unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits, including interest and penalties, of $136$122 million as of December 31, 2007,2008, have been excluded from the contractual obligations table above. For further information related to our unrecognized tax benefits, see Note 10, “Income Taxes,” to the consolidated financial statements included in this Report.
historical results, expectations for future pretax operating income, the time period over which our temporary differences will reverse and the implementation of feasible and prudent tax planning strategies.
In the fourth quarter ofDuring 2005, we concluded that it was no longer more likely than not that we would realize our U.S. deferred tax assets. As a result, we provided a full valuation allowance in the amount of $255 million with respect to our net U.S. deferred tax assets. During 2006 and 2007,Since that time, we continued to maintain a valuation allowance related to our net U.S. deferred tax assets. In addition, we maintain valuation allowances related to our net deferred tax assets in certain foreign jurisdictions. As of December 31, 2007,2008, we had a valuation allowanceallowances of $749$928 million related to tax loss and tax credit carryforwards and other deferred tax assets in the United States and in certain foreign jurisdictions. Our current and future provision for income taxes is significantly impacted by the initial recognition of and changes in valuation allowances in certain countries, particularly in the United States. We intend to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. Our future provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.
In addition, the calculation of our tax benefits and liabilities includes uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We recognize tax benefits and liabilities based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these liabilities based on changing facts and circumstances; however, due to the complexity of some of these uncertainties and the impact of any tax audits, the ultimate resolutions may be materially different from our estimated liabilities.
On January 1, 2007, we adopted the provisions of Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes by establishing minimum standards for the recognition and measurement of tax positions taken or expected to be taken in a tax return. Under the requirements of FIN 48, we must review all of our tax positions and make a determination as to whether itsour position is more-likely-than-not to be sustained upon examination by regulatory authorities. If a tax position meets the more-likely-than-not standard, then the related tax benefit is measured based on a cumulative probability analysis of the amount that is more-likely-than-not to be realized upon ultimate settlement or disposition of the underlying issue.
We recognized the cumulative impact of the adoption of FIN 48 as a $4.5$5 million decrease to our liability for unrecognized tax benefits with a corresponding decrease to our retained deficit balance as of January 1, 2007.
For further information related to income taxes, see Note 10, “Income Taxes,” to the consolidated financial statements included in this Report.
58
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. During 2007,2008, there were no material changes in the methods or policies used to establish estimates and assumptions. Generally, matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of intangible and fixed assets, unsettled pricing discussions with customers and suppliers, restructuring accruals, deferred tax asset valuation allowances and income taxes, pension and other postretirement benefit plan assumptions, accruals related to litigation, warranty and environmental remediation costs and self-insurance accruals. Actual results may differ from estimates provided.
Recently Issued Accounting Pronouncements
Financial Instruments
The FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140.” This statement resolves issues related to the application of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to beneficial interests in securitized assets. The provisions of this statement were to be applied prospectively to all financial instruments acquired or issued during fiscal years beginning after September 15, 2006. The effects of adoption were not significant.
The FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140.” This statement requires that all servicing assets and liabilities be initially measured at fair value. The provisions of this statement were to be applied prospectively to all servicing transactions beginning after September 15, 2006. The effects of adoption were not significant.
Fair Value Measurements
The FASBFinancial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. TheWe adopted the provisions of this statementSFAS No. 157 for our financial assets and liabilities and certain of our nonfinancial assets and liabilities that are to generally be applied prospectively in the fiscal year beginning measuredand/or disclosed at fair value on a recurring basis as of
56
January 1, 2008. Other thanFor further information, see Note 15, “Financial Instruments,” to the newly required disclosures, we do not expect the effects of adoption to be significant.
Fair Value Optionconsolidated financial statements included in this Report.
The FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115.” This statement provides entities with the option to measure eligible financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The provisions of this statement are effective as of the beginning of the first fiscal year beginning after November 15, 2007. Currently, we doWe did not intend to apply the provisions of SFAS No. 159 to any of our existing financial assets or liabilities.
