any "person" (as such term is used in
Sections 13 (d) and 14 (d) of the Exchange Act) directly or indirectly
controlling, controlled by, or under common control with the Permitted Investors
(1) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire without
condition, other than the passage of time, whether such right is exercisable
immediately or only after the passage of time) of 50% or more of the Voting
Stock of the Company, (2) is or becomes a shareholder of the Company with the
right to appoint or remove directors of the Company holding 50% or more of the
voting rights at meetings of the Board of Directors on all, or substantially
all, matters or (3) is or becomes able to exercise the right to give directions
with respect to the operating and financial policies of the Company with which
the relevant directors are obliged to comply by reason of: (A) provisions
contained in the organizational documents of the Company or (B) the existence of
any contract permitting such person to exercise control over the Company; (ii)
the Company consolidates with, or merges or amalgamates with or into another
person or conveys, transfers, or leases all or substantially all of its assets
to any person, or any person consolidates with, or merges or amalgamates with or
into the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A) the
outstanding Voting Stock of the Company is changed into or exchanged for Voting
Stock of the surviving corporation which is not redeemable capital stock or (x)
such Voting Stock and (y) cash, securities and other property in an amount which
could be paid by the Company as a Restricted Payment pursuant to the provisions
described under "Limitation on Restricted Payments" (and such amount shall be
treated as a Restricted Payment subject to the provisions described under
"Limitation on Restricted Payments") and (B) the holders of the Voting Stock of
the Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction; (iii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (iv) the shareholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture).
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
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"Consolidated Adjusted Net Worth" means, with respect to any person, as of
any date of determination, the total amount of stockholders' equity of such
person and its subsidiaries which would appear on the consolidated balance sheet
of such person as of the date of determination, less (to the extent otherwise
included therein) the following (the amount of such stockholders' equity and
deductions therefrom to be computed, except as noted below, in accordance with
GAAP): (i) an amount attributable to interests in subsidiaries of such person
held by persons other than such person or its subsidiaries; (ii) any
reevaluation or other write-up in book value of assets subsequent to December
31, 1993, other than upon the acquisition of assets acquired in a transaction to
be accounted for by purchase accounting under GAAP made within twelve months
after the acquisition of such assets; (iii) treasury stock; (iv) an amount equal
to the excess, if any, of the amount reflected for the securities of any person
which is not a subsidiary over the lesser of cost or market value (as determined
in good faith by the Board of Directors) of such securities; and (v)
Disqualified Stock of the Company or any subsidiary of the Company.
"Consolidated Amortization Expense" means for any person, for any period,
the amortization of goodwill and other intangible items of such person and its
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Cash Flow Available for Interest Expense" means, for any
person and the Company, the sum of the aggregate amount, for the four fiscal
quarters for which financial information in respect thereof is available
immediately prior to the date of the transaction giving rise to the need to
calculate the Consolidated Cash Flow Available for Interest Expense (the
"Transaction Date"), of (i) Consolidated Net Income (Loss) of such person, (ii)
Consolidated Income Tax Expense, (iii) Consolidated Depreciation Expense, (iv)
Consolidated Amortization Expense, (v) Consolidated Interest Expense and (vi)
other noncash items reducing Consolidated Net Income (Loss), minus non-cash
items increasing Consolidated Net Income (Loss). Consolidated Cash Flow
Available for Interest Expense for any period shall be adjusted to give pro
forma effect (to the extent applicable) to (i) each acquisition by the Company
or a subsidiary of the Company during such period up to and including the
Transaction Date (the "Reference Period") in any person which, as a result of
such acquisition, becomes a subsidiary of the Company, or the acquisition of
assets from any person which constitutes substantially all of an operating unit
or business of such person and (ii) the sale or other disposition of any assets
(including capital stock) of the Company or a subsidiary of the Company, other
than in the ordinary course of business, during the Reference Period, as if such
acquisition or sale or disposition of assets by the Company or a subsidiary of
the Company occurred on the first day of the Reference Period.
"Consolidated Depreciation Expense" means for any person, for any period,
the depreciation expense of such person and its subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Income Tax Expense" means, for any person, for any period,
the aggregate of the income tax expense of such person and its subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any person, for any period, the
sum of (a) the Interest Expense of such person and its subsidiaries for such
period, determined on a consolidated basis, (b) dividends in respect of
preferred or preference stock of a subsidiary of the Company held by persons
other than the Company or a wholly owned subsidiary of the Company and (c)
interest incurred during the period and capitalized by the Company and its
subsidiaries on a consolidated basis in accordance with GAAP. For purposes of
clause (b) of the preceding sentence, dividends will be deemed to be an amount
equal to the actual dividends paid divided by one minus the applicable actual
combined Federal, state, local and foreign income tax rate of the Company
(expressed as a decimal), on a consolidated basis, for the fiscal year
immediately preceding the date of the transaction giving rise to the need to
calculate Consolidated Interest Expense.
"Consolidated Interest Expense Coverage Ratio" means, with respect to any
person, the ratio of (i) the aggregate amount of the applicable Consolidated
Cash Flow Available for Interest Expense of such person to (ii) the aggregate
Consolidated Interest Expense which such person shall accrue during the first
full fiscal quarter following the Transaction Date and the three fiscal quarters
immediately subsequent to such fiscal
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quarter, such Consolidated Interest Expense to be calculated on the basis of the
amount of such person's Indebtedness (on a consolidated basis) outstanding on
the Transaction Date and reasonably anticipated by such person in good faith to
be outstanding from time to time during such period.
"Consolidated Net Income (Loss)" means, with respect to any person, for any
period, the aggregate of the net income (loss) of such person and its
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded from such net income (to the
extent otherwise included therein) (i) the net income (loss) of any person which
is not a subsidiary of such person and which is accounted for by the equity
method of accounting, except to the extent of the amount of cash dividends or
distributions paid by such other person to such person or to a subsidiary of
such person, (ii) the net income (loss) of any person accrued prior to the date
on which it is acquired by such person or a subsidiary of such person in a
pooling of interests transaction, (iii) except for NS Beteiligungs GmbH (a
German Foreign Subsidiary) or any successor entity, the net income (loss) of any
subsidiary of such person to the extent that the declaration or payment of
dividends or similar distributions or transfers or loans by that subsidiary is
not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such subsidiary, in each case determined in accordance
with GAAP, (iv) any gain or loss, together with any related provision for taxes
in respect of such gain or loss, realized upon the sale or other disposition
(including, without limitation, dispositions pursuant to sale-and-lease-back
transactions) of any asset or property outside of the ordinary course of
business and any gain or loss realized upon the sale or other disposition by
such person of any capital stock or marketable securities and (v) any noncash
charges incurred by the Company at any time in connection with SFAS 106.
"Credit Agreement" means the Amended and Restated Credit Agreement dated as
of October 25, 1993 among Lear Holdings Corporation, the Company, the several
financial institutions parties thereto from time to time (the "Banks"), the
Agent Bank and Bankers Trust Company, The Bank of Nova Scotia, Citicorp USA,
Inc. and Lehman Commercial Paper Inc., as managing agents, as the same has been
heretofore amended and may be amended hereafter from time to time, and any
subsequent credit agreement constituting a refinancing, extension or
modification thereof.
"Default" means any event which is, or after notice or lapse of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to an Affiliate Transaction or
series of related Affiliate Transactions, a member of a Board of Directors who
has no financial interest, and whose employer has no financial interest, in such
Affiliate Transaction or series of related Affiliate Transactions.
"Disqualified Stock" means any capital stock of the Company or any
subsidiary of the Company which, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the maturity date of the
Notes or which is exchangeable or convertible into debt securities of the
Company or any subsidiary of the Company, except to the extent that such
exchange or conversion rights cannot be exercised prior to the maturity of the
Notes.
"Foreign Subsidiary" means any subsidiary of the Company organized and
conducting its principal operations outside the United States.
"GAAP" means generally accepted accounting principles on a basis
consistently applied, provided that all ratios and calculations contained in the
Indenture will be calculated in accordance with generally accepted accounting
principles in effect on the date of the Indenture.
"Indebtedness" means (without duplication), with respect to any person, any
indebtedness, contingent or otherwise, in respect of borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such person or
only to a portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (except any such balance that constitutes a trade payable
in the ordinary course of business that is not overdue by more than 120 days or
is being contested in good faith), if and to the extent any of the foregoing
indebtedness would
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appear as a liability upon a balance sheet of such person prepared on a
consolidated basis in accordance with GAAP, and shall also include letters of
credit, Obligations with respect to Interest Swap Obligations, any Capitalized
Lease Obligation, the maximum fixed repurchase price of any Disqualified Stock,
Obligations secured by a Lien to which any property or asset, including
leasehold interests under Capitalized Lease Obligations and any other tangible
or intangible property rights, owned by such person is subject, whether or not
the Obligations secured thereby shall have been assumed (provided that, if the
Obligations have not been assumed, such Obligations shall be deemed to be in an
amount not to exceed the fair market value of the property or properties to
which the Lien relates, as determined in good faith by the Board of Directors of
such person and as evidenced by a Board Resolution), and guarantees of items
which would be included within this definition (regardless of whether such items
would appear upon such balance sheet; provided that for the purpose of computing
the amount of Indebtedness outstanding at any time, such items shall be excluded
to the extent that they would be eliminated as intercompany items in
consolidation). For purposes of the preceding sentence, the maximum fixed
repurchase price of any Disqualified Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture,
and if such price is based upon, or measured by, the fair market value of such
Disqualified Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person.
"Independent Financial Advisor" means a reputable accounting, appraisal or
investment banking firm that is, in the reasonable judgment of the Board of
Directors of the Company or a subsidiary of the Company, qualified to perform
the task for which such firm has been engaged hereunder and disinterested and
independent with respect to the Company and its Affiliates.
"Initial Public Offering" means the sale of capital stock of the Company
pursuant to (a) a registration statement under the Securities Act that has been
declared effective by the Commission or (b) a public offering outside the United
States and which results, in either case, in an active trading market for such
shares. An active trading market shall be deemed to exist if such shares are
listed on the New York Stock Exchange or the American Stock Exchange or the
quoted on the NASDAQ National Market System or any major international trading
market or exchange.
"Interest Expense" means for any person, for any period, the aggregate
amount of interest in respect of Indebtedness (including all fees and charges
owed with respect to letters of credit and bankers' acceptance financing and the
net costs associated with Interest Swap Obligations and all but the principal
component of rentals in respect of Capitalized Lease Obligations) incurred or
scheduled to be incurred by such person during such period, all as determined in
accordance with GAAP, except that non-cash amortization or write-off of deferred
financing fees and expenses will not be included in the calculation of Interest
Expense. For purposes of this definition, (a) interest on Indebtedness
determined on a fluctuating basis for periods succeeding the date of
determination will be deemed to accrue at a rate equal to the rate of interest
on such indebtedness in effect on the last day of the fiscal quarter immediately
preceding the date of determination and (b) interest on a Capitalized Lease
Obligation will be deemed to accrue at an interest rate reasonably determined in
good faith by the chief financial officer and the chief accounting officer of
such person to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board).
"Investment" of any person means (i) all investments by such person in any
other person in the form of loans, advances or capital contributions, (ii) all
guarantees of indebtedness or other obligations of any other person by such
person, (iii) all purchases (or other acquisitions for consideration) by such
person of indebtedness, capital stock or other securities of any other person
and (iv) all other items that would be classified as investments (including,
without limitation, purchases of assets outside the ordinary course of business)
on a balance sheet of such person prepared in accordance with GAAP.
"Investment Grade" is defined as BBB-or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such ratings by S&P or Moody's.
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"Letters of Credit" means the Letters of Credit as defined in the Credit
Agreement as in effect on October 25, 1993.
"Lien" means any lien, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement or any lease
creating a Capitalized Lease Obligation).
"Management Investors" means the persons who are designated as Management
Investors in the Stockholders Agreement.
"Moody's" means Moody's Investor Services, Inc. or if Moody's ceases to
make a rating of the Notes publicly available, a nationally recognized
securities rating agency selected by the Company.
"Net Cash Proceeds" means, with respect to any Asset Sale, the Cash
Proceeds of such Asset Sale net of fees, commissions, expenses and other costs
of sale (including payment of the outstanding principal amount of, premium or
penalty, if any, and interest on any Indebtedness which is either secured by a
Lien on the stock or other assets sold or can be or is accelerated by such
sale), taxes paid or payable as a result thereof, and any amount required to be
paid to any person (other than the Company or any of its subsidiaries) owning a
beneficial interest in the stock or other assets sold, provided that when any
noncash consideration for an Asset Sale is converted into cash, such cash shall
then constitute Net Cash Proceeds.
"Obligation" means any principal, interest, premium, penalties, fees and
any other liabilities payable under the documentation governing any
Indebtedness.
"Permitted Indebtedness" means: (i) Indebtedness of the Company pursuant to
its Obligations under, or Indebtedness of any subsidiary of the Company under,
the Credit Agreement; provided that in no event shall the aggregate amount of
Indebtedness permitted to be outstanding at any one time pursuant to this clause
(i) exceed $425,000,000 (less any (x) any amounts outstanding in respect of the
United States, Canada and Mexico under the program described in clause (xi)
below (the "North American clause (xi) amounts") and (y) any amounts permanently
repaid under the Credit Agreement but without deducting payments under the
revolving credit facility and the swing line facility of the Credit Agreement
unless the commitments thereunder have been permanently reduced and without
deducting under this subclause (y) any such permanent repayments or permanent
reductions made in respect of the North American clause (xi) amounts); (ii)
Indebtedness represented by guarantees of Indebtedness which is permitted by the
provisions described under "Certain Covenants -- Limitation on Indebtedness";
(iii) Indebtedness evidenced by the Notes; (iv) Indebtedness of the Company to
any subsidiary of the Company and Indebtedness of any subsidiary of the Company
to the Company or another subsidiary of the Company, provided that the Company
or such subsidiary shall not become liable to any person other than the Company
or a subsidiary of the Company with respect thereto; (v) Indebtedness of the
Company or any subsidiary of the Company represented by Interest Swap
Obligations; provided that such Interest Swap Obligations are related to payment
Obligations on Indebtedness otherwise permitted by the provisions described
under "Certain Covenants -- Limitation on Indebtedness" and will not result in
an increase in the principal amount of the underlying outstanding Indebtedness;
(vi) Indebtedness of the Company and its subsidiaries, and any undrawn amounts
under the Specified Lines of Credit or legally binding revolving credit or
standby credit facilities existing on the date of the Indenture and Refinancing
Indebtedness in respect of such Indebtedness or amounts; (vii) Indebtedness of
the Company or any of its subsidiaries in respect of guarantees of receivables
originated by the Company or any of its subsidiaries and sold to other persons
to the extent that (A) the sale of such receivables does not constitute an Asset
Sale and (B) such guarantees are in respect of warranties granted by the Company
on the products giving rise to such receivables and such guarantees are not in
respect of any other aspect of such receivables, including the capacity of any
customer to meet its obligations under such receivables; (viii) Indebtedness
incurred for working capital purposes by Foreign Subsidiaries in aggregate
principal amount at any one time outstanding not to exceed (in each case
calculated based on currency exchange rates in effect at the time of any
proposed incurrence of Indebtedness) (A) for Foreign Subsidiaries organized
under the laws of countries located in Europe, $45,000,000 in the aggregate, (B)
for Foreign Subsidiaries organized under the laws of Mexico, $30,000,000 in the
aggregate, and (C) for Foreign Subsidiaries organized under the laws of Canada,
$25,000,000 in the aggregate; (ix) Indebtedness of the Company and its
subsidiaries in respect of guarantees of Indebtedness of less than majority
owned persons;
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provided that in no event will Indebtedness permitted pursuant to this clause
(ix) exceed $5,000,000; (x) other Indebtedness of the Company and of any
subsidiary of the Company, provided that in no event shall the aggregate amount
of Indebtedness of the Company and of subsidiaries of the Company permitted to
be outstanding pursuant to this clause (x) at any one time exceed $50,000,000;
and (xi) Indebtedness of special-purpose subsidiaries of the Company in respect
of securities secured by receivables transferred to such special-purpose
subsidiaries by the Company or a subsidiary of the Company, provided that (A)
the transfer of such receivables does not constitute an Asset Sale, (B) such
special-purpose subsidiaries engage in no activities other than the purchase of
such receivables and the issuance of such securities, and (C) such securities
are non-recourse to the Company or any subsidiary of the Company (except for
representations as to the status or eligibility of such receivables or to the
limited extent described in clause (vii)(B) above in this definition).
"Permitted Investors" means the parties to the Stockholders Agreement
(other than the Company) and their respective Affiliates.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings, promptly instituted and diligently conducted and, if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor; (ii) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's,
or other like Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor, (iii) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other Obligations of like nature
incurred in the ordinary course of business (exclusive of Obligations for the
payment of borrowed money); (v) easements, rights-of-way, restrictions, zoning
provisions and other governmental restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of the
Company or any of its subsidiaries; (vi) judgment Liens not giving rise to a
Default or Event of Default; (vii) leases or subleases granted to others not
interfering in any material respect with the business of the Company or any of
its subsidiaries; (viii) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business and which
are within the general parameters customary in the industry, in each case
securing Indebtedness under Interest Swap Obligations; (ix) any interest or
title of a lessor in the property subject to any Capitalized Lease Obligation or
operating lease or any Lien granted by a lessor on such property which does not
interfere in any material respect with the business of the Company and its
subsidiaries; (x) Liens arising from filing UCC financing statements regarding
leases; (xi) Liens securing reimbursement Obligations with respect to Commercial
Letters of Credit which encumber documents and other property relating to such
Commercial Letters of Credit and the products and proceeds thereof; (xii) other
Liens existing on the date of the Indenture; (xiii) other Liens to secure
Obligations not in excess of $1,000,000 in the aggregate at any time
outstanding, except to secure Indebtedness; and (xiv) Liens securing
Indebtedness permitted pursuant to clauses (i), (v), (vi), (viii), (x) and (xi)
of the definition of Permitted Indebtedness.