Pension and Other Postretirement Benefits
The FASB issuedOn January 1, 2008, we adopted the measurement date provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).,” This statement requires recognition of the funded status of a company’s defined benefit pension and postretirement benefit plans as an asset or liability on the balance sheet. Previously, under the provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” the asset or liability recorded on the balance sheet reflected the funded status of the plan, net of certain unrecognized items that qualified for delayed income statement recognition. Under SFAS No. 158, these previously unrecognized items are to be recorded in accumulated other comprehensive loss when the recognition provisions are adopted. We adopted the recognition provisions as of December 31, 2006, and the funded status of our defined benefit plans is reflected in our consolidated balance sheets as of December 31, 2007 and 2006.
59
This statement alsowhich requires the measurement of defined benefit plan assetassets and liabilities as of the annual balance sheet date. Currently,date beginning in the fiscal period ending after December 15, 2008. In previous years, we measuremeasured our defined benefit plan assets and liabilities using an earlya measurement date of September 30, as allowed by the original provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The measurement date provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2008. We will adopt the measurement date provisions of SFAS No. 158 in 2008 using the fifteen month measurement approach, under which we will record an adjustment to beginning retained deficit asAs of January 1, 2008, the required adjustment to recognize the net periodic benefit cost for the transition period from October 1, 2007 throughto December 31, 2007. This adjustment will represent a pro rata portion of2007, was determined using the15-month measurement approach. Under this approach, the net periodic benefit cost was determined for the period beginningfrom October 1, 2007 and endingto December 31, 2008.2008, and the adjustment for the transition period was calculated on a pro-rata basis. We expect to record a pretaxrecorded an after-tax transition adjustment of $9$7 million as an increase to beginning retained deficit, $2$1 million as an increase to beginning accumulated other comprehensive income (loss) and $7$6 million as an increase to the net pension and other long-term liabilities.postretirement liability related accounts, including the deferred tax accounts, in the consolidated balance sheet as of December 31, 2008, included in this Report.
The Emerging Issues Task Force (“EITF”) issued EITF IssueNo. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.”EITF 06-4 requires the recognition of a liability in accordance with SFAS No. 106, for endorsement split-dollar life insurance arrangements that provide postretirement benefits. This EITF is effective for fiscal periods beginning after December 15, 2007. In accordance with the EITF’s transition provisions, we expect to recordrecorded approximately $4$5 million as a cumulative effect of a change in accounting principle as of January 1, 2008. The cumulative effect adjustment will bewas recorded as a reductionan increase to beginning stockholders’ equityretained deficit and an increase to other long-term liabilities. In addition, we expect to record additional postretirement benefit expenses of less than $1 million in 2008 associated with the adoption of this EITF.
Business Combinations and Noncontrolling Interests
The FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” This statement significantly changes the financial accounting for and reporting of business combination transactions. The provisions of this statement are to be applied prospectively to business combination transactions in the first annual reporting period beginning on or after December 15, 2008. We will evaluate the impact of this statement on future business combinations.
The FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests in subsidiaries. This statement requires the reporting of all noncontrolling interests as a separate component of stockholders’ equity, the reporting of consolidated net income (loss) as the amount attributable to both the parent and the noncontrolling interests and the separate disclosure of net income (loss) attributable to the parent and net income attributable to the noncontrolling interests. In addition, this statement provides accounting and reporting guidance related to changes in noncontrolling ownership interests. Other thanWith the exception of the reporting requirements described above which require retrospective application, the provisions of SFAS No. 160 are to be applied prospectively in the first annual reporting period beginning on or after December 15, 2008. As of December 31, 20072008 and 2006,2007, noncontrolling interests of $27$49 million and $38$27 million, respectively, were recorded in other long-term liabilities on ourin the consolidated balance sheets.sheets included in this Report. Our consolidated statements of operations
57
for the years ended December 31, 2008, 2007 2006 and 20052006, reflect expense of $26 million, $18$26 million and $7$18 million, respectively, related to net income attributable to noncontrolling interests.
Derivative Instruments and Hedging Activities
The FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures regarding (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, performance and cash flows. The provisions of this statement are effective for the fiscal year and interim periods beginning after November 15, 2008. We are currently evaluating the provisions of this statement.
Hierarchy of Generally Accepted Accounting Principles
The FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the accounting principles to be used in the preparation of financial statements presented in conformity with generally accepted accounting principles in the United States. This statement was effective sixty days after approval by the Securities and Exchange Commission (“SEC”) in September 2008. The effects of adoption were not significant.
58
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. The words “will,” “may,” “designed to,” “outlook,” “believes,” “should,” “anticipates,” “plans,” “expects,” “intends,” “estimates” and similar expressions identify these forward-looking statements. All statements contained or incorporated in this Report which address operating performance, events or developments that we expect or anticipate may occur in the future, including statements related to business opportunities, awarded sales contracts, sales backlog and on-going commercial arrangements, or statements expressing views about future
60
operating results, are forward-looking statements. Important factors, risks and uncertainties that may cause actual results to differ from those expressed in our forward-looking statements include, but are not limited to:
| | |
| | • | general economic conditions in the markets in which we operate, including changes in interest rates or currency exchange rates; |
| |
| | • | the financial condition of our customers or suppliers; |
| |
| | • | changes in actual industry vehicle production levels from our current vehicle production estimates; |
| |
| | • | fluctuations in the production of vehicles for which we are a supplier; |
| |
| | • | the loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier;supplier, including further declines in sales of full-size pickup trucks and large sport utility vehicles; |
| |
| | • | disruptions in the relationships with our suppliers; |
| |
| | • | labor disputes involving us or our significant customers or suppliers or that otherwise affect us; |
| |
| | • | our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions; |
| |
| | • | the outcome of customer productivity negotiations; |
| |
| | • | the impact and timing of program launch costs; |
| |
| | • | the costs, timing and success of restructuring actions; |
| |
| | • | increases in our warranty or product liability costs; |
| |
| | • | risks associated with conducting business in foreign countries; |
| |
| | • | competitive conditions impacting our key customers and suppliers; |
| |
| | • | the cost and availability of raw materials and energy; |
| |
| | • | our ability to mitigate any increases in raw material, energy and commodity costs; |
| |
| | • | the outcome of legal or regulatory proceedings to which we are or may become a party; |
| |
| | • | unanticipated changes in cash flow, including our ability to align our vendor payment terms with those of our customers; |
| |
| | • | our ability to access capital markets on commercially reasonable terms; |
|
| • | further impairment charges initiated by adverse industry or market developments; |
|
| • | our ability to restructure our capital structure; |
|
| • | the possibility that we may be forced to seek protection under the U.S. Bankruptcy Code; and |
| |
| | • | other risks, described in Part I — Item 1A, “Risk Factors,” and from time to time in our other SEC filings. |
The forward-looking statements in this Report are made as of the date hereof, and we do not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof.
6159
| |
| ITEM 8 — | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | |
| | | Page |
| |
| | | 6361 | |
| | | 63 | |
| | | 64 | |
| | | 65 | |
| | | 66 | |
| | | 67 | |
| | | 6866 | |
| | | 6967 | |
| | | 124122 | |
6260
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Lear Corporation
We have audited the accompanying consolidated balance sheets of Lear Corporation and subsidiaries as of December 31, 20072008 and 2006,2007, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007.2008. Our audits also included the financial statement schedule for the three years in the period ended December 31, 2007,2008, included in Item 8. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lear Corporation and subsidiaries as of December 31, 20072008 and 2006,2007, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2007,2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the three years in the period ended December 31, 2007,2008, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that Lear Corporation will continue as a going concern. As more fully described in Note 9, absent the Company entering into an agreement with the lenders under its primary credit facility, the Company will be in default thereunder in 2009. As a result, the Company has classified the amounts outstanding under its primary credit facility as current liabilities as of December 31, 2008. These factors, together with the impact of adverse industry conditions, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
As discussed in Note 11 to the consolidated financial statements, in 2008 and in 2006, the Company changed its method of accounting for pension and other postretirement benefit plans.
As discussed in Note 10 to the consolidated financial statements, in 2007, the Company changed its method of accounting for income taxes.
As discussed in Note 2 to the consolidated financial statements, in 2006, the Company changed its method of accounting for stock-based compensation.
As discussed in Note 11 to the consolidated financial statements, in 2006, the Company changed its method of accounting for pension and other postretirement benefit plans.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Lear Corporation’s internal control over financial reporting as of December 31, 2007,2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 13, 2008,March 17, 2009, expressed an unqualified opinion thereon.
Detroit, Michigan
February 13, 2008March 17, 2009
6361
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
The Board of Directors and Shareholders of Lear Corporation
We have audited Lear Corporation’s internal control over financial reporting as of December 31, 2007,2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Lear Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Annual Report on Internal Control Over Financial Reporting included in Item 9A(b). Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Lear Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,2008, based on the COSO criteria.