"principal" of a debt security means the principal of the security plus, if
such security has been called for redemption, the premium, if any, payable on
such security upon redemption of such security.
"Rating Decline" means the occurrence of the following on, or within 90
days after, the date of public notice of the occurrence of a Change of Control
or of the intention of the Company to effect a Change of Control (which period
shall be extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrading by either Moody's or S&P): (i) in the
event that the Notes are rated by either Moody's or S&P prior to the date of
such public notice as Investment Grade, the rating of the Notes by both such
rating agencies shall be decreased to below Investment Grade or (ii) in the
event the Notes are rated below Investment Grade by both such rating agencies
prior to the date of such public notice, the rating of the Notes by either
rating agency shall be decreased by one or more gradations (including gradations
within rating categories as well as between rating categories).
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"Refinancing Indebtedness" means Indebtedness of the Company and its
subsidiaries, all of the net proceeds of which (after customary fees, expenses
and costs related to the incurrence of such Indebtedness) are applied to repay,
refund, prepay, repurchase, redeem, defease, retire or refinance (collectively,
"refinance") outstanding Indebtedness permitted to be incurred under the terms
of this Indenture; provided that Refinancing Indebtedness that refinances any
Permitted Indebtedness will be deemed to be incurred and to be outstanding under
the relevant clause in the definition of "Permitted Indebtedness"; and provided
further that (A) the original issue amount of the Refinancing Indebtedness shall
not exceed the maximum principal amount and accrued interest of the Indebtedness
to be repaid or, if greater in the case of clause (i) of the definition of
Permitted Indebtedness, permitted to be outstanding under the agreements
governing the Indebtedness being refinanced (or if such Indebtedness was issued
at an original issue discount, the original issue price plus amortization of the
original issue discount at the time of the incurrence of the Refinancing
Indebtedness) plus the amount of customary fees, expenses and costs related to
the incurrence of such Refinancing Indebtedness, (B) Refinancing Indebtedness
incurred by any subsidiary of the Company shall not be used to refinance
outstanding Indebtedness of the Company and (C) with respect to any Refinancing
Indebtedness which refinances Indebtedness which ranks pari passu or junior in
right of payment to the Securities, (1) the Refinancing Indebtedness has an
average weighted life which is equal to or greater than the average weighted
life of the Indebtedness being refinanced, (2) if such Indebtedness being
refinanced is pari passu in right of payment to the Securities, such Refinancing
Indebtedness does not rank senior in right of payment to the payment of
principal of and interest on the Securities, and (3) if such Indebtedness being
refinanced is subordinated to the Securities, such Refinancing Indebtedness is
subordinated to the Securities to the same extent and on substantially the same
terms.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value (collectively a "prepayment"), directly or
indirectly, by the Company or a subsidiary of the Company (other than to the
Company or a subsidiary of the Company), prior to the scheduled maturity or
prior to any scheduled repayment of principal or sinking fund payment in respect
of Indebtedness of the Company or such subsidiary which would rank pari passu
with the Notes (other than the Notes) or would be subordinate in right of
payment to the Notes ("Prepaid Debt"); provided, that (i) any such prepayment of
any Prepaid Debt shall not be deemed to be a Restricted Debt Prepayment to the
extent such prepayment is made (x) with the proceeds of the substantially
concurrent sale (other than to a subsidiary of the Company) of shares of the
capital stock (other than Disqualified Stock) of the Company or rights, warrants
or options to purchase such capital stock of the Company or (y) in exchange for
or with the proceeds from the substantially concurrent issuance of Refinancing
Indebtedness and (ii) no Default or Event of Default shall have occurred and be
continuing at the time or shall occur as a result of such sale of capital stock
or issuance of such Indebtedness.
"Restricted Investment" means, with respect to any person, any Investments
by such person in (i) any of its Affiliates (other than its subsidiaries) or in
any person that becomes an Affiliate (unless it becomes a subsidiary) as a
result of such Investment to the extent that the aggregate amount of all such
Investments made after the date of the Indenture, whether or not outstanding,
less the amount of cash received by such person upon the disposition of any such
Investment, exceeds $25,000,000; (ii) any executive officer or director of such
person; or (iii) any executive officer or director of any Affiliate or any
wholly owned subsidiary of such person; provided, in the case of clauses (ii)
and (iii), that (x) loans to any individual executive officer or director of
such person in an amount less than $100,000 in the aggregate outstanding at any
time which have been approved by the chief executive officer of such person and
(y) such loans in excess of that amount which have been approved by a majority
of the Disinterested Directors of such person shall not be considered Restricted
Investments.
"Restricted Payment" means (i) any Restricted Stock Payment, (ii) any
Restricted Debt Prepayment or (iii) any Restricted Investment.
"Restricted Stock Payment" means (i) with respect to the Company, any
dividend, either in cash or in property (except dividends payable in Common
Stock), on, or the making by the Company of any other distribution in respect
of, its capital stock, now or hereafter outstanding, or the redemption,
repurchase, retirement or other acquisition for value by the Company or any
subsidiary of the Company, directly or indirectly, of capital stock of the
Company or any warrants, rights (other than exchangeable or convertible
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Indebtedness of the Company) or options to purchase or acquire shares of any
class of the Company's capital stock, now or hereafter outstanding, and (ii)
with respect to any subsidiary of the Company, any redemption, repurchase,
retirement or other acquisition for value by the Company or a subsidiary of the
Company of capital stock of such subsidiary or any warrants, rights (other than
exchangeable or convertible Indebtedness of any subsidiary of the Company), or
options to purchase or acquire shares of any class of capital stock of such
subsidiary, now or hereafter outstanding, except with respect to capital stock
of such subsidiary or such warrants, rights or options owned by (x) the Company
or a subsidiary of the Company or (y) any person which is not an Affiliate of
the Company.
"S&P" means Standard & Poor's Corporation, or if it ceases to make a rating
of the Notes publicly available, a nationally recognized securities rating
agency selected by the Company.
"Seating Business" means the production, design, development, manufacture,
marketing or sale of seat systems, seat frames, seat components, or vehicle
interiors or any related businesses.
"Senior Indebtedness" means the Obligations of the Company with respect to
(i) any and all amounts payable by the Company under or in respect of its
obligations (including reimbursement obligations in respect of letters of
credit) incurred and outstanding from time to time under the Credit Agreement,
or any refinancings thereof (including interest accruing on or after filing of
any petition in bankruptcy or reorganization relating to the Company, at the
rate specified in such Senior Indebtedness whether or not a claim for post-
filing interest is allowed in such proceeding), (ii) Interest Swap Obligations
related to its payment Obligations on Senior Indebtedness, (iii) any and all
amounts payable by the Company under or in respect of its Obligations incurred
and outstanding from time to time under the Senior Subordinated Notes but not
including any refinancings thereof and (iv) any other Indebtedness of the
Company, whether outstanding on the date of the Indenture or thereafter created,
incurred or assumed, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness is not senior in right of
payment to the Notes; provided that notwithstanding the foregoing, Senior
Indebtedness shall not include (A) Indebtedness represented by the Notes, (B)
Indebtedness incurred in violation of the Indenture, (C) Indebtedness which is
represented by Disqualified Stock, (D) amounts payable or any other Indebtedness
to trade creditors created, incurred, assumed or guaranteed by the Company or
any subsidiary of the Company in the ordinary course of business in connection
with obtaining goods or services, (E) amounts payable or any other Indebtedness
to employees of the Company or any subsidiary of the Company as compensation for
services, (F) Indebtedness of the Company to a subsidiary of the Company, (G)
any liability for Federal, state, local or other taxes owed or owing by the
Company and (H) Indebtedness represented by the 14% Subordinated Debentures.
"Senior Subordinated Indebtedness" means, with respect to any person, any
Indebtedness of a person that specifically provides that such Indebtedness is to
rank pari passu with other Senior Subordinated Indebtedness of such person and
is not subordinated by its terms to any Indebtedness of such person which is not
Senior Indebtedness.
"Senior Subordinated Notes" means the 11 1/4% Senior Subordinated Notes of
the Company due 2000, issued pursuant to an Indenture dated as of July 15, 1992
among the Company and The Bank of New York, as trustee.
"Significant Subsidiary" means one or more subsidiaries of the Company
which, in the aggregate, have (i) assets, or in which the Company and its other
subsidiaries have Investments, equal to or greater than 5% or more of the total
assets of the Company and its subsidiaries consolidated at the end of the most
recently completed fiscal year of the Company or (ii) consolidated gross revenue
equal to or exceeding 5% of the consolidated gross revenue of the Company for
its most recently completed fiscal year.
"Specified Lines of Credit" means the following informal lines of credit
existing on the date of the Indenture: (a) Indebtedness incurred by an Austrian
Foreign Subsidiary to Sparkasse Bank under a working capital credit line in a
principal amount not to exceed 20,000,000 Austrian schillings; (b) Indebtedness
incurred by a Mexican Foreign Subsidiary to Banco Internacional under a note
payable facility for working capital in a principal amount not to exceed
$15,000,000; (c) Indebtedness incurred by a Mexican Foreign Subsidiary to
Bancomer, Banco Mexicano and Banamex under a note payable facility for working
capital in a
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principal amount not to exceed 45,000,000 Mexican pesos; (d) Indebtedness
incurred by a Swedish Foreign Subsidiary to SE Banken under a working capital
credit facility in a principal amount not to exceed 6,500,000 Swedish krona; and
(e) Indebtedness consisting only of trade acceptances of NS Beteiligungs GmbH
and Lear Seating Sweden, AB in an aggregate principal amount not to exceed
$1,000,000.
"Specified Senior Indebtedness" means (i) Indebtedness under the Credit
Agreement (or any refunding or refinancing thereof), (ii) any other single issue
of Senior Indebtedness (other than the Senior Subordinated Notes) having an
initial principal amount of $30,000,000 or more. For purposes of this
definition, a refinancing of any Specified Senior Indebtedness shall be treated
as such only if it ranks or would rank on a pari passu basis with the
Indebtedness refinanced.
"14% Subordinated Debentures" means the Company's 14% Subordinated
Debentures due December 1, 2000, issued on December 22, 1988, pursuant to the
Subordinated Debenture Indenture.
"subsidiary" of any person means (i) a corporation a majority of whose
capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person or by
such person and a subsidiary or subsidiaries of such person or by a subsidiary
or subsidiaries of such person or (ii) any other person (other than a
corporation) in which such person or such person and a subsidiary or
subsidiaries of such person or a subsidiary or subsidiaries of such persons, at
the time, directly or indirectly, owned at least a majority ownership interest.
"Voting Stock" means all classes of capital stock then outstanding of a
person normally entitled to vote in elections of directors.
CERTAIN COVENANTS
Repurchase of Notes Upon a Change of Control Triggering Event. If a "Change
of Control Triggering Event" shall occur at any time, then each holder shall
have the right to require that the Company repurchase such holder's Notes in
whole or in part in integral multiples of $1,000, at a purchase price in cash in
an amount equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, which date shall be no earlier than
30 days nor more than 60 days from the date the Company notifies the holders of
the occurrence of a Change of Control Triggering Event. The source of funds for
any such repurchase will be the Company's available cash or cash generated from
operations or other sources, including borrowing, sales of assets or sales of
equity. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control Triggering Event to make any
required repurchases. Under the Indenture, the Company can only effect such
repurchases either with the consent of the lenders under the Credit Agreement or
by repaying amounts owed to such lenders under the Credit Agreement. The failure
to satisfy either such condition would constitute a default under the Indenture.
The Credit Agreement also contains prohibitions of certain events that would
constitute a Change of Control Triggering Event. In addition, the Company's
ability to repurchase Notes following a Change of Control Triggering Event may
be limited by the terms of its then-existing Senior Indebtedness, including,
without limitation, the subordination provisions described above under
"Subordination". Therefore, the exercise by the holders of their right to
require the Company to repurchase the Notes could cause a default under the
Senior Indebtedness (including Specified Senior Indebtedness) even if the Change
of Control Triggering Event itself does not, due to the financial effect of such
repurchase on the Company. Failure of the Company to repurchase the Notes in the
event of a Change of Control Triggering Event will create an Event of Default
with respect to the Notes, whether or not such repurchase is permitted by the
subordination provisions. The Company agrees that it will comply with all
applicable tender offer rules, including Rule 14e-1 under the Exchange Act, if
the repurchase option is triggered upon a Change of Control Triggering Event.
Under the Indenture, the Company is obligated to give notice to holders of
Notes and the Trustee within 30 days following a Change of Control Triggering
Event specifying, among other things, the purchase price, the purchase date, the
place at which Notes shall be presented and surrendered for purchase, that
interest accrued to the purchase date will be paid upon such presentation and
surrender and that interest will cease to accrue on Notes surrendered for
purchase as of such purchase date. In order for a holder of Notes properly to
put its Notes to the Company for purchase, the holder must give notice and
present and surrender its Notes to the Company at the place specified in the
Company's aforementioned notice at least 15 days prior to the
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purchase date. Any such tender by a holder of Notes shall be irrevocable. The
Company is not obligated to notify holders of or to purchase Notes with respect
to more than one Change of Control Triggering Event.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Change of Control purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of antitakeover provisions. Instead, the Change of
Control purchase feature is a result of negotiations between the Company and the
Underwriters. Management has no present intention to engage in a transaction
involving a Change of Control Triggering Event, although it is possible that the
Company would decide to do so in the future. Subject to the limitations
discussed below, including the limitation on incurrence of additional
indebtedness and the issuance of certain securities, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control
Triggering Event under the Indenture, but that could increase the amount of
Senior Indebtedness of the Company (or any other indebtedness) outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any subsidiary of the Company to, directly or
indirectly, make any Restricted Payment unless (a) no Default or Event of
Default has occurred and is continuing at the time or will occur as a
consequence of such Restricted Payment and (b) after giving effect to such
Restricted Payment, the aggregate amount expended for all Restricted Payments
subsequent to December 31, 1993 (the amount so expended, if other than in cash,
to be determined by the Board of Directors, whose reasonable determination shall
be conclusive and evidenced by a Board Resolution), does not exceed the sum of
(x) 50% of Consolidated Net Income of the Company (or in the case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit) during
the period (treated as one accounting period) subsequent to December 31, 1993
and ending on the last day of the fiscal quarter immediately preceding such
Restricted Payment and (y) the aggregate net proceeds, including cash and the
fair market value of property other than cash (as determined in good faith by
the Board of Directors of the Company and evidenced by a Board Resolution),
received by the Company during such period from any person other than a
subsidiary of the Company, as a result of the issuance of capital stock of the
Company (other than any Disqualified Stock) or warrants, rights or options to
purchase or acquire such capital stock including such capital stock issued upon
conversion or exchange of Indebtedness or upon exercise of warrants or options
and any contributions to the capital of the Company received by the Company from
any such person less the amount of such net proceeds actually applied as
permitted by clause (ii) of the next paragraph or by the proviso to the
definition of Restricted Debt Prepayment; provided that, at the time of such
Restricted Payment and after giving effect thereto, the Company or any
subsidiary of the Company shall be able to incur an additional $1.00 of
Indebtedness pursuant to clauses (a) and (b) of the provisions described under
"Limitation on Indebtedness". For purposes of any calculation pursuant to the
preceding sentence which is required to be made within 60 days after the
declaration of a dividend by the Company, such dividend shall be deemed to be
paid at the date of declaration.
This provision is not violated by reason of (i) the payment of any dividend
within 60 days after the date of declaration thereof if, at such date of
declaration such payment complied with the provisions hereof; (ii) the purchase,
redemption, acquisition or retirement of any shares of the Company's capital
stock in exchange for, or out of the proceeds of the substantially concurrent
sale (other than to a subsidiary of the Company) of, other shares of capital
stock (other than Disqualified Stock) of the Company or rights, warrants or
options to purchase or acquire such capital stock of the Company or (iii)
payments by the Company (A) for the mandatory repurchase of shares of Common
Stock of the Company (or scheduled payments of principal of or interest on notes
issued to finance the repurchase of such shares) from Management Investors under
the Stockholders Agreement or (B) to satisfy any other Obligations under the
terms of the Stockholders Agreement provided that no Default or Event of Default
has occurred and is continuing at the time, or shall occur as a result, of such
Restricted Payment. For purposes of determining the aggregate amount of
Restricted Payments in accordance with clause (b) of the preceding paragraph,
all amounts expended pursuant to
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clause (i) or (ii) (except to the extent deemed to have been paid pursuant to
the last sentence of the immediately preceding paragraph) of this paragraph
shall be included.
Limitation on Indebtedness. The Indenture provides that, except for
Permitted Indebtedness and Refinancing Indebtedness, the Company will not, and
will not permit any subsidiary of the Company to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become liable for,
contingently or otherwise, extend the maturity of or become responsible for the
payment of (collectively, an "incurrence"), any Obligations in respect of any
Indebtedness including Acquired Indebtedness unless (a) no Default or Event of
Default shall have occurred and be continuing at the time or as a consequence of
the incurrence of such Indebtedness and (b) after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof on a pro forma basis, the Consolidated Interest Expense Coverage Ratio
of the Company is greater than 2 to 1.
Limitation on Payment Restrictions Affecting Subsidiaries. The Indenture
provides that the Company will not, and will not permit any subsidiary of the
Company to, create or otherwise cause or suffer to exist or become effective any
consensual restriction which by its terms expressly restricts any such
subsidiary from (i) paying dividends or making any other distributions on such
subsidiary's capital stock or paying any Indebtedness owed to the Company or any
subsidiary of the Company, (ii) making any loans or advances to the Company or
any subsidiary of the Company or (iii) transferring any of its property or
assets to the Company or any subsidiary of the Company, except (a) any
restrictions existing under agreements in effect at the issuance of the Notes,
(b) any restrictions under any agreement evidencing any Acquired Indebtedness of
a subsidiary of the Company incurred pursuant to the provisions described under
"Limitation on Indebtedness"; provided that such restrictions shall not restrict
or encumber any assets of the Company or its subsidiaries other than such
subsidiary or (c) any restrictions existing under any agreement which refinances
any Indebtedness in accordance with paragraph (xiv) of the definition of
Permitted Indebtedness; provided that the terms and conditions of any such
agreement are not materially less favorable to such subsidiary than those under
the agreement creating or evidencing the Indebtedness being refinanced.