We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2008 consolidated balance sheets of Lear Corporation and subsidiaries as of December 31, 2007 and 2006, and the related consolidatedfinancial statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007, of Lear Corporation and subsidiaries, and our report dated February 13, 2008,March 17, 2009, expressed an unqualified opinion thereon.thereon that included an explanatory paragraph regarding Lear Corporation’s ability to continue as a going concern.
Detroit, Michigan
February 13, 2008March 17, 2009
6462
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | | (In millions, except share data) | | | (In millions, except share data) | |
| |
| ASSETS | ASSETS | ASSETS |
Current Assets: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 601.3 | | | $ | 502.7 | | | $ | 1,592.1 | | | $ | 601.3 | |
| Accounts receivable | | | 2,147.6 | | | | 2,006.9 | | | | 1,210.7 | | | | 2,147.6 | |
| Inventories | | | 605.5 | | | | 581.5 | | | | 532.2 | | | | 605.5 | |
| Current assets of business held for sale | | | — | | | | 427.8 | | |
| Other | | | 363.6 | | | | 371.4 | | | | 339.2 | | | | 363.6 | |
| | | | | | | | | | | |
| Total current assets | | | 3,718.0 | | | | 3,890.3 | | | | 3,674.2 | | | | 3,718.0 | |
| | | | | | | | | | | |
Long-Term Assets: | | | | | | | | | | | | | | | | |
| Property, plant and equipment, net | | | 1,392.7 | | | | 1,471.7 | | | | 1,213.5 | | | | 1,392.7 | |
| Goodwill, net | | | 2,054.0 | | | | 1,996.7 | | | | 1,480.6 | | | | 2,054.0 | |
| Other | | | 635.7 | | | | 491.8 | | | | 504.6 | | | | 635.7 | |
| | | | | | | | | | | |
| Total long-term assets | | | 4,082.4 | | | | 3,960.2 | | | | 3,198.7 | | | | 4,082.4 | |
| | | | | | | | | | | |
| | | $ | 7,800.4 | | | $ | 7,850.5 | | | $ | 6,872.9 | | | $ | 7,800.4 | |
| | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current Liabilities: | | | | | | | | | | | | | | | | |
| Short-term borrowings | | $ | 13.9 | | | $ | 39.3 | | | $ | 42.5 | | | $ | 13.9 | |
| Primary credit facility | | | | 2,177.0 | | | | — | |
| Accounts payable and drafts | | | 2,263.8 | | | | 2,317.4 | | | | 1,453.9 | | | | 2,263.8 | |
| Accrued liabilities | | | 1,230.1 | | | | 1,099.3 | | | | 932.1 | | | | 1,230.1 | |
| Current liabilities of business held for sale | | | — | | | | 405.7 | | |
| Current portion of long-term debt | | | 96.1 | | | | 25.6 | | | | 4.3 | | | | 96.1 | |
| | | | | | | | | | | |
| Total current liabilities | | | 3,603.9 | | | | 3,887.3 | | | | 4,609.8 | | | | 3,603.9 | |
| | | | | | | | | | | |
Long-Term Liabilities: | | | | | | | | | | | | | | | | |
| Long-term debt | | | 2,344.6 | | | | 2,434.5 | | | | 1,303.0 | | | | 2,344.6 | |
| Long-term liabilities of business held for sale | | | — | | | | 48.5 | | |
| Other | | | 761.2 | | | | 878.2 | | | | 761.2 | | | | 761.2 | |
| | | | | | | | | | | |
| Total long-term liabilities | | | 3,105.8 | | | | 3,361.2 | | | | 2,064.2 | | | | 3,105.8 | |
| | | | | | | | | | | |
Stockholders’ Equity: | | | | | | | | | | | | | | | | |
| Common stock, par value $0.01 per share, 150,000,000 shares authorized, 82,547,651 shares and 81,984,306 shares issued as of December 31, 2007 and 2006, respectively | | | 0.8 | | | | 0.7 | | |
| Common stock, par value $0.01 per share, 150,000,000 shares authorized, 82,549,501 shares and 82,547,651 shares issued as of December 31, 2008 and 2007, respectively | | | | 0.8 | | | | 0.8 | |
| Additional paid-in capital | | | 1,373.3 | | | | 1,338.1 | | | | 1,371.7 | | | | 1,373.3 | |
| Common stock held in treasury, 5,357,686 shares and 5,732,316 shares as of December 31, 2007 and 2006, respectively, at cost | | | (194.5 | ) | | | (210.2 | ) | |
| Common stock held in treasury, 5,145,642 shares and 5,357,686 shares as of December 31, 2008 and 2007, respectively, at cost | | | | (176.1 | ) | | | (194.5 | ) |
| Retained deficit | | | (116.5 | ) | | | (362.5 | ) | | | (818.2 | ) | | | (116.5 | ) |
| Accumulated other comprehensive income (loss) | | | 27.6 | | | | (164.1 | ) | | | (179.3 | ) | | | 27.6 | |
| | | | | | | | | | | |
| Total stockholders’ equity | | | 1,090.7 | | | | 602.0 | | | | 198.9 | | | | 1,090.7 | |
| | | | | | | | | | | |
| | | $ | 7,800.4 | | | $ | 7,850.5 | | | $ | 6,872.9 | | | $ | 7,800.4 | |
| | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated balance sheets.
63
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | (In millions, except per share data) | |
| |
| Net sales | | $ | 13,570.5 | | | $ | 15,995.0 | | | $ | 17,838.9 | |
| Cost of sales | | | 12,826.5 | | | | 14,846.5 | | | | 16,911.2 | |
| Selling, general and administrative expenses | | | 513.2 | | | | 574.7 | | | | 646.7 | |
| Goodwill impairment charges | | | 530.0 | | | | — | | | | 2.9 | |
| Divestiture of Interior business | | | — | | | | 10.7 | | | | 636.0 | |
| Interest expense | | | 190.3 | | | | 199.2 | | | | 209.8 | |
| Other expense, net | | | 51.9 | | | | 40.7 | | | | 85.7 | |
| | | | | | | | | | | | | |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle | | | (541.4 | ) | | | 323.2 | | | | (653.4 | ) |
| Provision for income taxes | | | 85.8 | | | | 89.9 | | | | 54.9 | |
| Minority interests in consolidated subsidiaries | | | 25.5 | | | | 25.6 | | | | 18.3 | |
| Equity in net (income) loss of affiliates | | | 37.2 | | | | (33.8 | ) | | | (16.2 | ) |
| | | | | | | | | | | | | |
| Income (loss) before cumulative effect of a change in accounting principle | | | (689.9 | ) | | | 241.5 | | | | (710.4 | ) |
| Cumulative effect of a change in accounting principle | | | — | | | | — | | | | 2.9 | |
| | | | | | | | | | | | | |
| Net income (loss) | | $ | (689.9 | ) | | $ | 241.5 | | | $ | (707.5 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Basic net income (loss) per share: | | | | | | | | | | | | |
| Income (loss) before cumulative effect of a change in accounting principle | | $ | (8.93 | ) | | $ | 3.14 | | | $ | (10.35 | ) |
| Cumulative effect of change in accounting principle | | | — | | | | — | | | | 0.04 | |
| | | | | | | | | | | | | |
| Basic net income (loss) per share | | $ | (8.93 | ) | | $ | 3.14 | | | $ | (10.31 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Diluted net income (loss) per share: | | | | | | | | | | | | |
| Income (loss) before cumulative effect of a change in accounting principle | | $ | (8.93 | ) | | $ | 3.09 | | | $ | (10.35 | ) |
| Cumulative effect of change in accounting principle | | | — | | | | — | | | | 0.04 | |
| | | | | | | | | | | | | |
| Diluted net income (loss) per share | | $ | (8.93 | ) | | $ | 3.09 | | | $ | (10.31 | ) |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
64
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | (In millions, except share data) | |
| |
Common Stock | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 0.8 | | | $ | 0.7 | | | $ | 0.7 | |
| Issuance of common stock and stock-based compensation | | | — | | | | 0.1 | | | | — | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 0.8 | | | $ | 0.8 | | | $ | 0.7 | |
| | | | | | | | | | | | | |
Additional Paid-in Capital | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 1,373.3 | | | $ | 1,338.1 | | | $ | 1,108.6 | |
| Net proceeds from issuance of 8,695,653 shares of common stock | | | — | | | | — | | | | 199.2 | |
| Issuance of common stock as part of merger termination fee | | | — | | | | 12.5 | | | | — | |
| Stock-based compensation | | | (1.6 | ) | | | 22.7 | | | | 30.7 | |
| Cumulative effect of a change in accounting principle | | | — | | | | — | | | | (0.4 | ) |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 1,371.7 | | | $ | 1,373.3 | | | $ | 1,338.1 | |
| | | | | | | | | | | | | |
Treasury Stock | | | | | | | | | | | | |
| Balance at beginning of period | | $ | (194.5 | ) | | $ | (210.2 | ) | | $ | (225.5 | ) |