Limitation on Creation of Liens. The Indenture provides that the Company
will not, and will not permit any subsidiary of the Company to, create, incur,
assume or suffer to exist any Liens upon any of their respective assets unless
the Notes are secured by such assets on an equal and ratable basis with the
obligation so secured until such time as such obligation is no longer secured by
a Lien, provided that if the obligation secured by such Lien is subordinated to
the Notes, the Lien securing such obligation will be subordinate and junior to
the Lien securing the Notes with the same relative priority as such subordinated
obligations have with respect to the Notes, except for (i) Liens securing Senior
Indebtedness that would be permitted to be incurred under clauses (a) and (b) of
the provisions described under "Limitation on Indebtedness" if such Indebtedness
were incurred on the date such Lien is granted; (ii) Liens with respect to
Acquired Indebtedness, provided that such Liens do not extend to or cover any
property or assets of the Company or any subsidiary of the Company other than
the property or assets acquired, and provided further that such Liens were not
incurred in connection with, or in contemplation of, the transactions giving
rise to such Acquired Indebtedness; (iii) Liens securing Indebtedness which is
incurred to refinance secured Indebtedness and which is permitted to be incurred
under the provisions described under "Limitation on Indebtedness"; provided that
such Liens do not extend to or cover any property or assets of the Company or
any subsidiary of the Company other than the property or assets securing the
Indebtedness being refinanced; and (iv) Permitted Liens.
No Senior Subordinated Indebtedness. The Indenture provides that the
Company will not issue, incur, create, assume, guarantee or otherwise become
liable for any Indebtedness which is subordinate or junior in right of payment
to any Indebtedness of the Company, including, without limitation, Indebtedness
that refinances the Senior Subordinated Notes, unless such Indebtedness is pari
passu with or subordinate in right of payment to the Notes.
Transactions with Shareholders and Affiliates. The Indenture provides that
the Company will not, and will not permit any subsidiary of the Company to,
directly or indirectly, enter into or suffer to exist any transaction (an
"Affiliate Transaction") (including, without limitation, the purchase, sale,
lease or exchange
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of any property or the rendering of any service) with any holder of more than
10% of any class of equity securities of the Company or with any Affiliate of
the Company or of any such holder (other than a wholly owned subsidiary of the
Company), on terms that are less favorable to the Company or such subsidiary, as
the case may be, than would be available in a comparable transaction with an
unrelated person. In addition, neither the Company nor any subsidiary of the
Company shall enter into any Affiliate Transaction or series of related
Affiliate Transactions involving or having a value of (a) more than $2,500,000,
unless a majority of Disinterested Directors (or, if there are no Disinterested
Directors, a majority of the Board of Directors) of the Company or such
subsidiary, as the case may be, determines in good faith pursuant to a Board
Resolution that such Affiliate Transaction or series of related Affiliate
Transactions is fair to the Company or such subsidiary, as the case may be, or
(b) more than $10,000,000 unless (i) a majority of Disinterested Directors (or,
if there are no Disinterested Directors, a majority of the Board of Directors)
of the Company or such subsidiary, as the case may be, make the determination
referred to in clause (a) above and (ii) the Company or such subsidiary, as the
case may be, has received an opinion from an Independent Financial Advisor to
the effect that such Affiliate Transaction or series of related Affiliate
Transactions are fair to the Company or such subsidiary, as the case may be,
from a financial point of view.
The foregoing provisions will not apply to payments of investment banking
and financial advisory or consulting fees and other fees to Lehman Brothers Inc.
or any of its subsidiaries or Affiliates in connection with the sale of the
Notes (or any refunding, refinancing or conversion thereof) and other customary
investment banking and financial advisory or consulting fees.
Sales of Assets. The Indenture provides that subject to the provisions
described under "Mergers or Consolidations", the Company will not, and will not
permit any subsidiary to, make any Asset Sale unless (i) the Company (or such
subsidiary, as the case may be) receives consideration at the time of such sale
at least equal to the fair market value of the shares or assets included in such
Asset Sale (as determined in good faith by the Board of Directors, including
valuation of all noncash consideration) and (ii) (x) either (A) the Net Cash
Proceeds are reinvested within 12 months (or, pursuant to a determination of the
Board of Directors, held pending reinvestment) in replacement assets or assets
used in the Seating Business or used to purchase all of the issued and
outstanding capital stock of a person engaged in such business or used to fund
research and development costs or (B) if the Net Cash Proceeds are not applied
or are not required to be applied as set forth in clause (ii) (x) (A) or if
after applying such Net Cash Proceeds as set forth in clause (ii) (x) (A) there
remain Net Cash Proceeds, such Net Cash Proceeds are applied within 12 months of
the original receipt thereof to the permanent prepayment, repayment, retirement
or purchase of Senior Indebtedness or Indebtedness of a subsidiary, (y) if and
to the extent that the gross proceeds from such Asset Sale (after giving effect
to the application of clause (ii)(x)(A) and (B), when added to the gross
proceeds from all prior Asset Sales (not applied as set forth in clause
(ii)(x)(A) or (B)) exceeds $15,000,000, such proceeds are applied pursuant to a
Repurchase Offer (as defined in the Indenture) to repurchase the Notes (on a pro
rata basis if the amount available for such purchase is less than the
outstanding principal amount of the Notes) at a purchase price equal to 100% of
the principal amount thereof plus accrued interest to the date of prepayment and
(z) if the aggregate principal amount of all Notes tendered pursuant to a
Repurchase Offer is less than the Repurchase Offer Amount (as defined in the
Indenture), such excess amount is applied for general corporate purposes;
provided that when any noncash consideration is converted into cash, such cash
will then constitute Net Cash Proceeds and will be subject to clause (ii) of
this sentence.
Limitation on Issuance of Preferred Stock. The Indenture provides that the
Company will not permit any of its subsidiaries to issue any preferred or
preference stock (except to the Company or a wholly owned subsidiary of the
Company) or permit any person (other than the Company or any wholly owned
subsidiary of the Company) to hold any such preferred or preference stock unless
the Company would be entitled to create, incur or assume Indebtedness pursuant
to the provisions described under "Limitation on Indebtedness" in the aggregate
principal amount equal to the aggregate liquidation value of the preferred or
preference stock to be issued.
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MERGERS OR CONSOLIDATIONS
Under the Indenture, the Company will not consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to any person unless: (1) the person formed by
or surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or disposition has been
made, is a corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia; (ii) the
corporation formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or disposition has been made, assumes by supplemental indenture
satisfactory in form to the Trustee all the obligations of the Company under the
Indenture; (iii) immediately after such transaction, and giving effect thereto,
no Default or Event of Default has occurred and is continuing; (iv) the Company
or any corporation formed by or surviving any such consolidation or merger, or
to which such sale, assignment, transfer, lease, conveyance or disposition has
been made, has Consolidated Adjusted Net Worth (immediately after the
transaction and giving effect thereto, excluding any write-ups of assets
resulting from such consolidation or merger) at least equal to the Consolidated
Adjusted Net Worth of the Company immediately preceding the transaction; (v)
immediately after such transaction and giving effect thereto, the Company or any
corporation formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or disposition shall have
been made, shall be able to incur an additional $1.00 of Indebtedness pursuant
to clause (b) of the provisions described under "Limitation on Indebtedness";
and (vi) the Company has delivered to the Trustee (A) an Officers' Certificate
(attaching the calculation to demonstrate compliance with clause (iv) and (v)
above) and an Opinion of Counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture comply with the above provisions and
that all conditions precedent relating to such transaction have been complied
with, and (B) a certificate from the Company's independent certified public
accountants, stating that the Company has made the calculations required by
clauses (iv) and (v) above.
EVENTS OF DEFAULT
The Indenture defines an Event of Default as: (i) default by the Company
for 30 days in the payment of interest on the Notes; (ii) default by the Company
in the payment when due of principal of the Notes; (iii) failure by the Company
for 30 days after notice to comply with any of its other agreements in the
Indenture or the Notes; (iv) any Indebtedness of the Company or a Significant
Subsidiary of the Company for borrowed money (or the payment of which is
guaranteed by the Company or one of its subsidiaries) having an outstanding
principal amount of $10,000,000 or more in the aggregate, is declared to be due
and payable prior to its stated maturity or failure by the Company or any
Significant Subsidiary to pay the final scheduled principal installment in an
amount of at least $10,000,000 in respect of any such Indebtedness on its stated
maturity date unless such Indebtedness which has been declared due and payable
prior to its stated maturity is Indebtedness of a Foreign Subsidiary the payment
of which is guaranteed by the Letters of Credit; (v) failure by the Company or
any subsidiary of the Company to pay certain final judgments aggregating in
excess of $10,000,000; and (vi) certain events of bankruptcy or insolvency.
A Default under the provisions of the Indenture described hereunder is not
an Event of Default until the Trustee notifies the Company in writing, or the
Holders of at least 25% in principal amount of the Notes then outstanding notify
the Company and the Trustee, in writing of the Default, and the Company does not
cure the Default within 30 days after receipt of the notice; provided that a
Default by the Company with respect to the provisions of the Indenture described
under "Mergers or Consolidations" and "Certain Covenants -- Repurchase of Notes
upon a Change of Control Triggering Event" will constitute an Event of Default
immediately upon such notification and without passage of time.
Subject to the provisions under "Subordination", if an Event of Default
(other than as a result of certain events of bankruptcy or insolvency) occurs
and is continuing, the Trustee or the holders of at least 25% of the principal
amount of the Notes then outstanding, by written notice to the Company (and the
Agent Bank, so long as the Indebtedness under the Credit Agreement is
outstanding) (and the Senior Subordinated Notes Trustee, so long as the
Indebtedness under the Senior Subordinated Notes is outstanding) may declare to
be due and payable all unpaid principal of and only accrued interest on the
Notes.
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Upon a declaration of acceleration, such principal and accrued interest to
the date of such acceleration shall be due and payable upon the first to occur
of (i) an acceleration under the Credit Agreement (or any refunding or
refinancing thereof), or (ii) five Business Days after notice of such
declaration is given to the Company (and the Agent Bank, so long as the
Indebtedness under the Credit Agreement is outstanding) (and the Senior
Subordinated Notes Trustee, so long as the Indebtedness under the Senior
Subordinated Notes is outstanding)(and the Senior Subordinated Notes Trustee, so
long as the Indebtedness under the Senior Subordinated Notes is outstanding);
provided that, if the Event of Default giving rise to such acceleration is cured
before the earlier to occur of (i) or (ii), such notice of acceleration and its
consequences shall be deemed rescinded and annulled. In the event of a
declaration of acceleration under the Indenture because an Event of Default
described in clause (iv) of the third preceding paragraph has occurred and is
continuing, such declaration of acceleration shall be automatically annulled if
the holders of the Indebtedness which is the subject of such Event of Default
have rescinded their declaration of acceleration in respect of such Indebtedness
within 90 days thereof or all amounts payable in respect of such Indebtedness
have been paid and such Indebtedness has been discharged during such 90-day
period and if (i) the annulment of such acceleration would not conflict with any
judgment or decree of a court of competent jurisdiction, (ii) all existing
Events of Default, except nonpayment of principal or interest that has been due
solely because of the acceleration, have been cured or waived, and (iii) the
Company has delivered an Officers' Certificate to the Trustee to the effect of
clauses (i) and (ii) of this sentence. If an Event of Default described in
clause (vi) of the third preceding paragraph with respect to the Company occurs,
all unpaid principal and accrued interest on the Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
The Holders of a majority of the outstanding principal amount of the Notes
by written notice to the Trustee may rescind an acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
principal of or interest on the Notes which have become due solely because of
the acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default in payment of principal or interest) if it determines that
withholding notice is in their interest. The Company is required to deliver to
the Trustee annually a statement regarding compliance with the Indenture, and
upon becoming aware of any Default or Event of Default, a statement specifying
such Default or Event of Default.
DISCHARGE OF INDENTURE AND DEFEASANCE
Except as otherwise limited by the provisions of the Credit Agreement, the
Company may terminate its obligations under the Notes and the Indenture when (i)
all outstanding Notes have been delivered (other than destroyed, lost or stolen
Notes which have not been replaced or paid) to the Trustee for cancellation or
(ii) all outstanding Notes have become due and payable, and the Company
irrevocably deposits with the Trustee funds or U.S. Government Obligations
sufficient (without reinvestment thereof) to pay at maturity all outstanding
Notes, including all interest thereon (other than destroyed, lost or stolen
Notes which have not been replaced or paid), and in either case the Company has
paid all other sums payable under the Indenture. In addition, the Company may
terminate substantially all its obligations under the Notes and the Indenture if
the Company (a) irrevocably deposits in trust for the benefit of the holders
money or U.S. Government Obligations maturing as to principal and interest in
such amounts and at such times as are sufficient to pay principal of and
interest on the then outstanding Notes to maturity or redemption, as the case
may be, (b) delivers to the Trustee an Opinion of Counsel to the effect that,
based on Federal income tax laws then in effect, the holders of the Notes will
not recognize income, gain or loss for Federal income tax purposes as a result
of the Company's exercise of such option and shall be subject to Federal income
tax on the same amounts and in the same manner and at the same times as would
have been the case if such option had not
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been exercised or a ruling to that effect has been received from or published by
the Internal Revenue Service and (c) certain other conditions are met.
The Company shall be released from its obligations with respect to the
covenants described under "Certain Covenants" and any Event of Default occurring
because of a default with respect to such covenants if (a) the Company deposits
or causes to be deposited with the Trustee in trust an amount of cash or U.S.
Government Obligations sufficient to pay and discharge when due the entire
unpaid principal of and interest on all outstanding Notes and (b) certain other
conditions are met. The obligations of the Company under the Indenture with
respect to the Notes, other than with respect to the covenants and Events of
Default referred to above, shall remain in full force and effect.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar is not required to transfer or
exchange any Note selected for redemption or any Note for a period of 15 days
before 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 Indenture or the Notes may be amended or
supplemented by the Company and the Trustee with the consent of the holders of
at least a majority in principal amount of such then outstanding Notes and any
existing default may be waived with the consent of the holders of at least a
majority in principal amount of the then outstanding Notes. Without the consent
of any holder of the Notes, the Company and the Trustee may amend the Indenture
or the Notes to cure any ambiguity, defect or inconsistency, to provide for the
assumption of the Company's obligations to holders of the Notes by a successor
corporation, to provide for uncertificated Notes in addition to certificated
Notes or to make any change that does not adversely affect the rights of any
holder of the Notes. Without the consent of each holder of Notes affected, the
Company may not reduce the principal amount of Notes the holders of which must
consent to an amendment of the Indenture; reduce the rate or change the interest
payment time of any Note; reduce the principal of or change the fixed maturity
of any Notes or alter the redemption provisions with respect thereto; make any
Note payable in money other than that stated in the Note; make any change in the
provisions concerning waiver of Defaults or Events of Default by holders of the
Notes or rights of holders to receive payment of principal or interest, make any
change in the subordination provisions in the Indenture that affects the right
of any holder or release the Company from any of its obligations under the
Indenture or the Notes.
THE TRUSTEE
The First National Bank of Boston is the Trustee under the Indenture.
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UNDERWRITING
The underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company and the Underwriters, to purchase
the respective principal amount of Notes set forth opposite their respective
names below:
PRINCIPAL
AMOUNT
UNDERWRITERS OF NOTES
------------
Lehman Brothers Inc. ................................................ $ 87,000,000
BT Securities Corporation............................................ 32,625,000
Chemical Securities Inc. ............................................ 25,375,000
------------
Total......................................................... $145,000,000
------------
------------
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Notes are subject to certain conditions and that,
if any Notes are purchased by the Underwriters pursuant to the Underwriting
Agreement, all of the Notes agreed to be purchased by the Underwriters pursuant
to the Underwriting Agreement must be so purchased.
Lear has been advised by the Underwriters that they propose to offer the
Notes offered hereby initially at the public offering price set forth on the
cover page of this Prospectus and to certain selected dealers (who may include
Underwriters) at such public offering price less a concession not to exceed
0.50% of the principal amount of the Notes. The Underwriters or such selected
dealers may reallow a commission to certain other dealers not to exceed 0.25% of
the principal amount of the Notes. After the initial offering of the Notes, the
public offering price, the concession to selected dealers and the reallowance to
other dealers may be changed by the Underwriters.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Lehman Funds, each an affiliate of Lehman Brothers Inc., beneficially
own, in the aggregate, approximately 61.4% of the outstanding Common Stock of
the Company (assuming the exercise of all outstanding warrants and employee
stock options). Therefore, the underwriting arrangements for the offering will
comply with the requirements of Schedule E to the Bylaws of the National
Association of Securities Dealers, Inc. ("NASD") regarding an NASD member firm's
participation in distributing its affiliate's securities. In connection
therewith, BT Securities Corporation is acting as a qualified independent
underwriter for purposes of the determination of the yield of the Notes offered
pursuant to this offering, and has conducted due diligence in connection with
its responsibilities of acting as a qualified independent underwriter. The yield
at which the Notes are being sold to the public is no lower than that
recommended by BT Securities Corporation. The Company has agreed to reimburse BT
Securities Corporation for its out-of-pocket expenses incurred in connection
with its services as a qualified independent underwriter. In accordance with
Schedule E, the Underwriters will not make sales of the Notes to customers'
discretionary accounts without the prior specific written approval of such
customers.
Lehman Brothers Inc. has from time to time provided investment banking,
financial advisory and other services to the Company, for which services it has
received fees. Pursuant to the Stockholders Agreement, the Lehman Funds are able
to elect a majority of the Company's Board of Directors. Messrs. Hughes,
Spalding, Stern and Fried, each an officer of Lehman Brothers Inc., and Messrs.
Davidson and Shower, serve on the Board of Directors of the Company as
representatives of the Lehman Funds. See "Management -- Directors and Executive
Officers" and "Certain Transactions -- Stockholders Agreement."
Chemical Securities Inc. is an affiliate of Chemical Bank, which is Agent
and a lender to Lear under the Credit Agreement. BT Securities Corporation and
Lehman Brothers Inc. are affiliates of Bankers Trust Company and Lehman
Commercial Paper Inc., respectively, which are managing agents and lenders to
Lear under the Credit Agreement. In addition, Chemical Bank and Bankers Trust
Company or their affiliates, participate on a regular basis in various general
financing and banking transactions for Lear.
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Lear has no plans to list the Notes on a securities exchange. Lear has been
advised by each Underwriter that it presently intends to make a market in the
Notes; however, the Underwriters are not obligated to do so. Any such
market-making activity, if initiated, may be discontinued at any time, for any
reason, without notice. There can be no assurance that an active market for the
Notes will develop or, if a market does develop, at what prices the Notes will
trade.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Winston &
Strawn, Chicago, Illinois. Certain legal matters with respect to the Notes will
be passed upon for the Underwriters by Cravath, Swaine & Moore, New York, New
York. Cravath, Swaine & Moore has performed, and continues to perform, services
for the Lehman Funds from time to time.
EXPERTS
The audited financial statements and schedules of Holdings included in the
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen & Co., independent public accountants, as 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. In addition, the
balance sheets of the NAB as of September 30, 1993 and December 31, 1992 and the
statements of income and cash flows of the NAB for the nine months ended
September 30, 1993 and the years ended December 31, 1992 and 1991, have been
audited by Coopers & Lybrand, independent public accountants, as indicated in
their report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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INDEX TO FINANCIAL STATEMENTS
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
PAGE
----
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets as of June 30, 1993 and 1992............................. F-3
Consolidated Statements of Operations for the years ended June 30, 1993, 1992 and
1991............................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1993,
1992 and 1991...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1993, 1992 and
1991............................................................................... F-6
Notes to Financial Statements........................................................ F-7
Introduction to the Unaudited Consolidated Condensed Financial Statements............ F-24
Unaudited Consolidated Balance Sheet as of October 2, 1993 and audited Consolidated
Balance Sheet as of June 30, 1993.................................................. F-25
Unaudited Consolidated Statements of Operations for the three months ended October 2,
1993 and October 3, 1992........................................................... F-26
Unaudited Consolidated Statements of Cash Flows for the three months ended October 2,
1993
and October 3, 1992................................................................ F-27
Notes to Unaudited Financial Statements.............................................. F-28
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD)
PAGE
----
Report of Independent Public Accountants............................................. F-31
Balance Sheets as of September 30, 1993 and December 31, 1992........................ F-32
Statements of Income for the nine months ended September 30, 1993 and for the years
ended December 31, 1992 and 1991................................................... F-33
Statements of Cash Flows for the nine months ended September 30, 1993 and for the
years ended December 31, 1992 and 1991............................................. F-34
Notes to the Financial Statements.................................................... F-35
F-1
76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Holdings Corporation:
We have audited the accompanying consolidated balance sheets of LEAR
HOLDINGS CORPORATION AND SUBSIDIARIES ("the Company") as of June 30, 1993 and
1992 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years ended June 30, 1993, 1992 and 1991. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1993 and 1992 and the results of its operations and its cash flows for the years
ended June 30, 1993, 1992 and 1991, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN & CO.
Detroit, Michigan,
August 20, 1993.
F-2
77
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30,
-----------------------
1993 1992
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 53,787 $ 33,217
Accounts receivable, less allowance for doubtful accounts of $508 in 1993 and $239
in 1992.......................................................................... 215,745 178,070
Inventories........................................................................ 40,877 46,427
Unbilled customer tooling.......................................................... 8,565 10,741
Other.............................................................................. 6,225 14,409
-------- --------
325,199 282,864
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land............................................................................... 13,405 13,718
Buildings and improvements......................................................... 73,015 79,252
Machinery and equipment............................................................ 180,208 160,123
Construction in progress........................................................... 2,094 3,144
-------- --------
268,722 256,237
Less -- Accumulated depreciation............................................. (103,527) (76,732)
-------- --------
165,195 179,505
-------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of $46,116 in 1993 and $36,568 in 1992..... 309,165 317,913
Deferred financing fees, net....................................................... 9,825 7,765
Investments in affiliates and other................................................ 10,825 11,837
-------- --------
329,815 337,515
-------- --------
$820,209 $799,884
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings.............................................................. $ 1,211 $ 11,982
Cash overdrafts.................................................................... 17,317 8,324
Accounts payable................................................................... 248,454 204,865
Accrued liabilities................................................................ 106,707 81,716
Financing lease obligation......................................................... -- 10,296
Current portion of long-term debt.................................................. 1,261 26,986
-------- --------
374,950 344,169
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes..................................................... 15,536 26,392
Long-term debt..................................................................... 321,116 348,331
Other.............................................................................. 29,621 28,210
-------- --------
366,273 402,933
-------- --------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock subject to limited rights of redemption, $.01 par value, 30,001 shares
in 1993 and 27,450 shares in 1992, at estimated maximum redemption price......... 4,950 4,530
Notes receivable from sale of common stock......................................... (1,065) (1,065)
-------- --------
3,885 3,465
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 250,000 shares authorized, no shares issued....... -- --
Common stock, $.01 par value, 1,500,000 shares authorized, 1,145,757 shares issued
in 1993 and 1,027,096 shares issued in 1992, net of shares subject to
redemption....................................................................... 12 10
Additional paid-in capital......................................................... 150,993 131,650
Warrants to purchase common stock.................................................. 10,000 10,000
Less -- Common stock held in treasury, 100,000 shares in 1993 and 102,551 shares in
1992,
at cost.......................................................................... (10,000) (10,255)
Retained deficit................................................................... (74,532) (84,646)
Minimum pension liability adjustment............................................... (3,240) (2,858)
Cumulative translation adjustment.................................................. 1,868 5,416
-------- --------
75,101 49,317
-------- --------
$820,209 $799,884
-------- --------
-------- --------
The accompanying notes are an integral part of these balance sheets.
F-3
78
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30,
--------------------------------------
1993 1992 1991
---------- ---------- ----------
Net sales................................................ $1,756,510 $1,422,740 $1,085,319
Cost of sales............................................ 1,604,011 1,307,099 983,890
Selling, general and administrative expenses............. 61,898 50,062 42,949
Amortization of goodwill and other intangible assets..... 9,548 8,746 13,810
---------- ---------- ----------
Operating income.................................... 81,053 56,833 44,670
Interest expense......................................... 47,832 55,158 61,676
Foreign currency exchange loss........................... 470 300 1,717
Other expense, net....................................... 4,331 7,859 1,574
---------- ---------- ----------
Income (loss) before provision for national income
taxes, minority interests in net income of
subsidiaries, equity income of affiliates and
extraordinary item................................ 28,420 (6,484) (20,297)
Provision for national income taxes...................... 17,847 12,968 14,019
Minority interests in net income of subsidiaries......... 470 691 1,770
Equity income of affiliates.............................. (11) (3,013) (2,917)
---------- ---------- ----------
Income (loss) before extraordinary item............. 10,114 (17,130) (33,169)
Extraordinary loss on early extinguishment of debt....... -- 5,100 --
---------- ---------- ----------
Net income (loss)................................... $ 10,114 $ (22,230) $ (33,169)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per common share:
Income (loss) before extraordinary item................ $8.33 $(20.36) $(66.36)
Extraordinary loss..................................... -- (6.06) --
----- ------- -------
$8.33 $(26.42) $(66.36)
----- ------ -------
----- ------ -------
The accompanying notes are an integral part of these statements.
F-4
79
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MINIMUM
ADDITIONAL WARRANTS TO PENSION CUMULATIVE
COMMON PAID-IN PURCHASE TREASURY RETAINED LIABILITY TRANSLATION
STOCK CAPITAL COMMON STOCK STOCK DEFICIT ADJUSTMENT ADJUSTMENT TOTAL
------ ---------- ------------ -------- -------- ---------- ----------- --------
BALANCE, JUNE 30, 1990.............. $ 6 $ 59,454 $ 10,000 $(10,000) $(29,247) $ -- $ 5,079 $ 35,292
Net loss.......................... -- -- -- -- (33,169) -- -- (33,169)
Stock option compensation......... -- 1,353 -- -- -- -- -- 1,353
Re-acquisition of 650 shares of
common stock subject to
redemption from management
investors, at cost.............. -- 65 -- (65) -- -- -- --
Foreign currency translation...... -- -- -- -- -- -- 859 859
---- -------- -------- -------- -------- -------- ------- --------
BALANCE, JUNE 30, 1991.............. 6 60,872 10,000 (10,065) (62,416) -- 5,938 4,335
Net loss.......................... -- -- -- -- (22,230) -- -- (22,230)
Stock option compensation......... -- (12) -- -- -- -- -- (12)
Re-acquisition of 1,900 shares of
common stock subject to
redemption from management
investors, at cost.............. -- 190 -- (190) -- -- -- --
Sale of additional 454,545 shares
of common stock, net of
transaction expenses............ 4 72,384 -- -- -- -- -- 72,388
Recognize minimum pension
liability adjustment............ -- -- -- -- -- (2,858) -- (2,858)
Foreign currency translation...... -- -- -- -- -- -- (522) (522)
Restate common stock subject to
limited redemption rights to
estimated maximum redemption
value........................... -- (1,784) -- -- -- -- -- (1,784)
---- -------- -------- -------- -------- -------- ------- --------
BALANCE, JUNE 30, 1992.............. 10 131,650 10,000 (10,255) (84,646) (2,858) 5,416 49,317
Net income........................ -- -- -- -- 10,114 -- -- 10,114
Sale of additional 121,212 shares
of common stock, net of
transaction expenses............ 2 19,598 -- -- -- -- -- 19,600
Sale of 2,551 shares of treasury
stock to management investors... -- (255) -- 255 -- -- -- --
Minimum pension liability
adjustment...................... -- -- -- -- -- (382) -- (382)
Foreign currency translation...... -- -- -- -- -- -- (3,548) (3,548)
---- -------- -------- -------- -------- -------- ------- --------
BALANCE, JUNE 30, 1993.............. $ 12 $150,993 $ 10,000 $(10,000) $(74,532) $ (3,240) $ 1,868 $ 75,101
---- -------- -------- -------- -------- -------- ------- --------
---- -------- -------- -------- -------- -------- ------- --------
The accompanying notes are an integral part of these statements.
F-5
80
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JUNE 30,
-----------------------------------
1993 1992 1991
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 10,114 $ (22,230) $ (33,169)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation and amortization of goodwill and other
intangible assets................................... 40,654 34,974 36,758
Stock option compensation............................. -- (12) 1,353
Accreted interest on Senior Subordinated Discount
Notes............................................... -- 4,738 10,322
Amortization of deferred financing fees............... 2,972 3,198 4,096
Deferred national income taxes........................ (10,856) (1,672) (6,987)
Extraordinary loss.................................... -- 5,100 --
Other, net............................................ 856 (2,850) (2,787)
Net change in working capital items................... 50,760 26,801 23,921
--------- --------- ---------
Net cash provided by operating activities........... 94,500 48,047 33,507
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............... (31,595) (27,926) (20,892)
Acquisitions (Note 5).................................... -- (650) (7,527)
Proceeds from sale of property, plant and equipment...... 1,044 996 2,860
Other, net............................................... (170) 1,593 (1,862)
--------- --------- ---------
Net cash used by investing activities............... (30,721) (25,987) (27,421)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt.............................. 674,208 757,839 665,594
Reductions in long-term debt............................. (727,393) (817,332) (683,341)
Short-term borrowings, net............................... (10,771) (15,270) 21,653
Proceeds from sale of common stock, net.................. 20,020 72,388 --
Deferred financing fees.................................. (5,032) (1,839) --
Increase (decrease) in cash overdrafts................... 8,993 (10,867) (2,205)
Other, net............................................... -- (190) (25)
--------- --------- ---------
Net cash provided (used) by financing activities.... (39,975) (15,271) 1,676
--------- --------- ---------
Effect of foreign currency translation................... (3,234) 540 2,423
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... 20,570 7,329 10,185
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 33,217 25,888 15,703
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 53,787 $ 33,217 $ 25,888
--------- --------- ---------
--------- --------- ---------
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS:
Accounts receivable, net................................. $ (42,564) $ (42,334) $ 21,061
Inventories.............................................. 4,219 (6,081) (2,682)
Accounts payable......................................... 49,605 62,128 4,346
Accrued liabilities and other............................ 39,500 13,088 1,196
--------- --------- ---------
$ 50,760 $ 26,801 $ 23,921
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest................................... $ 41,130 $ 47,584 $ 47,304
--------- --------- ---------
--------- --------- ---------
Cash paid for income taxes............................... $ 21,843 $ 12,135 $ 22,900
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these statements.
F-6
81
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear Holdings
Corporation ("Holdings"), a Delaware corporation, and its wholly-owned
subsidiaries, Lear Seating Corporation ("Lear Seating"), LS Acquisition
Corporation No. 14 ("LS No. 14"), Lear Seating Holdings Corp. No. 50 ("LS No.
50") and Lear Seating Sweden, AB ("LS-Sweden") (collectively referred to as the
"Company"). Investments in less than majority-owned businesses are generally
accounted for under the equity method (Note 6).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Significant transactions and balances among Holdings and its subsidiaries
have been eliminated in the consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally using the first-in, first-out method. Finished goods and work-in
process inventories include material, labor and manufacturing overhead costs.
Inventories at June 30, were comprised of the following (in thousands):
1993 1992
------- -------
Raw materials $29,005 $29,931
Work-in-process 8,331 9,849
Finished goods 3,541 6,647
------- -------
$40,877 $46,427
------- -------
------- -------
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciable property is
depreciated over the estimated useful lives of the assets, using principally the
straight-line method as follows:
Buildings and improvements..................................... 20 to 25 years
Machinery and equipment........................................ 5 to 15 years
Goodwill and Other Intangible Assets
Goodwill consists of purchase price and related acquisition costs in excess
of the fair value of identifiable assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. The Company evaluates the carrying value of
goodwill for potential impairment on an ongoing basis. Such evaluations compare
operating income before amortization of goodwill of the operations to which
goodwill relates to the amortization recorded. The Company also considers future
anticipated operating results, trends and other circumstances in making such
evaluations.
Other intangible assets, consisting of a license agreement, were amortized
over the two-year term of the agreement, which expired in September 1990.
Deferred Financing Fees
Costs incurred in connection with the issuance of debt are amortized over
the term of the related indebtedness using the effective interest method.
F-7
82
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Research and Development
Costs incurred in connection with the development of new products and
manufacturing methods are charged to operations as incurred. Such costs amounted
to $18,229,000, $11,387,000 and $7,923,000, for the years ended June 30, 1993,
1992 and 1991, respectively.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are generally translated
into U.S. dollars at the exchange rates in effect at the end of the period.
Revenue and expense accounts are translated using a weighted average of exchange
rates in effect during the period. Translation adjustments that arise from
translating a foreign subsidiary's financial statements from functional currency
to U.S. dollars are reflected as cumulative translation adjustment in the
consolidated balance sheets.
Until December 31, 1992, non-monetary assets and liabilities of a foreign
subsidiary operating in Mexico were translated using historical rates, while
monetary assets and liabilities were translated at the exchange rates in effect
at the end of the period, with the U.S. dollar effects of exchange rate changes
included in the results of operations. As of January 1, 1993, Mexico's economy
was no longer deemed to be highly inflationary, and since then, the accounts of
the subsidiary operating in Mexico have been translated consistent with other
foreign subsidiaries.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of a foreign currency
investment position, are included in the results of operations as incurred.
Income Taxes
The consolidated financial statements reflect the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", for
all periods presented.
Deferred national income taxes represent the effect of cumulative temporary
differences between income and expense items reported for financial statement
and tax purposes, and between the bases of various assets and liabilities for
financial statement and tax purposes. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence, it is deemed more
likely than not that the asset will not be realized.
Net Income (Loss) Per Common Share
The weighted average number of common shares outstanding for the years
ended June 30, 1993, 1992 and 1991 was 1,213,608, 841,464 and 499,803,
respectively. Shares exercisable under the stock option plan and the warrants
(Note 13) are included in the weighted average share calculation in 1993. These
shares are not included in the calculation of weighted average common shares
outstanding in 1992 and 1991 as their impact would be anti-dilutive.
Industry Segment Reporting
The Company is principally engaged in the design and manufacture of
automotive seating and, therefore, separate industry segment reporting is not
applicable.
Reclassifications
Certain items in the prior years' financial statements have been
reclassified to conform with the presentation used in 1993.
F-8
83
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) REFINANCING AND SALE OF COMMON STOCK
On July 30, 1992, Lear Seating sold $125,000,000 of Senior Subordinated
Notes (the "Notes") (Note 8), which are unconditionally guaranteed by the
Company. Fees and expenses related to issuance of the Notes were approximately
$5,032,000, including consulting and underwriting fees of $2,200,000 paid to
Shearson Lehman Brothers, Inc. and $50,000 paid to Fima Finance Management,
Inc., an affiliate of IFINT-USA Inc. ("FIMA") for consulting fees.
Simultaneous with the sale of the Notes, the Company issued 121,212 shares
of common stock to the four merchant banking partnerships affiliated with
Shearson Lehman Brothers, Inc. ("Lehman Funds") and FIMA, for total proceeds of
approximately $20,000,000. Fees and expenses related to the sale were $400,000,
paid to the Lehman Funds and FIMA.