| Issuances of 471,244 shares at an average price of $48.03 | | | 22.6 | | | | — | | | | — | |
| Purchases of 259,200 shares at an average price of $16.21 | | | (4.2 | ) | | | — | | | | — | |
| Issuances of 528,888 shares at an average price of $38.00 | | | — | | | | 20.1 | | | | — | |
| Purchases of 154,258 shares at an average price of $28.21 | | | — | | | | (4.4 | ) | | | — | |
| Issuances of 362,531 shares at an average price of $42.40 | | | — | | | | — | | | | 15.3 | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | (176.1 | ) | | $ | (194.5 | ) | | $ | (210.2 | ) |
| | | | | | | | | | | | | |
Retained Earnings (Deficit) | | | | | | | | | | | | |
| Balance at beginning of period | | $ | (116.5 | ) | | $ | (362.5 | ) | | $ | 361.8 | |
| Net income (loss) | | | (689.9 | ) | | | 241.5 | | | | (707.5 | ) |
Adoption of EITF06-4 | | | (4.9 | ) | | | — | | | | — | |
| Adoption of FASB Statement No. 158 | | | (6.9 | ) | | | — | | | | — | |
| Adoption of FASB Interpretation No. 48 | | | — | | | | 4.5 | | | | — | |
| Dividends declared and paid of $0.25 per share | | | — | | | | — | | | | (16.8 | ) |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | (818.2 | ) | | $ | (116.5 | ) | | $ | (362.5 | ) |
| | | | | | | | | | | | | |
Accumulated Other Comprehensive Income (Loss) | | | | | | | | | | | | |
| Defined Benefit Plans | | | | | | | | | | | | |
| Balance at beginning of period | | $ | (160.1 | ) | | $ | (264.2 | ) | | $ | (115.0 | ) |
| Defined benefit plan adjustments | | | (46.1 | ) | | | 104.1 | | | | 17.4 | |
| Adoption of FASB Statement No. 158 | | | 1.5 | | | | — | | | | (166.6 | ) |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | (204.7 | ) | | $ | (160.1 | ) | | $ | (264.2 | ) |
| | | | | | | | | | | | | |
| Derivative Instruments and Hedging Activities | | | | | | | | | | | | |
| Balance at beginning of period | | $ | (5.5 | ) | | $ | 14.7 | | | $ | 9.0 | |
| Derivative instruments and hedging activities adjustments | | | (75.3 | ) | | | (20.2 | ) | | | 5.7 | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | (80.8 | ) | | $ | (5.5 | ) | | $ | 14.7 | |
| | | | | | | | | | | | | |
| Cumulative Translation Adjustments | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 120.0 | | | $ | 3.9 | | | $ | (86.8 | ) |
| Cumulative translation adjustments | | | (64.8 | ) | | | 116.1 | | | | 90.7 | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 55.2 | | | $ | 120.0 | | | $ | 3.9 | |
| | | | | | | | | | | | | |
| Deferred Income Tax Asset | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 73.2 | | | $ | 81.5 | | | $ | 58.2 | |
| Deferred income tax asset adjustments | | | (21.7 | ) | | | (8.3 | ) | | | 23.3 | |
| Adoption of FASB Statement No. 158 | | | (0.5 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 51.0 | | | $ | 73.2 | | | $ | 81.5 | |
| | | | | | | | | | | | | |
| Accumulated other comprehensive income (loss) | | $ | (179.3 | ) | | $ | 27.6 | | | $ | (164.1 | ) |
| | | | | | | | | | | | | |
Total Stockholders’ Equity | | $ | 198.9 | | | $ | 1,090.7 | | | $ | 602.0 | |
| | | | | | | | | | | | | |
Comprehensive Income (Loss) | | | | | | | | | | | | |
| Net income (loss) | | $ | (689.9 | ) | | $ | 241.5 | | | $ | (707.5 | ) |
| Defined benefit plan adjustments | | | (46.1 | ) | | | 104.1 | | | | 17.4 | |
| Derivative instruments and hedging activities adjustments | | | (75.3 | ) | | | (20.2 | ) | | | 5.7 | |