In connection with the refinancing, the Credit Agreement (Note 8) was
amended to permit the Company to enter into the above transactions. The
amendment also modified certain financial covenants.
On August 14, 1992, the Company redeemed the Senior Subordinated Discount
Notes ("Discount Notes") at a redemption price equal to 103% of the outstanding
principal amount of $85,000,000 plus accrued interest. The prepayment premium
for early extinguishment of these notes and the accelerated amortization of
unamortized deferred financing fees totaled approximately $4,686,000 and have
been reflected as an extraordinary loss in the year ended June 30, 1992.
A portion of the net proceeds from the sale of the Notes and common stock
described above were used to finance the redemption of the Discount Notes and to
prepay $15,000,000 of the Domestic Term Loan. The balance of the proceeds was
designated for temporary reduction of outstanding borrowings on the Domestic
Revolving Credit Loan, expansion of the Company's operations and for general
corporate purposes.
(4) SEPTEMBER 1991 CAPITALIZATION AND RELATED TRANSACTIONS
Capitalization
Pursuant to a Stock Purchase Agreement dated September 27, 1991 (the "1991
Agreement"), the Company issued 454,545 shares of common stock to the Lehman
Funds and FIMA, for total proceeds of approximately $75,000,000. Fees and
expenses related to the sale and the transactions described below approximated
$7,700,000, of which approximately $3,200,000 was charged to other expense and
approximately $1,800,000 was capitalized as deferred financing fees. Such fees
and expenses included $4,500,000 paid to Shearson Lehman Brothers, Inc. The
Lehman Funds and FIMA also purchased all of the outstanding common stock and
warrants owned by the Company's former majority owner, General Electric Capital
Corporation ("GECC"), and certain other stockholders.
Simultaneous with the sale of common stock, the Company obtained a
$20,000,000 real estate mortgage from GECC.
The net proceeds from the sale of common stock and the real estate mortgage
were used to reduce outstanding borrowings on the Domestic Revolving Credit Loan
by $32,000,000, to prepay the Domestic Term Loan by $48,500,000, and to purchase
LS-Sweden (see discussion below). Additional expense related to the prepayment
of the Domestic Term Loan was $414,000 related to a write-off of deferred
financing costs. Such write-off was recognized as an extraordinary loss in the
consolidated statement of operations for the year ended June 30, 1992.
Assuming the sale of common stock and the retirement of debt had taken
place on July 1, 1990, the Company's unaudited pro forma net loss per common
share for the year ended June 30, 1991 would have been $32.65. The pro forma
results and the weighted average shares outstanding used to calculate the pro
forma net loss per common share give effect to the reduced interest expense, net
of related income taxes, and the
F-9
84
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increased number of shares that would have been outstanding from July 1, 1990
through June 30, 1991, respectively.
The 1991 Agreement required the Company to make certain representations and
warranties prior to the sale. The Company is required to indemnify the parties
to the Agreement for any aggregate losses, liabilities, claims or expenses in
excess of $5,000,000 arising from a breach of any representation, warranty or
covenant made by the Company with respect to its tax position and title to the
new shares. The total liability under the indemnification provisions is limited
to $35,000,000. Management is not currently aware of any information or
condition which will require indemnification under the terms of the Agreement.
The stockholders of Holdings are subject to the provisions of a
Stockholders' and Registration Rights Agreement dated September 27, 1991. As
further discussed elsewhere in this Prospectus, this agreement places
substantial restrictions on transfers of the Company's common stock and contains
certain voting arrangements.
Lear Seating Sweden, AB
In October 1990, the Company entered into an agreement with Saab Automobile
AB ("Saab") in which, effective January 1991, Saab agreed to purchase, and the
Company agreed to supply, completely assembled seat modules on a just-in-time
basis to Saab's production facilities located in Trollhattan, Sweden. As
required by this agreement, the Company established a Swedish subsidiary, Lear
Seating Sweden, AB ("LS-Sweden").
In February 1991, the Company sold its investment in the common stock of
LS-Sweden to GECC, then a major shareholder of the Company, for $100,000. The
Company entered into an agreement with GECC to continue to manage the operations
of LS-Sweden. GECC agreed to provide sufficient funds to LS-Sweden to finance
the purchase of inventory and equipment from Saab at estimated book value of
approximately $3,900,000 and to fund working capital requirements. In addition,
GECC agreed to provide the Company with the right of first refusal in the event
of sale, assignment, or transfer of substantially all of the assets or common
stock of LS-Sweden. While the Company had no obligation to reacquire LS-Sweden,
it was the intent of management to reacquire LS-Sweden.
On September 27, 1991, and as part of the capitalization, the Company
reacquired all common stock of LS-Sweden from GECC for $100,000. In addition,
the Company repaid cumulative advances from GECC to LS-Sweden and related
expenses in the aggregate amount of approximately $7,300,000.
The sale and purchase transactions described above related to LS-Sweden's
common stock are accounted for as transactions between entities under common
control. Accordingly, the Company's consolidated financial statements include
the balance sheet accounts and results of operations of LS-Sweden as if it were
a subsidiary of the Company since its inception in January 1991.
(5) ACQUISITIONS
Acquisition of Central de Industrias, S.A. de C.V. ("CISA")
In April 1991, the Company, through LS No. 50, acquired an indirect
beneficial interest in approximately 4,183,000 shares of the common stock of
CISA for a purchase price of approximately $7,527,000, including related
expenses. These shares represented approximately 35% of CISA's outstanding
common stock. Prior to this purchase, the Company had an indirect beneficial
interest in approximately 61% of CISA's common stock. The acquisition was
accounted for as a purchase. The purchase price approximated the fair value of
net assets acquired.
In October 1991, the Company, through LS No. 50, acquired an additional
indirect beneficial interest in approximately 331,600 shares of the common stock
of CISA for a purchase price of approximately $650,000,
F-10
85
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
including related expenses. These shares represented approximately 3% of CISA's
outstanding common stock. The purchase price approximated the fair value of net
assets acquired. After completing this transaction, the Company owns direct and
indirect beneficial interests in CISA aggregating over 99%.
Acquisition of Fair Haven Industries, Inc.
In July 1990, the Company, through a subsidiary of Lear Seating
Corporation, acquired 9,600 newly issued shares of the common stock of Fair
Haven Industries, Inc. ("FHI") for approximately $750,000, plus related
expenses. The shares acquired represented approximately 49% of FHI's outstanding
common stock. The Company also received an option to acquire an additional 2% of
FHI common stock for nominal additional consideration and an irrevocable proxy
to vote those shares, resulting in a controlling interest. The 2% option was
exercised in December 1991. FHI produces covers for automobile seating and
related trim components. The Company was previously a significant customer of
FHI.
The acquisition was accounted for as a purchase. The excess of the purchase
price over the fair value of net assets acquired was approximately $3,801,000.
The minority interest was valued at zero. As a result of adverse conditions
discovered in FHI's operations and continued operating losses, the Company
determined that the excess purchase price of $3,801,000 was not realizable and
recorded the amount as a charge against operating income in the year ended June
30, 1991. FHI has been included in the Company's consolidated financial
statements for all periods presented.
In August 1993, the Company reached a settlement with the former owners of
FHI in which the Company agreed to purchase the remaining 49% of FHI's common
stock and release all claims against the former owners arising from the July
1990 purchase. The settlement amount, plus related legal costs, was not
significant and was charged to operating income in 1993.
(6) INVESTMENTS IN AFFILIATES
The investments in affiliates at June 30, are as follows:
PERCENT
BENEFICIAL OWNERSHIP
--------------------
1993 1992 1991
---- ---- ----
General Seating of America, Inc............................. 35% 35% 35%
General Seating of Canada, Ltd.............................. 35 35 35
Pacific Trim Corporation Ltd. (Thailand).................... 20 20 20
Probel, S.A. (Brazil)....................................... 31 31 31
Moldeados Interiores, S.A. de C.V........................... -- -- 38
The above businesses are generally involved in the manufacture of
automotive seating and seating components.
Investments in General Seating of America, Inc., General Seating of Canada,
Ltd., and Pacific Trim Corporation Ltd. are accounted for using the equity
method. In 1993, the Company revalued its investment in Probel, which was
previously accounted for using the cost method, to zero due to continued
operating losses and other factors impacting its potential recoverability. A
charge of approximately $1,700,000 is reflected in other equity income of
affiliates in the consolidated statement of operations in 1993.
The investment in Moldeados Interiores, S.A. de C.V. was accounted for
using the equity method until its sale in July 1991. The gain recognized on this
sale was not material.
The aggregate investment in affiliates was $4,756,000 and $6,379,000 as of
June 30, 1993 and 1992, respectively.
F-11
86
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dividends of approximately $985,000 and $930,000 were received by the
Company in 1993 and 1992, respectively, from General Seating of Canada, Ltd. No
other dividends were received by the Company during 1993, 1992 or 1991.
Summarized group financial information of affiliates, accounted for under
the equity method, is as follows (unaudited, in thousands):
JUNE 30, JUNE 30,
1993 1992
-------- --------
Balance sheet data:
Current assets........................................... $ 17,004 $ 19,032
Non-current assets....................................... 13,717 15,154
Current liabilities...................................... 16,757 18,847
Non-current liabilities.................................. 5,700 5,700
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1993 1992 1991
---------- ---------- ----------
Income statement data:
Net sales................................... $119,837 $129,220 $114,705
Gross profit................................ 13,001 19,335 17,541
Income before provision for income taxes.... 10,833 11,643 8,491
Net income.................................. 6,566 8,246 7,926
The Company had sales to affiliates of approximately $10,711,000,
$11,787,000 and $10,393,000 for the years ended June 30, 1993, 1992 and 1991,
respectively. Included in the Company's accounts receivable are trade
receivables from affiliates of approximately $878,000 and $1,056,000 at June 30,
1993 and 1992, respectively.
The Company has guaranteed certain obligations of its affiliates. The
Company's share of amounts outstanding under guaranteed obligations as of June
30, 1993 and 1992 amounted to $3,224,000 and $3,484,000, respectively.
(7) SHORT-TERM BORROWINGS
At June 30, 1993, the Company has lines of credit available with foreign
banks of approximately $53,100,000, subject to certain restrictions imposed by
the Credit Agreement (Note 8). The total indebtedness outstanding under such
arrangements was $1,211,000 and $11,982,000, at June 30, 1993 and 1992,
respectively.
Short-term bank borrowings, in U.S. dollar equivalents, based on the
amounts outstanding at the end of each month were as follows for the years ended
June 30 (in thousands):
1993 1992 1991
------- ------- -------
Maximum amount outstanding at any month-end........ $16,260 $18,092 $21,119
Average amount outstanding......................... 8,198 15,394 12,540
Weighted average interest rate at June 30.......... 8.6% 8.7% 16.9%
Weighted average interest rate during the year..... 9.9% 13.2% 16.3%
F-12
87
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LONG-TERM DEBT
Long-term debt as of June 30 was comprised of the following (in thousands):
1993 1992
-------- --------
Senior Debt:
Term loans --
Domestic............................................ $ 33,550 $ 51,300
Canadian............................................ -- 50,000
German.............................................. 8,827 9,887
-------- --------
42,377 111,187
-------- --------
Revolving credit loans --
Domestic............................................ -- 16,662
Canadian............................................ -- 7,468
-------- --------
-- 24,130
-------- --------
Mortgage payable....................................... 20,000 20,000
-------- --------
62,377 155,317
Less -- Current portion........................... (1,261) (26,986)
-------- --------
61,116 128,331
-------- --------
Subordinated Debt:
Senior Subordinated Discount Notes (Note 3)............ -- 85,000
Senior Subordinated Notes (Note 3)..................... 125,000 --
Subordinated Debentures................................ 135,000 135,000
-------- --------
260,000 220,000
-------- --------
$321,116 $348,331
-------- --------
-------- --------
The Term Loans consist of separate loans from various financial
institutions. The Domestic Term Loan bears interest primarily at the Eurodollar
rate plus 2 1/2% and is payable in quarterly installments through March 1994.
The Company has obtained commitment letters from various financial institutions
which will allow the Company to refinance its Domestic Term Loan on a long-term
basis through 1996. Therefore, all outstanding amounts under the Domestic
Facility have been classified as long-term debt at June 30, 1993.
The Canadian Term Loan was prepaid in full in June 1993.
The German Term Loan bears interest at a stated rate of 9.125%, is payable
in Deutschemarks in quarterly installments of approximately $315,000 through
March 2000, and is collateralized by certain assets of a German subsidiary.
The Domestic Revolving Credit Loans bear interest at the prime rate plus
1 1/2%, and are payable on the date the Domestic Term Loan is due. The Company
is required to pay a commitment fee of .5% on the unused portion. The Canadian
Revolving Credit Loan bears interest at the prime rate plus 1/2%, is payable in
September 1994, can be extended through September 1995 with the consent of the
lending banks, and is guaranteed by letters of credit issued under the Domestic
Revolving Credit Loans. The Company had available unused revolving credit
commitments of $130,854,000 at June 30, 1993, net of $19,146,000 of outstanding
letters of credit.
The mortgage payable bears interest at the prime rate plus 2%, is payable
in semi-annual installments beginning March 1995 through September 2001, and is
collateralized by certain of the Company's domestic facilities, machinery and
equipment.
F-13
88
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average interest rates on the Senior Debt as of June 30, 1993
and 1992 were 7.5% and 7.3%, respectively.
The Senior Subordinated Notes, due in 2000, require payments of interest
semi-annually at 11 1/4%.
The Subordinated Debentures (the "Debentures"), due in 2000, require
payments of interest semi-annually at 14%. The Debentures require mandatory
sinking fund payments of $33,750,000 on December 1, 1998 and December 1, 1999,
and are callable beginning December 1, 1993.
The Domestic Term Loan and Revolving Credit Loans were issued under the
Credit Agreement, as amended, and contain numerous covenants. The German Term
Loan and Subordinated Debt agreements also contain similar covenants. The most
restrictive of these covenants are financial covenants related to net worth,
operating profit, interest coverage and current ratio. The financial covenants
generally become more restrictive with the passage of time. These agreements
also, among other things, significantly restrict the Company's ability to incur
additional indebtedness, declare dividends, make investments and advances, and
limit capital expenditures to specified amounts.
As of June 30, 1993, the Company is unable to declare dividends. Loans
under the Credit Agreement, the mortgage, and the German Term Loan are
collectively collateralized by substantially all assets of the Company.
The scheduled maturities of long-term debt for the five succeeding fiscal
years are as follows (in thousands):
1994................................................................ $ 1,261
1995................................................................ 2,661
1996................................................................ 37,611
1997................................................................ 4,061
1998................................................................ 4,061
F-14
89
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) NATIONAL INCOME TAXES
A summary of income (loss) before provision for national income taxes and
components of the provision for national income taxes for the years ended June
30 are as follows (in thousands):
1993 1992 1991
------- -------- --------
Income (loss) before provision for national
income taxes, minority interests in net income
of subsidiaries, equity income of affiliates
and extraordinary item:
Domestic.................................... $ 6,759 $(19,964) $(47,302)
Foreign..................................... 21,661 13,480 27,005
------- -------- --------
$28,420 $ (6,484) $(20,297)
------- -------- --------
------- -------- --------
Domestic provision for national income taxes:
Current provision........................... $ 6,873 $ 2,146 $ --
------- -------- --------
Deferred-
Deferred provision........................ 1,307 2,603 958
Tax benefit of operating losses........... -- -- (6,119)
Change in beginning of the year valuation
allowance.............................. (2,272) -- --
------- -------- --------
(965) 2,603 (5,161)
------- -------- --------
Foreign provision for national income taxes:
Current provision.............................. $17,449 $ 12,494 $ 21,006
------- -------- --------
Deferred --
Deferred provision.......................... (1,725) (2,123) 242
Adjustment due to changes in enacted tax
rates..................................... (993) -- --
Tax benefit of operating losses............. (2,792) (2,152) (2,068)
------- -------- --------
(5,510) (4,275) (1,826)
------- -------- --------
Provision for national income taxes.............. $17,847 $ 12,968 $ 14,019
------- -------- --------
------- -------- --------
The differences between the United States Federal statutory income tax rate
and the consolidated effective national income tax rate for the years ended June
30 are summarized as follows (in thousands):
1993 1992 1991
------- ------- -------
Income (loss) before provision for national income
taxes, minority interests in net income of
subsidiaries, equity income of affiliates and
extraordinary item multiplied by the United
States Federal statutory rate.................... $ 9,663 $(2,205) $(6,901)
Change in beginning of year valuation allowance.... (2,272) -- --
Differences between domestic and effective foreign
tax rates........................................ 901 3,636 9,999
Operating losses not tax benefitted................ 3,674 8,562 6,663
Domestic income taxes provided on foreign
earnings......................................... 2,827 -- --
Amortization of goodwill........................... 3,246 2,974 4,259
Other, net......................................... (192) 1 (1)
------- ------- -------
$17,847 $12,968 $14,019
------- ------- -------
------- ------- -------
F-15
90
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred national income taxes represent temporary differences in the
recognition of certain items for income tax and financial reporting purposes.
The components of the net deferred national income tax liability at June 30 are
summarized as follows (in thousands):
1993 1992
-------- --------
Deferred national income tax liabilities:
Depreciation and basis difference...................... $ 18,837 $ 28,165
Financing and intercompany transactions................ 9,855 9,348
Taxes provided on unremitted foreign earnings.......... 1,930 2,346
Benefit plans.......................................... 1,234 --
Other.................................................. 1,740 1,440
-------- --------
33,596 41,299
-------- --------
Deferred national income tax assets:
Estimated foreign tax credit carryforwards............. (18,105) (18,105)
Tax loss carryforwards................................. (13,203) (7,187)
Benefit plans.......................................... (4,645) (3,676)
Accruals............................................... (3,654) (3,306)
Deferred financing fees................................ (1,640) (2,922)
Minimum pension liability adjustment................... (1,962) (1,563)
Alternative minimum tax carryforward................... (1,053) (1,242)
Stock compensation..................................... (1,324) (1,324)
Other.................................................. (1,398) (413)
-------- --------
(46,984) (39,738)
Valuation allowance...................................... 30,108 24,209
-------- --------
(16,876) (15,529)
-------- --------
Net deferred national income tax liability............... $ 16,720 $ 25,770
-------- --------
-------- --------
The net deferred national income tax liability includes deferred tax assets
of $81,000 and $2,173,000 as of June 30, 1993 and 1992, respectively, and a
deferred tax liability of $1,265,000 and $1,551,000 as of June 30, 1993 and
1992, respectively, which have been classified as current in the consolidated
balance sheets.
Deferred national income taxes and withholding taxes have been provided on
earnings of the Company's Canadian subsidiary to the extent it is anticipated
that the earnings will be remitted in the form of future dividends. Deferred
national income taxes and withholding taxes have not been provided on the
undistributed earnings of the Company's European and Mexican subsidiaries as
such amounts are deemed to be permanently reinvested. The cumulative
undistributed earnings at June 30, 1993 on which the Company has not provided
additional national income taxes and withholding taxes were approximately
$14,700,000.
During fiscal 1993, the Company settled with the Canadian taxing
authorities on the open issues relating to its Canadian tax returns through
1989. In addition, a settlement was reached with Revenue Canada regarding
treatment of certain items relating to the Company's financing subsidiaries. The
expense related to these settlements was provided by the Company prior to fiscal
1993, and did not have a material effect on the Company's results of operations
or financial position.
As of June 30, 1993 the Company had a net operating loss carryforward for
United States income tax return purposes of approximately $4,400,000, subject to
certain limitations, expiring in the year 2006. In addition, a European
subsidiary had net operating loss carryforwards for tax return purposes
totalling approximately $17,600,000, which have no expiration date, and FHI had
a net operating loss carryforward of approximately $8,500,000, expiring in 2007.
The foreign tax credit carryforwards expire in 1994 through 1996.
F-16
91
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans covering
substantially all domestic employees and certain employees in foreign countries.
The Company's salaried plans provide benefits based on a career average earnings
formula. Hourly pension plans provide benefits under flat benefit formulas. The
Company also has a contractual arrangement with a key employee which provides
for supplemental retirement benefits. In general, the Company's policy is to
fund these plans based on legal requirements, tax considerations, and local
practices.
Components of the Company's pension expense include the following for the
years ended June 30, (in thousands):
1993 1992 1991
------- ------- -------
Service cost....................................... $ 3,096 $ 2,921 $ 2,229
Interest cost on projected benefit obligation...... 5,908 6,211 5,309
Actual return on assets............................ (6,618) (4,894) (2,942)
Net amortization and deferral...................... 1,785 471 (1,886)
------- ------- -------
Net pension expense................................ $ 4,171 $ 4,709 $ 2,710
------- ------- -------
------- ------- -------
The following table sets forth a reconciliation of the funded status of the
Company's defined benefit pension plans to the related amounts recorded in the
consolidated balance sheets as of June 30, (in thousands):
1993 1992
------------------------------- ------------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- -------------- ------------- -------------
Actuarial present value of:
Vested benefit obligation.... $13,946 $ 48,001 $11,393 $47,570
Non-vested benefit
obligation................ 809 1,908 42 2,171
------- -------- ------- -------
Accumulated benefit
obligation................... 14,755 49,909 11,435 49,741
Effects of anticipated future
compensation increases....... 9,135 883 983 8,366
------- -------- ------- -------
Projected benefit obligation... 23,890 50,792 12,418 58,107
Plan assets at fair value...... 21,942 36,034 16,952 36,674
------- -------- ------- -------
Projected benefit obligation in
excess of (less than) plan
assets....................... 1,948 14,758 (4,534) 21,433
Unamortized net loss........... (2,946) (4,943) (3,027) (6,838)
Unrecognized prior service
cost......................... 641 (2,041) -- 165
Unamortized net asset
(obligation) at transition... 4,039 (1,413) 5,047 (1,922)
Adjustment required to
recognize minimum
liability.................... -- 7,601 -- 6,545
------- -------- ------- -------
Accrued pension (asset)
liability recorded in the
consolidated balance
sheets....................... $ 3,682 $ 13,962 $(2,514) $19,383
------- -------- ------- -------
------- -------- ------- -------
F-17
92
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actuarial assumptions used in determining pension expense and the
funded status information shown above were as follows:
1993 1992 1991
---- ---- -----
Discount rate................................... 7%-9% 8%-9% 8%-10%
Rate of salary progression...................... 3%-6% 1%-6% 4%- 6%
Long-term rate of return on assets.............. 9% 5%-9% 9%-10%
Plan assets include cash equivalents, common and preferred stock, and
government and corporate debt securities.
Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," required the Company to record a minimum liability in 1993 and
1992. In 1993, the Company recorded a long-term liability of $7,601,000, an
intangible asset of $2,399,000, which is included with other assets, and a
reduction in stockholders' equity of $3,240,000, net of income taxes of
$1,962,000.
The Company also sponsors defined contribution plans and participates in
Government sponsored programs in certain foreign countries. Contributions are
determined as a percentage of each covered employee's salary. The Company also
participates in multi-employer pension plans for certain of its hourly employees
and contributes to those plans based on collective bargaining agreements. The
aggregate cost of the defined contribution and multi-employer pension plans
charged to operations was $908,000, $787,000 and $750,000 for the periods ended
June 30, 1993, 1992 and 1991, respectively.
(11) POST-RETIREMENT BENEFITS
Post-retirement health care and life insurance benefits are provided for
certain retirees. A liability of $6,277,000 was recorded as of October 1, 1988,
representing an actuarially computed amount of post-retirement health care and
life insurance benefits for employees who had retired prior to the acquisition
of certain predecessor businesses. No additional accruals have been recorded as
it is the Company's policy to expense the costs of such claims as incurred.
Post-retirement benefits expensed were approximately $826,000, $883,000 and
$1,076,000 for the periods ended June 30, 1993, 1992 and 1991, respectively.
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106, "Accounting for Post-retirement
Benefits Other than Pensions". This standard requires that the expected cost of
these benefits be charged to expense during the years that the employees render
service. This is a significant change from the Company's current policy of
recognizing these costs on the cash basis. The Company is required to adopt the
new accounting and disclosure rules for its domestic plans on July 1, 1993 and
no later than July 1, 1995 for its foreign plans.
The Company will prospectively adopt the new standard for its domestic
plans effective July 1, 1993 and no later than required for its foreign plans.
The Company's actuaries estimate the domestic transition obligation at July 1,
1993 to be approximately $24,000,000 (net of the accruals recorded at the
acquisition), before income taxes. The Company estimates that the change to the
new accounting standard will result in additional annual post-retirement benefit
expense of approximately $6,200,000 before income taxes, including the
amortization of the transition obligation.
(12) COMMITMENTS AND CONTINGENCIES
The Company is the subject of various lawsuits, claims and environmental
contingencies involving a material aggregate amount. In addition, the Company
has been identified as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("Superfund"), for the cleanup of contamination from hazardous substances at
three Superfund sites. In the opinion of management, the expected liability
resulting from these matters is adequately covered by amounts
F-18
93
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accrued, and will not have a material adverse effect on the Company's
consolidated financial position or future results of operations.
Two of the Company's European subsidiaries factor their accounts receivable
with a bank subject to limited recourse provisions and is charged a discount fee
equal to the current LIBOR rate plus 1 1/4%. The amount of such factored
receivables, which was not included in accounts receivable in the consolidated
balance sheet at June 30, 1993, was approximately $26,000,000.
Lease commitments at June 30, 1993 under noncancelable operating leases
with terms exceeding one year are as follows (in thousands):
FISCAL YEAR
ENDING JUNE 30,
- ---------------
1994................................................................. $ 8,782
1995................................................................. 7,108
1996................................................................. 5,681
1997................................................................. 4,076
1998................................................................. 3,208
1999 and thereafter.................................................. 20,081
-------
Total............................................................. $48,936
-------
-------
The Company's operating leases cover principally buildings and
transportation equipment. Rent expense incurred under all operating leases and
charged to operations was $11,573,000, $8,598,000 and $4,760,000 for the years
ended June 30, 1993, 1992 and 1991, respectively.
In January 1992, the Company entered into an agreement with Volvo
Personvagnar AB ("Volvo") to either purchase or cause a third party to purchase
certain real property from Volvo. From January 1, 1992 until September 1992, the
Company accounted for the transaction as a financing lease. In September 1992,
the City of Bengtsfors, Sweden purchased this property from Volvo and
subsequently leased it to LS-Sweden for a term of 15 years. The lease with the
City of Bengtsfors requires lease payments of approximately $500,000 per
quarter, and is accounted for as an operating lease. These payments are included
in the table above.
(13) WARRANTS, STOCK OPTIONS AND COMMON STOCK SUBJECT TO REDEMPTION
The Company has outstanding warrants to purchase 100,000 shares of common
stock. Upon the occurrence of certain triggering events (an initial public
offering of the Company's common stock, a merger, or a sale of substantially all
of the Company's assets), the Company must elect either to offer to repurchase
the warrants or to allow the warrants to become exercisable. In the event of a
change in ownership of more than 75% of Holdings' common stock, the warrants
shall become exercisable. Each warrant, when exercised, will entitle the holder
to receive, for no additional consideration, one share of common stock. If no
triggering event has occurred on or prior to December 1, 1993, Holdings will be
required, subject to certain restrictions, to make an offer to repurchase the
warrants at their independently appraised value. Restrictions contained in the
Credit Agreement and the Subordinated Debt Indentures currently prohibit
Holdings from repurchasing the warrants. In the event that repurchase is
prohibited, the warrants will become exercisable.
Under a stock option plan dated September 29, 1988, Holdings may grant
options on 70,588 additional shares of common stock to the management investors.
At June 30, 1993, 64,584 of these options were issued and outstanding. The
options vested over a three-year period and are exercisable at $42.50 per share
after five years. The difference between the exercise price and the market value
at the date of grant was amortized to expense over the vesting period. The
expense recognized for the period ended June 30, 1991 was $1,353,000, and is
reflected as a selling, general and administrative expense in the consolidated
statement of operations.
F-19
94
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income of $12,000 was recognized in fiscal 1992 as certain expenses recorded in
previous years were reversed when options held by one investor were cancelled.
Under the 1992 stock option plan which was instituted during fiscal 1993,
Holdings may grant up to 58,000 stock options to the management investors and
certain other management personnel. At June 30, 1993, 41,700 of the options have
been granted. Of the options granted, 5,400 vest over three years, and the
remainder vest based on specified performance measures over five years. These
options become exercisable at $165 per share as of September 30, 1996. In the
case of certain triggering events, assuming the attainment of certain
performance measures, all options under the 1992 stock option plan will
immediately vest and become exercisable.
The changes in the number of options outstanding for the years ended June
30 are as follows:
1993 1992 1991
------- ------ ------
Options outstanding at beginning of year............. 64,584 69,996 67,642
Options Granted.................................... 41,700 -- 2,942
Options Revoked.................................... -- 5,412 588
------- ------ ------
Options outstanding at end of year................... 106,284 64,584 69,996
------- ------ ------
------- ------ ------
Under the terms of the Stockholders' and Registration Rights Agreement,
shares of common stock held by certain management investors are subject to
redemption at the option of the holder in the event of death, disability,
termination of employment without cause or resignation with good cause, as
defined in the agreement. In such event, the redemption price is the higher of
cost or fair market value, as defined, as of the date of the exercise of the
option. Shares subject to such a redemption option at June 30, 1993 total
30,001, distributed among 33 investors.
Because no public market exists for the common stock of the Company and no
fair market value appraisal of the common stock had been performed, shares
subject to limited rights of redemption were stated at cost of $100 per share as
of June 30, 1991. At June 30, 1993 and 1992, these shares are stated at $165 per
share, representing the maximum estimated fair market value of the stock based
on the price per share in the September 1991 capitalization transaction (Note 4)
and the sale of common stock in July 1992. In the accompanying consolidated
balance sheets, common stock subject to redemption is stated net of the related
notes receivable from sale of common stock.
F-20
95
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) GEOGRAPHIC SEGMENT DATA
Worldwide operations are divided into four geographic segments -- United
States, Canada, Europe and Mexico. The European geographic segment includes
operations in Austria, Finland, France, Germany and Sweden. Geographic segment
information is as follows for the years ended June 30 (in thousands):
1993 1992 1991
---------- ---------- ----------
Net sales:
United States............................ $ 847,133 $ 684,979 $ 490,611
Canada................................... 389,924 427,457 360,705
Europe................................... 434,146 268,175 145,540
Mexico................................... 203,218 173,383 128,880
Intersegment sales....................... (117,911) (131,254) (40,417)
---------- ---------- ----------
$1,756,510 $1,422,740 $1,085,319
---------- ---------- ----------
---------- ---------- ----------
Operating Income:
United States............................ $ 51,752 $ 32,002 $ 6,181
Canada................................... 15,308 14,695 35,303
Europe................................... (3,907) 2,952 (3,667)
Mexico................................... 17,900 7,172 8,206
Unallocated(a)........................... -- 12 (1,353)
---------- ---------- ----------
$ 81,053 $ 56,833 $ 44,670
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets:
United States............................ $ 369,982 $ 350,694 $ 341,676
Canada................................... 200,195 197,371 209,813
Europe................................... 181,077 179,482 112,982
Mexico................................... 59,130 64,572 53,525
Unallocated(b)........................... 9,825 7,765 11,674
---------- ---------- ----------
$ 820,209 $ 799,884 $ 729,670
---------- ---------- ----------
---------- ---------- ----------
- -------------------------
(a) Unallocated Operating Income consists of stock option compensation.
(b) Unallocated Identifiable Assets consist of deferred financing fees.
The net assets of foreign subsidiaries were $215,255,000, $236,019,000 and
$169,461,000 at June 30, 1993, 1992 and 1991, respectively. The Company's share
of foreign net income was $8,508,000, $7,544,000 and $8,438,000, for the years
ended June 30, 1993, 1992 and 1991, respectively.
A majority of the Company's sales are to automobile manufacturing
companies. The following is a summary of the percentage of net sales to major
customers for each of the years ended June 30:
1993 1992 1991
---- ---- ----
General Motors Corporation.................................. 48% 52% 51%
Ford Motor Company.......................................... 22 22 26
In addition, a significant portion of remaining sales are to the above
automobile manufacturing companies through various other automotive suppliers or
to affiliates of these automobile manufacturing companies. The majority of the
Company's accounts receivable are due from the customers listed above.
F-21
96
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)(a)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
-------------- -------------- -------------- --------------
FOURTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED ENDED ENDED
OCTOBER 3, JANUARY 2, APRIL 3, JUNE 30,
FISCAL 1993 1992 1993 1993 1993
----------- -------------- -------------- -------------- --------------
Net sales............................. $359,136 $452,304 $458,022 $487,048
Gross profit.......................... 22,581 34,150 39,306 56,462
Net income (loss)..................... (10,986) 2,566 5,202 13,332
Net income (loss) per common share.... $(10.60) $2.10 $4.25 $10.89
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
-------------- -------------- -------------- --------------
THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED ENDED ENDED
SEPTEMBER 28, DECEMBER 28, MARCH 28, JUNE 30,
FISCAL 1992(b) 1991 1991 1992 1992
------------- -------------- -------------- -------------- --------------
Net sales............................. $284,431 $359,725 $339,233 $439,351
Gross profit.......................... 17,761 27,164 25,244 45,472
Income (loss) before extraordinary
item................................ (14,689) 926 (4,667) 1,300
Net income (loss)..................... (15,103) 926 (4,667) (3,386)
Income (loss) before extraordinary
item per common share............... $(28.94) $0.84 $(4.90) $1.37
Net income (loss) per common share.... $(29.76) $0.84 $(4.90) $(3.56)
- -------------------------
(a) Dollar amounts are in thousands, except per share data.
(b) Certain amounts have been reclassified to conform with the presentation used
in 1993.
(16) FINANCIAL INSTRUMENTS
The Company hedges certain foreign currency risks through the use of
forward foreign exchange contracts. Such contracts are deemed as and are
effective as hedges of the related transactions. As such, gains and losses from
these contracts are deferred and are recognized on the settlement date,
consistent with the related transactions. As of June 30, 1993, the Company and
its subsidiaries have contracted to exchange $43,433,000 U.S. for fixed amounts
of Canadian dollars. In addition, the Company and its subsidiaries have
contracted to purchase 1,400,000 British Pounds for fixed amounts of German
Marks. The contracts come due between July and December 1993. The total
unrecognized gain at June 30, 1993 is not material.
The historical cost of certain of the Company's financial instruments
varies from the fair values of these instruments. The instruments listed below
have fair values which differ significantly from their carrying values. The
carrying values of all other financial instruments approximate the fair values
of such instruments.
ITEM CARRYING VALUE FAIR VALUE
---- -------------- ------------
Senior Subordinated Notes......................... $ 125,000,000 $135,938,000
Subordinated Debentures........................... $ 135,000,000 $147,488,000
Fair values of financial instruments were determined as follows:
Cash, Accounts Receivable, Accounts Payable and Notes Payable -- Fair
values were estimated to be equal to carrying values because of the
short-term, highly liquid nature of these instruments.
F-22
97
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior Indebtedness -- Fair values were determined based on rates
currently available to the Company for similar borrowings of the same
maturities.
Subordinated Debt -- Fair values were determined by reference to
market prices of the securities in recent public transactions.
(17) SUBSEQUENT EVENT
In August 1993, the Company agreed in principal to purchase the North
American seating operations of Ford Motor Company. The Company anticipates that
the terms of the purchase will be finalized and the transaction consummated
prior to December 31, 1993. In connection with the acquisition, the Company is
in negotiations to refinance its Domestic Revolving Credit Facility on a
long-term basis.