| Cumulative translation adjustments | | | (64.8 | ) | | | 116.1 | | | | 90.7 | |
| Deferred income tax asset adjustments | | | (21.7 | ) | | | (8.3 | ) | | | 23.3 | |
| | | | | | | | | | | | | |
Comprehensive Income (Loss) | | $ | (897.8 | ) | | $ | 433.2 | | | $ | (570.4 | ) |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
65
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSCASH FLOWS
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | (In millions, except per share data) | |
| |
| Net sales | | $ | 15,995.0 | | | $ | 17,838.9 | | | $ | 17,089.2 | |
| Cost of sales | | | 14,846.5 | | | | 16,911.2 | | | | 16,353.2 | |
| Selling, general and administrative expenses | | | 574.7 | | | | 646.7 | | | | 630.6 | |
| Goodwill impairment charges | | | — | | | | 2.9 | | | | 1,012.8 | |
| Divestiture of Interior business | | | 10.7 | | | | 636.0 | | | | — | |
| Interest expense | | | 199.2 | | | | 209.8 | | | | 183.2 | |
| Other expense, net | | | 40.7 | | | | 85.7 | | | | 38.0 | |
| | | | | | | | | | | | | |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle | | | 323.2 | | | | (653.4 | ) | | | (1,128.6 | ) |
| Provision for income taxes | | | 89.9 | | | | 54.9 | | | | 194.3 | |
| Minority interests in consolidated subsidiaries | | | 25.6 | | | | 18.3 | | | | 7.2 | |
| Equity in net (income) loss of affiliates | | | (33.8 | ) | | | (16.2 | ) | | | 51.4 | |
| | | | | | | | | | | | | |
| Income (loss) before cumulative effect of a change in accounting principle | | | 241.5 | | | | (710.4 | ) | | | (1,381.5 | ) |
| Cumulative effect of a change in accounting principle | | | — | | | | 2.9 | | | | — | |
| | | | | | | | | | | | | |
| Net income (loss) | | $ | 241.5 | | | $ | (707.5 | ) | | $ | (1,381.5 | ) |
| | | | | | | | | | | | | |
| Basic net income (loss) per share: | | | | | | | | | | | | |
| Income (loss) before cumulative effect of a change in accounting principle | | $ | 3.14 | | | $ | (10.35 | ) | | $ | (20.57 | ) |
| Cumulative effect of change in accounting principle | | | — | | | | 0.04 | | | | — | |
| | | | | | | | | | | | | |
| Basic net income (loss) per share | | $ | 3.14 | | | $ | (10.31 | ) | | $ | (20.57 | ) |
| | | | | | | | | | | | | |
| Diluted net income (loss) per share: | | | | | | | | | | | | |
| Income (loss) before cumulative effect of a change in accounting principle | | $ | 3.09 | | | $ | (10.35 | ) | | $ | (20.57 | ) |
| Cumulative effect of change in accounting principle | | | — | | | | 0.04 | | | | — | |
| | | | | | | | | | | | | |
| Diluted net income (loss) per share | | $ | 3.09 | | | $ | (10.31 | ) | | $ | (20.57 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | (In millions) | |
| |
Cash Flows from Operating Activities: | | | | | | | | | | | | |
| Net income (loss) | | $ | (689.9 | ) | | $ | 241.5 | | | $ | (707.5 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities — | | | | | | | | | | | | |
| Cumulative effect of a change in accounting principle | | | — | | | | — | | | | (2.9 | ) |
| Goodwill impairment charges | | | 530.0 | | | | — | | | | 2.9 | |
| Divestiture of Interior business | | | — | | | | 10.7 | | | | 636.0 | |
| Equity in net (income) loss of affiliates | | | 37.2 | | | | (33.8 | ) | | | (16.2 | ) |
| (Gain) loss on extinguishment of debt | | | (7.5 | ) | | | — | | | | 47.9 | |
| Fixed asset impairment charges | | | 17.5 | | | | 16.8 | | | | 15.8 | |