F-23
98
LEAR HOLDINGS CORPORATION
INTRODUCTION TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF OCTOBER 2, 1993, AND FOR THE THIRTEEN WEEKS ENDED OCTOBER 2, 1993 AND
OCTOBER 3, 1992
The condensed consolidated financial statements of Lear Holdings
Corporation and subsidiaries have been prepared by Lear Holdings Corporation
(the "Company"), 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
financial statements and the notes thereto for the year ended June 30, 1993
included elsewhere in this Prospectus.
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 statements of
financial position for the interim periods presented. These results are not
necessarily indicative of a full year's results of operations.
F-24
99
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
OCTOBER 2, JUNE 30,
1993 1993
----------- --------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 42,531 $ 53,787
Accounts receivable, net....................................................... 176,099 215,745
Inventories.................................................................... 43,177 40,877
Unbilled customer tooling...................................................... 7,572 8,565
Other.......................................................................... 8,365 6,225
--------- --------
277,744 325,199
--------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................................... 12,979 13,405
Buildings and improvements..................................................... 73,331 73,015
Machinery and equipment........................................................ 186,086 182,302
--------- --------
272,396 268,722
Less: Accumulated depreciation................................................. (109,582) (103,527)
--------- --------
162,814 165,195
--------- --------
OTHER ASSETS:
Goodwill, net.................................................................. 306,978 309,165
Deferred financing fees and other.............................................. 19,013 20,650
---------- -------
325,991 329,815
--------- --------
$ 766,549 $820,209
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings.......................................................... $ 3,202 $ 1,211
Cash overdrafts................................................................ 26,153 17,317
Accounts payable............................................................... 193,593 248,454
Accrued liabilities............................................................ 93,414 106,707
Current portion of long-term debt.............................................. 1,202 1,261
---------- --------
317,564 374,950
---------- --------
LONG-TERM LIABILITIES:
Long-term debt................................................................. 340,209 321,116
Deferred national income taxes................................................. 11,962 15,536
Other.......................................................................... 31,260 29,621
---------- --------
383,431 366,273
---------- --------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock subject to limited rights of redemption, $.01 par value, 30,001
shares at estimated maximum redemption price................................. 4,950 4,950
Notes receivable from sale of common stock..................................... (1,065) (1,065)
---------- --------
3,885 3,885
---------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,500,000 shares authorized, 1,145,757 shares
issued, respectively......................................................... 12 12
Additional paid in capital..................................................... 150,993 150,993
Common stock warrants.......................................................... 10,000 10,000
Less -- Common stock held in treasury, 100,000 shares, at cost................. (10,000) (10,000)
Retained deficit............................................................... (85,896) (74,532)
Minimum pension liability adjustment........................................... (3,240) (3,240)
Cumulative translation adjustments............................................. (200) 1,868
---------- --------
61,669 75,101
---------- --------
$ 766,549 $820,209
---------- --------
----------- --------
The accompanying notes are an integral part of these consolidated balance
sheets.
F-25
100
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS
THREE MONTHS ENDED
ENDED OCTOBER 3, 1992
OCTOBER 2, 1993 -
---------------- ---------------
Net sales....................................................... $399,066 $359,136
Cost of sales................................................... 377,239 339,215
Selling, general and administrative expenses.................... 12,695 12,890
Amortization of goodwill........................................ 2,187 2,187
-------- --------
Operating income................................................ 6,945 4,844
Interest expense................................................ 11,418 14,173
Other expense (income).......................................... 1,070 (30)
-------- --------
Income (loss) before provision for national income taxes and
extraordinary item............................................ (5,543) (9,299)
Provision for national income taxes............................. 5,286 1,687
-------- --------
Net income (loss) before extraordinary item..................... (10,829) (10,986)
Extraordinary loss on early extinguishment of debt.............. (535) --
-------- --------
Net income (loss)............................................... $(11,364) $(10,986)
-------- --------
-------- --------
Earnings per common share:
Net income (loss) before extraordinary item................... $ (10.07) $ (10.60)
Extraordinary loss............................................ (.49) --
-------- --------
Net income (loss)............................................. $ (10.56) $ (10.60)
-------- --------
-------- --------
Weighted average number of common shares outstanding.......... 1,076 1,037
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated statements.
F-26
101
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS THREE MONTHS
ENDED ENDED
OCTOBER 2, 1993 OCTOBER 3, 1992
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (11,364) $ (10,986)
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization of goodwill................... 10,298 9,944
Amortization of deferred finance fees....................... 570 679
Deferred income taxes....................................... (3,574) 350
Extraordinary loss.......................................... 535 --
Other....................................................... 22 (483)
Net change in non-cash working capital items................ (30,496) (20,250)
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES.................. (34,009) (20,746)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment..................... (10,158) (11,149)
Other, net..................................................... 140 --
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES.................. (10,018) (11,149)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Additions to long-term debt.................................... 157,038 312,165
Reductions in long-term debt................................... (137,581) (309,327)
Proceeds from sale of stock, net............................... -- 20,020
Short-term borrowings, net..................................... 1,991 (93)
Increase (decrease) in cash overdrafts......................... 8,836 13,096
Other, net..................................................... 1,639 (5,032)
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES.................. 31,923 30,829
--------- ---------
Effect of foreign currency translation......................... 848 739
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......................... (11,256) (327)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 53,787 33,217
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 42,531 $ 32,890
--------- ---------
--------- ---------
CHANGES IN WORKING CAPITAL:
Receivables.................................................... $ 35,708 $ 9,416
Inventories.................................................... (3,241) (7,485)
Accounts payable............................................... (50,430) (13,532)
Accrued liabilities and other.................................. (12,533) (8,649)
--------- ---------
$ (30,496) $ (20,250)
--------- ---------
--------- ---------
The accompanying notes are an integral part of these consolidated statements.
F-27
102
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements as of October 2, 1993 and for the
three month period then ended include the accounts of Lear Holdings Corporation
(the "Company") and its wholly-owned subsidiaries, Lear Seating Corporation,
Lear Seating Sweden, AB, LS Acquisition Corporation No. 14, and Lear Seating
Holdings Corp. No. 50. Investments in less than majority owned businesses are
accounted for under the equity method, except the Company's 31% interest in
Probel, S.A., which is accounted for under the cost method due to currency
restrictions and other factors impacting the potential recoverability of the
investment.
Significant transactions and balances among the Company and its
subsidiaries have been eliminated in the consolidated financial statements.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements included elsewhere in this Prospectus for
the year ended June 30, 1993.
NOTE 2 -- INVENTORIES
Inventories at October 2, 1993 and June 30, 1993 were comprised of the
following (in thousands):
OCTOBER 2, JUNE 30,
1993 1993
----------- --------
Raw Materials............................................. $30,996 $ 29,005
Work-in-process........................................... 7,679 8,331
Finished goods............................................ 4,502 3,541
------- --------
$43,177 $ 40,877
------- --------
------- --------
NOTE 3 -- GOODWILL
Goodwill at October 2, 1993 and June 30, 1993 was comprised of the
following (in thousands):
OCTOBER 2, JUNE 30,
1993 1993
----------- --------
Goodwill................................................. $ 355,281 $355,281
Less-Accumulated amortization............................ (48,303) (46,116)
--------- --------
$ 306,978 $309,165
--------- --------
--------- --------
F-28
103
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 4 -- LONG TERM DEBT
Long term debt as of October 2, 1993 and June 30, 1993 was comprised of the
following (in thousands):
OCTOBER 2, JUNE 30,
1993 1993
---------- --------
Senior Debt:
Term Loans............................................................ $ 30,411 $ 42,377
Revolving Credit Loans................................................ 31,000 --
Mortgage Payable...................................................... 20,000 20,000
--------- --------
81,411 62,377
Less: Current portion................................................... 1,202 1,261
--------- --------
80,209 61,116
--------- --------
Subordinated Debt:
Senior Subordinated Notes............................................. 125,000 125,000
Subordinated Debentures............................................... 135,000 135,000
--------- --------
260,000 260,000
--------- --------
$ 340,209 $321,116
--------- --------
--------- --------
NOTE 5 -- EARNINGS PER SHARE
The weighted average number of common shares outstanding for the three
months ended October 2, 1993 was 1,075,758. Shares exercisable under the stock
option plan and Holdings' warrants are not included in the calculation of
weighted average common shares outstanding in the periods presented as their
impact would be anti-dilutive.
NOTE 6 -- POST-RETIREMENT BENEFITS
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (FAS 106) which sets forth new
standards on accounting for post retirement benefits other than pensions. This
standard requires that the expected cost of these benefits must be charged to
expense during the years in which the employees render service. The Company has
prospectively adopted the new standard for its domestic plans effective July 1,
1993 and will adopt the standard no later than required for its foreign plans.
The Company's actuaries estimate the domestic transition obligation at July 1,
1993 to be approximately $24,000,000, before income taxes which will be
amortized over 20 years. The Company's results for the three months ended
October 2, 1993 reflect approximately $1.6 million more expense for
postretirement benefits as computed under this new standard than would have been
recorded under the Company's previous method which recognized these costs on a
cash basis. The additional expense of $1.6 million includes approximately
$300,000 of amortization of the Company's transition obligation.
NOTE 7 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid cash for interest of approximately $9,635,000 and
$5,811,000 and for taxes of approximately $11,093,000 and $6,536,000 for the
three months ended October 2, 1993 and the three months ended October 3, 1993,
respectively.
F-29
104
LEAR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 8 -- SUBSEQUENT EVENTS
On October 25, 1993, the Company amended and restated its existing credit
agreement with a syndicate of 22 banks. The new $425 million revolving credit
facility (the "1993 Credit Agreement") enabled the Company to replace the
existing domestic revolving credit and domestic term loan facilities (October
25, 1993), to retire an existing $20 million mortgage (November 3, 1993) and
finance the cash portion of the purchase price of the November 1, 1993
acquisition of the North American Business from the Ford Motor Company. At the
Company's option, revolving credit loans are available under this credit
agreement at the Eurodollar rate or Adjusted Base Rate ("ABR", which is
essentially the prime rate) or a combination thereof. ABR loans bear interest at
ABR plus between 0% and .50% depending on the satisfaction of certain financial
ratios. Eurodollar loans bear interest at the Eurodollar Rate plus between .75%
and 1.50% depending on the satisfaction of certain financial ratios.
The Credit Agreement contains covenants relating to the maintenance of
consolidated net worth, consolidated interest coverage and consolidated
operating profit. The Credit Agreement includes covenants which place
limitations on indebtedness, dividends, guarantees, capital expenditures,
investments, loans, advances, and liens, among other covenants.
Loans under the Credit Agreement are secured by substantially all the
assets of the Company. Amounts available under this facility will be reduced by
$40.0 million on each of October 31, 1996, April 29, 1997, October 31, 1997 and
April 29, 1998. The facility expires on October 31, 1998.
On November 1, 1993, the Company completed the purchase of part of the
North American automotive seating and seat trim operations of the Ford Motor
Company. These operations constitute an integrated U.S. and Mexican operation
that produces and supplies trimmed seat assemblies and seat trim for Ford Motor
Company's North American vehicle production. In connection with this
transaction, the Company and Ford Motor Company entered into a long-term supply
agreement for products produced by these operations at agreed upon prices. The
purchase was financed primarily with borrowings under the 1993 Credit Agreement.
F-30
105
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Ford Motor Company:
We have audited the balance sheet of The North American Business (an
operating component of Ford Motor Company, as described in Note 1 to the
financial statements) at September 30, 1993 and December 31, 1992, and the
related statements of income and cash flows for the nine months ended September
30, 1993 and the years ended December 31, 1992 and 1991. 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 from
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 North American Business
(an operating component of Ford Motor Company, as described in Note 1 to the
financial statements) at September 30, 1993 and December 31, 1992, and the
results of its operations and its cash flows for the nine months ended September
30, 1993 and the years ended December 31, 1992 and 1991, in conformity with
generally accepted accounting principles.
As discussed in Note 5 to the financial statements, the company changed its
method of accounting for postretirement benefits other than pensions in 1992. As
discussed in Notes 1 and 11 to the financial statements, Ford Motor Company has
entered into an agreement for the sale of The North American Business.
COOPERS & LYBRAND
Detroit, Michigan
November 18, 1993
F-31
106
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD MOTOR COMPANY)
BALANCE SHEET
SEPT. 30, DEC. 31,
1993 1992
------------ ------------
ASSETS
Cash and cash equivalents........................................ $ 2,743,000 $ 2,074,000
Accounts receivable, net of allowance of $4,500,000 and
$7,770,000, respectively....................................... 30,037,000 52,865,000
Inventories (Note 3)............................................. 36,864,000 42,574,000
Deferred income taxes (Note 6)................................... 1,995,000 3,138,000
Other current assets............................................. 691,000 1,067,000
------------ ------------
Total current assets...................................... 72,330,000 101,718,000
------------ ------------
Property, plant and equipment, net (Note 4)...................... 79,334,000 83,854,000
Deferred income taxes (Note 6)................................... 1,597,000 779,000
------------ ------------
Total assets.............................................. $153,261,000 $186,351,000
------------ ------------
------------ ------------
LIABILITIES AND EQUITY
Accounts payable, principally trade.............................. $ 32,401,000 $ 28,874,000
Accrued liabilities:
Salaries and wages............................................. 519,000 808,000
Vacations and holidays......................................... 653,000 928,000
Employee benefit programs...................................... 3,021,000 2,118,000
Other.......................................................... 779,000 704,000
Note payable to Ford Motor Company S.A. de C.V. (Note 7)......... 44,529,000 44,529,000
Income taxes payable............................................. 42,266,000 79,973,000
------------ ------------
Total current liabilities................................. 124,168,000 157,934,000
------------ ------------
Postretirement benefits other than pensions and other (Note 5)... 3,562,000 3,347,000
------------ ------------
Total liabilities......................................... 127,730,000 161,281,000
Equity and advances account (Note 8)............................. 25,531,000 25,070,000
------------ ------------
Total liabilities and equity.............................. $153,261,000 $186,351,000
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
F-32
107
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD MOTOR COMPANY)
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
NINE MONTH
PERIOD ENDED YEAR ENDED DEC. 31,
SEPT. 30, ----------------------------
1993 1992 1991
------------ ------------ ------------
Net sales.......................................... $515,102,000 $677,260,000 $547,040,000
Costs of sales..................................... 384,138,000 442,243,000 381,616,000
Selling, administrative and other expenses......... 9,426,000 9,529,000 8,932,000
------------ ------------ ------------
Total costs and expenses...................... 393,564,000 451,772,000 390,548,000
------------ ------------ ------------
Operating income................................... 121,538,000 225,488,000 156,492,000
Interest expense................................... (2,026,000) (3,227,000) (3,556,000)
Other expenses..................................... (1,910,000) (1,144,000) (685,000)
------------ ------------ ------------
Income before income taxes and cumulative
effect
of a change in accounting principle......... 117,602,000 221,117,000 152,251,000
Provision for income taxes (Note 6)................ 42,591,000 76,842,000 54,184,000
------------ ------------ ------------
Income before cumulative effect of a change in
accounting principle........................ 75,011,000 144,275,000 98,067,000
Cumulative effect of a change in accounting
principle (Note 5)............................... -- (1,490,000) --
------------ ------------ ------------
Net income.................................... $ 75,011,000 $142,785,000 $ 98,067,000
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of the financial statements.
F-33
108
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD MOTOR COMPANY)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
NINE MONTH YEAR ENDED DEC. 31,
PERIOD ENDED -----------------------------
SEPT. 30, 1993 1992 1991
-------------- ------------- ------------
Net Income........................................ $ 75,011,000 $ 142,785,000 $ 98,067,000
Adjustments to reconcile net income to cash flows
from operating activities:
Cumulative effect of a change in accounting
principle.................................... -- 1,490,000 --
Depreciation.................................... 7,370,000 10,225,000 8,847,000
Foreign currency translation adjustment......... 1,659,000 1,030,000 825,000
Provision for deferred income taxes............. 325,000 (3,131,000) (1,274,000)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable... 22,828,000 (1,313,000) (27,754,000)
Decrease (increase) in inventory............. 5,710,000 (3,560,000) (4,252,000)
Increase (decrease) in accounts payable...... 3,527,000 (6,847,000) 6,759,000
Increase (decrease) in accrued liabilities... 414,000 780,000 1,143,000
Increase (decrease) in income taxes
payable.................................... (37,707,000) 24,515,000 (4,698,000)
Other........................................... 231,000 60,000 211,000
------------- ------------- ------------
Net cash provided by operating
activities.............................. 79,368,000 166,034,000 77,874,000
------------- ------------- ------------
Cash flows from investing activities:
Capital expenditures, net....................... (2,850,000) (13,246,000) (22,696,000)
Capital contributions........................... -- 10,000,000 --
------------- ------------- ------------
Net cash (used in) investing activities.... (2,850,000) (3,246,000) (22,696,000)
Cash flows from financing activities:
Net funds transferred to Ford................... (76,230,000) (151,342,000) (59,929,000)
Changes in short-term debt...................... -- (12,600,000) 6,350,000
------------- ------------- ------------
Net cash (used in) financing activities.... (76,230,000) (163,942,000) (53,579,000)
Effect of exchange rate changes on cash........... 381,000 (529,000) (152,000)
------------- ------------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 669,000 (1,683,000) 1,447,000
Cash and cash equivalents, beginning of period.... 2,074,000 3,757,000 2,310,000
------------- ------------- ------------
Cash and cash equivalents, end of period.......... $ 2,743,000 $ 2,074,000 $ 3,757,000
------------- ------------- ------------
------------- ------------- ------------
The accompanying notes are an integral part of the financial statements.
F-34
109
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD MOTOR COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The North American Business ("NAB") is an operating component of Ford Motor
Company ("Ford") and is not a separate legal entity. NAB consists of a portion
of the operations of Ford's Plastic and Trim Products Division, which
constitutes an integrated U.S. and Mexican maquiladora operation that provides
and supplies built-up seats and seat covers for Ford's North American vehicle
production. These financial statements include the results of identifiable
operating activities, transactions and assets and liabilities associated with
the business of NAB in the United States and Mexico.
The entity as described above is referred to as "NAB" or "the Company" in
the notes to the financial statements.
The financial statements have been prepared on a historical accounting
basis and do not reflect adjustments which may arise related to the transaction
described in Note 11.
The financial statements reflect an allocation of certain expenses from
Ford based upon the services provided by Ford. However, the financial position
and results of operations of the Company, as presented herein, may not be the
same as would have occurred had the Company been an entity independent of Ford.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Inventory Valuation
Inventories are stated at the lower of cost or market. The cost of
inventories is determined by the first-in, first-out ("FIFO") method.
Foreign Currency Translation
The majority of the assets and liabilities of NAB's Mexican operations are
translated at current exchange rates with the exception of property, plant and
equipment which is translated at historical exchange rates. Translation gains
and losses are included in income.
Depreciation
Assets placed in service after January 1, 1993 are depreciated using the
straight-line method of depreciation. Assets placed in service prior to January
1, 1993 are depreciated using an accelerated method that results in accumulated
depreciation of approximately two-thirds of asset cost during the first half of
the asset's estimated useful life. On average, buildings and land improvements
are depreciable based on a 30-year life, and machinery, equipment and office
furniture are depreciated based on a 14-year life.
When plant and equipment are retired, the general policy is to charge the
cost of such assets, reduced by net salvage proceeds, to accumulated
depreciation. All maintenance, repairs and rearrangement costs are expensed as
incurred. Expenditures that increase the value or productive capacity of assets
are capitalized.
Revenue Recognition
Sales to outside customers are recognized when the product is shipped.
Prior to May 1993, sales to Ford and its affiliates were recognized when the
product was received by the customer. Subsequent to that date,
F-35
110
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD MOTOR COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
sales to Ford and its affiliates are recognized when the product is shipped,
with the exception of sales to Ford's Canadian subsidiary, which are recognized
when the product is received by the customer in Canada.
(3) INVENTORIES:
The major classes of inventories were as follows:
SEPT. 30, DEC. 31,
1993 1992
----------- -----------
Raw materials and work in progress......................... $24,918,000 $25,758,000
Finished goods............................................. 10,133,000 15,848,000
Nonproduction materials and supplies....................... 1,813,000 968,000
----------- -----------
Total................................................. $36,864,000 $42,574,000
----------- -----------
----------- -----------
(4) PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment is stated at cost, net of accumulated
depreciation, and consisted of the following:
SEPT. 30, DEC. 30,
1993 1992
------------ ------------
Land..................................................... $ 7,119,000 $ 7,119,000
Buildings and land improvements.......................... 49,616,000 49,712,000
Machinery, equipment and other........................... 75,360,000 72,705,000
Construction in progress................................. 620,000 1,805,000
------------ ------------
Total property, plant and equipment................. 132,715,000 131,341,000
Accumulated depreciation................................. (53,381,000) (47,487,000)
------------ ------------
Property, plant and equipment, net.................. $ 79,334,000 $ 83,854,000
------------ ------------
------------ ------------
NAB's Mexican maquiladora has beneficial ownership of the land and
buildings through trust agreements with Banca Serfin, Institucion de Banca
Multiple, Grupos Financiero Serfin, Division Fiduciara. Substantially all other
assets are owned by the U.S. operations.
(5) EMPLOYEE RETIREMENT BENEFITS:
Employee Retirement Plans
Retirement benefits are provided to certain salaried employees of NAB under
the Ford General Retirement Plan (the "Plan"). Ford allocated to the Company the
costs associated with employees who participated in this Plan. The amount of
expense allocated to NAB from Ford was $178,000 during the nine months ended
September 30, 1993 and $177,000 and $165,000 during the years ended December 31,
1992 and 1991, respectively.
Post-Employment Health Care and Life Insurance Benefits
The same employees who receive the aforementioned retirement benefits are
also eligible to receive health care and insurance benefits upon retirement
through various Ford programs if they reach retirement age while still working
for Ford.
F-36
111
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD MOTOR COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Prior to 1992, Ford recognized the expense for these post-retirement health
care benefits based on actual expenditures for the year. Beginning in 1992, the
estimated cost for post-retirement health care benefits was accrued on an
actuarially determined basis, in accordance with Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." Ford elected to recognize the prior year unaccrued
accumulated post-retirement benefit obligation of this accounting change as a
cumulative adjustment to income in the first quarter of 1992. Ford has allocated
$2,258,000 of the cumulative adjustment, on a pre-tax basis, to NAB as of
January 1, 1992. Ford has allocated $245,100 and $388,900 for current period
expense to NAB for the periods ended September 30, 1993 and December 31, 1992,
respectively. The effect of the post-retirement benefits on 1991 income was not
material.
The components of the September 30, 1993 and December 30, 1992 obligation
consist of the following:
SEPT. 30, DEC. 31,
1993 1992
---------- ----------
Health................................................ $2,739,000 $2,795,000
Life.................................................. 678,000 549,000
Other................................................. 145,000 3,000
---------- ----------
$3,562,000 $3,347,000
---------- ----------
---------- ----------
(6) INCOME TAXES:
NAB adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), as of January 1, 1991. The
effect of this change in accounting principle was not material. Prior to the
adoption of SFAS No. 109, NAB's method of accounting for income taxes was the
deferred method under Accounting Principles Board Opinion No. 11.
NAB's provision for income taxes was as follows:
YEAR ENDED
NINE MONTH PERIOD --------------------------
ENDED DEC. 31, DEC. 31,
SEPT. 30, 1993 1992 1991
----------------- ----------- -----------
Currently payable
U.S.............................................. $41,779,000 $79,400,000 $54,723,000
Mexican.......................................... 487,000 573,000 735,000
----------- ----------- -----------
Total currently payable....................... $42,266,000 $79,973,000 $55,458,000
Deferred
U.S.............................................. 355,000 (2,762,000) (980,000)
Mexican.......................................... (30,000) (369,000) (294,000)
----------- ----------- -----------
Total deferred................................ 325,000 (3,131,000) (1,274,000)
----------- ----------- -----------
Total provision............................... $42,591,000 $76,842,000 $54,184,000
----------- ----------- -----------
----------- ----------- -----------
F-37
112
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD MOTOR COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the estimated future tax effect of a
temporary differences between the amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations. The components of deferred income tax assets and liabilities as of
September 30, 1993 and December 31, 1992 are as follows:
SEPT. 30, 1993 DEC. 31, 1992
------------------------ ------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSET LIABILITY ASSET LIABILITY
---------- ---------- ---------- ----------
Depreciation.......................... $1,520,000 -- $ 836,000 --
Receivable allowance.................. 1,575,000 -- 2,642,000 --
Employee benefit plans................ 1,622,000 -- 1,580,000 --
Inventory valuation................... -- $1,125,000 -- $1,141,000
---------- ---------- ---------- ----------
Total deferred taxes............. $4,717,000 $1,125,000 $5,058,000 $1,141,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The effective tax rate differs from the U.S. statutory rates for all years
because of the effect of Mexican taxes.
The Company's income before taxes and cumulative effect of a change in
accounting principle for its U.S. and Mexican operations were as follows:
NINE MONTH YEAR ENDED
PERIOD ENDED ----------------------------
SEPT. 30, DEC. 31, DEC. 31,
1993 1992 1991
------------ ------------ ------------
United States.............................. $120,638,000 $225,403,000 $158,068,000
Mexico..................................... (3,036,000) (4,286,000) (5,817,000)
------------ ------------ ------------
$117,602,000 $221,117,000 $152,251,000
------------ ------------ ------------
------------ ------------ ------------
(7) NOTE PAYABLE TO FORD MOTOR COMPANY S.A. DE C.V.:
Interest rates on the note payable to Ford Motor Company S.A. de C.V.
("Ford of Mexico") ranged from 5.5 percent to 6.5 percent and 5.5 percent to 7.0
percent at September 30, 1993 and December 31, 1992, respectively.
Interest paid on the Ford of Mexico note was $2,025,000 for the nine months
ended September 30, 1993 and $3,207,000 and $4,227,000 during the years ended
December 31, 1992 and 1991, respectively.
(8) EQUITY AND ADVANCES ACCOUNT:
Equity and advances reflect the accumulation of transactions between NAB,
other operating components of Ford and various Ford affiliates. These
transactions include operating results, corporate assessments, advances and
other intercompany transactions. Additionally, the equity and advances account
reflects the common stock investment in the Mexican maquiladora held by Ford and
its affiliates.
Transactions of NAB in the U.S. are settled through Ford cash accounts.
These cash accounts are not separately allocated to the NAB operations.
Accordingly, these transactions also have been recorded through the equity and
advances account.
F-38
113
THE NORTH AMERICAN BUSINESS
(AN OPERATING COMPONENT OF FORD MOTOR COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(9) TRANSACTIONS WITH RELATED PARTIES:
Sales and purchases of products and technical and administrative services
are transacted between NAB and Ford and its affiliates. A summary of the amounts
included in the NAB statements of income follows:
YEAR ENDED
NINE MONTH DEC. 31,
PERIOD ENDED ----------------------------
SEPT. 30, 1993 1992 1991
-------------- ------------ ------------
Sales.............................................. $ 401,357,000 $568,605,000 $487,111,000
Purchases
Product.......................................... 18,388,000 23,302,000 27,351,000
Technical and administrative services............ 8,900,000 9,100,000 7,100,000
Sales to nonrelated parties consist primarily of seat trim and assemblies
for further processing and subsequent resale to Ford and its affiliates.
Effective January 1, 1993, NAB agreed to reduce the selling prices of its
products to Ford. The effect of this agreement reduced revenues for the nine
months ended September 30, 1993 by approximately $66 million.
See previous notes for additional related party information.
(10) LITIGATION, CLAIMS AND CONTINGENCIES:
Various legal actions and claims are pending or may be instituted or
asserted in the future against the Company. Litigation is subject to many
uncertainties, the outcome of individual litigated matters is not predictable
with assurance and it is reasonably possible that some of the foregoing matters
could be decided unfavorably to NAB.
NAB operates in Mexico under a maquilla program. Under the maquilla
program, NAB can import into Mexico any fixed assets or materials necessary for
production, without paying import taxes, as long as the assets are returned to
the United States. If materials or fixed assets are not discharged properly or
if the Company cannot prove that items are maintained in Mexico, the Mexican
Custom Authority can levy an import tax (average tax rate - 35 percent) and a
value-added tax (average rate - 10 percent).
Although the amount of liability at September 30, 1993 with respect to
these matters cannot be ascertained, the Company believes that any resulting
liability should not materially affect the financial position of the Company at
September 30, 1993.
(11) AGREEMENT WITH LEAR SEATING CORPORATION:
Pursuant to an agreement with Lear Seating Corporation ("Lear"), Ford sold
NAB to Lear on November 1, 1993. Certain assets and liabilities (identified in
the purchase agreement) presented in the September 30, 1993 and December 31,
1992 balance sheets are excluded from the purchase and will be retained by Ford.
F-39
114
[MAP OF FACILITIES]
(SEE APPENDIX A)
115
-------------------------------------------------------------
-------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
Page
----
Available Information..................... 2
Prospectus Summary........................ 3
Certain Considerations.................... 9
Use of Proceeds........................... 11
Capitalization............................ 12
Pro Forma Financial Data.................. 13
Selected Financial Data................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Company............... 19
Business.................................. 26
Management................................ 38
Security Ownership of Certain Beneficial
Owners and Management................... 47
Certain Transactions...................... 48
Description of Certain Indebtedness....... 51
Description of the Notes.................. 53
Underwriting.............................. 71
Legal Matters............................. 72
Experts................................... 72
Index to Financial Statements............. F-1
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
$145,000,000
[LOGO]
8 1/4% SUBORDINATED NOTES
DUE 2002
---------------------------
PROSPECTUS
January 28, 1994
---------------------------
LEHMAN BROTHERS
BT SECURITIES CORPORATION
CHEMICAL SECURITIES INC.
-------------------------------------------------------------
-------------------------------------------------------------
116
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
Filed Pursuant to Rule 424(b)(4)
Registration No. 33-51317
PROSPECTUS
$145,000,000
[LOGO]
LEAR SEATING CORPORATION
8 1/4% SUBORDINATED NOTES DUE 2002
-------------------------
INTEREST PAYABLE FEBRUARY 1 AND AUGUST 1
This Prospectus will be used by Lehman Brothers Inc. in connection with
offers and sales in market-making transactions of the 8 1/4% Subordinated Notes
due 2002 (the "Notes") of Lear Seating Corporation ("Lear" or the "Company").
Lehman Brothers Inc. may act as a principal or agent in such transactions. The
Notes may be offered in negotiated transactions or otherwise. Sales will be made
at prices related to prevailing market prices at the time of sale.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
January 28, 1994
117
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by Lear or the Market-maker. This Prospectus does
not constitute an offer of any securities other than those to which it relates
or an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
-------------------------
TABLE OF CONTENTS
PAGE
-----
Available Information................. 2
Prospectus Summary.................... 3
Certain Considerations................ 9
Use of Proceeds....................... 11
Capitalization........................ 12
Pro Forma Financial Data.............. 13
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Company........ 19
Business.............................. 26
PAGE
-----
Management............................ 38
Security Ownership of Certain
Beneficial Owners and Management.... 47
Certain Transactions.................. 48
Description of Certain Indebtedness... 51
Description of the Notes.............. 53
Plan of Distribution.................. 71
Legal Matters......................... 71
Experts............................... 71
Index to Financial Statements......... F-1
118
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE NOTES
Although they are not obligated to do so, Lehman Brothers Inc. (the
"Market-maker") currently makes a market in the Notes. Any such market-making
activity may be discontinued at any time, for any reason, without notice at the
sole discretion of the Market-maker. No assurance can be given as to the
liquidity of or the trading market for the Notes.
USE OF PROCEEDS
All of the net proceeds from the Offering, estimated to be $140.0 million,
together with borrowings under the Credit Agreement, will be used to finance the
redemption of all of the outstanding 14% Subordinated Debentures due 2000 at a
redemption price equal to 105.40% of the principal amount thereof, plus accrued
and unpaid interest thereon to the date of redemption, and to pay the fees and
expenses associated therewith.
The estimated sources and uses of funds (in millions) are shown below:
SOURCES OF FUNDS
Net proceeds from the Offering..................................... $140.0
Borrowings under Credit Agreement.................................. 8.7
------
$148.7
------
------
USES OF FUNDS
Redemption of 14% Subordinated Debentures.......................... $135.0
Prepayment premium on 14% Subordinated Debentures.................. 7.3
Estimated accrued interest on 14% Subordinated Debentures.......... 6.4
------
$148.7
------
------
11
119
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This Prospectus is to be used by the Market-maker in connection with offers
and sales of the Notes in market-making transactions. The Market-maker may act
as a principal or agent in such transactions. The Notes may be offered in
negotiated transactions or otherwise. Sales will be made at prices related to
prevailing market prices at the time of sale. The Market-maker has no obligation
to make a market in the Notes and may discontinue market-making activities at
any time without notice, in its sole discretion.
Lehman Brothers Inc. has from time to time provided investment banking,
financial advisory and other services to the Company, for which services it has
received fees. Pursuant to the Stockholders Agreement, the Lehman Funds are able
to elect a majority of the Company's Board of Directors. Messrs. Hughes,
Spalding, Stern and Fried, each an officer of Lehman Brothers Inc., and Messrs.
Davidson and Shower serve on the Board of Directors of the Company as
representatives of the Lehman Funds. See "Management -- Directors and Executive
Officers" and "Certain Transactions -- Stockholders Agreement."
The Lehman Funds, each an affiliate of Lehman Brothers Inc., beneficially
own, in the aggregate, approximately 61.4% of the outstanding Common Stock of
the Company (assuming the exercise of all outstanding Warrants and employee
stock options). In accordance with Schedule E to the Bylaws of the National
Association of Securities Dealers, Inc., the Market-maker will not make sales of
the Notes to customers' discretionary accounts without the prior specific
written approval of such customers.
Lehman Brothers Inc., acted as underwriter in connection with the Offering
and received a gross underwriting discount of $2,392,500 in connection
therewith.
Lehman Brothers Inc. is an affiliate of Lehman Commercial Paper Inc., which
is a managing agent and a lender to Lear under the Credit Agreement. In
addition, Lehman Brothers Inc. or its affiliates may participate on a regular
basis in various general financing and banking transactions for Lear.
LEGAL MATTERS
The validity of the Notes has been passed upon for the Company by Winston &
Strawn, Chicago, Illinois. Certain legal matters with respect to the Notes have
been passed upon for the underwriters of the Offering by Cravath, Swaine &
Moore, New York, New York. Cravath, Swaine & Moore has performed, and continues
to perform, services for the Lehman Funds from time to time.
EXPERTS
The audited financial statements and schedules of Holdings included in the
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen & Co., independent public accountants, as 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. In addition, the
balance sheets of the NAB as of September 30, 1993 and December 31, 1992 and the
statements of income and cash flows of the NAB for the nine months ended
September 30, 1993 and the years ended December 31, 1992 and 1991, have been
audited by Coopers & Lybrand, independent public accountants, as indicated in
their report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
71
120
INSIDE
FRONT APPENDIX A
COVER DESCRIPTION OF PHOTOGRAPHS
- ------- ----------------------------------------------------------------------------------
1. -- Exterior of the Company's Southfield, Michigan Automotive Technical Center.
2. -- GM Suburban front car seat.
3. -- Soft sided 18-wheel tractor trailer bearing Company's name and "Romulus Plant".
4. -- Interior of Ford Mustang.
5. -- Front interior of Dodge Ram Charger.
6. -- Front interior of Jaguar.
INSIDE
BACK
COVER
- -------
Map -- A world map showing the 54 facilities of Lear Seating Corporation and its
subsidiaries.