| Deferred tax provision (benefit) | | | 30.4 | | | | (43.9 | ) | | | (55.0 | ) |
| Depreciation and amortization | | | 299.3 | | | | 296.9 | | | | 392.2 | |
| Stock-based compensation | | | 19.2 | | | | 24.4 | | | | 31.7 | |
| Net change in recoverable customer engineering and tooling | | | 45.0 | | | | 47.1 | | | | 194.9 | |
| Net change in working capital items | | | (196.9 | ) | | | (67.3 | ) | | | (110.1 | ) |
| Net change in sold accounts receivable | | | 47.2 | | | | (168.9 | ) | | | (178.0 | ) |
| Changes in other long-term liabilities | | | (17.0 | ) | | | 85.3 | | | | 47.3 | |
| Changes in other long-term assets | | | 0.2 | | | | 12.6 | | | | 6.0 | |
| Other, net | | | 29.5 | | | | 45.5 | | | | (19.7 | ) |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 144.2 | | | | 466.9 | | | | 285.3 | |
| | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (167.7 | ) | | | (202.2 | ) | | | (347.6 | ) |
| Cost of acquisitions, net of cash acquired | | | (27.9 | ) | | | (33.4 | ) | | | (30.5 | ) |
| Divestiture of Interior business | | | — | | | | (100.9 | ) | | | (16.2 | ) |
| Net proceeds from disposition of businesses and other assets | | | 51.9 | | | | 10.0 | | | | 82.1 | |
| Other, net | | | (0.7 | ) | | | (13.5 | ) | | | — | |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (144.4 | ) | | | (340.0 | ) | | | (312.2 | ) |
| | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
| Issuance of senior notes | | | — | | | | — | | | | 900.0 | |
| Repayment/repurchase of senior notes | | | (133.5 | ) | | | (2.9 | ) | | | (1,356.9 | ) |
| Primary credit facility borrowings (repayments), net | | | 1,186.0 | | | | (6.0 | ) | | | 597.0 | |
| Other long-term debt repayments, net | | | (22.9 | ) | | | (21.5 | ) | | | (36.5 | ) |
| Short-term debt borrowings (repayments), net | | | 12.6 | | | | (10.2 | ) | | | (11.8 | ) |
| Net proceeds from the issuance of common stock | | | — | | | | — | | | | 199.2 | |
| Proceeds from the exercise of stock options | | | — | | | | 7.6 | | | | 0.2 | |
| Other, net | | | (35.5 | ) | | | (16.8 | ) | | | (13.8 | ) |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 1,006.7 | | | | (49.8 | ) | | | 277.4 | |
| | | | | | | | | | | | | |
| Effect of foreign currency translation | | | (15.7 | ) | | | 21.5 | | | | 54.9 | |
| | | | | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | | 990.8 | | | | 98.6 | | | | 305.4 | |
Cash and Cash Equivalents at Beginning of Year | | | 601.3 | | | | 502.7 | | | | 197.3 | |
| | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year | | $ | 1,592.1 | | | $ | 601.3 | | | $ | 502.7 | |
| | | | | | | | | | | | | |
Changes in Working Capital: | | | | | | | | | | | | |
| Accounts receivable | | $ | 867.6 | | | $ | 78.9 | | | $ | 153.2 | |
| Inventories | | | 55.6 | | | | (6.9 | ) | | | 29.4 | |
| Accounts payable | | | (779.2 | ) | | | (125.9 | ) | | | (358.9 | ) |
| Accrued liabilities and other | | | (340.9 | ) | | | (13.4 | ) | | | 66.2 | |
| | | | | | | | | | | | | |
| Net change in working capital items | | $ | (196.9 | ) | | $ | (67.3 | ) | | $ | (110.1 | ) |
| | | | | | | | | | | | | |
Supplementary Disclosure: | | | | | | | | | | | | |
| Cash paid for interest | | $ | 195.9 | | | $ | 207.1 | | | $ | 218.5 | |
| | | | | | | | | | | | | |
| Cash paid for income taxes, net of refunds received of $10.4 in 2008, $13.8 in 2007 and $30.7 in 2006 | | $ | 103.5 | | | $ | 107.1 | | | $ | 84.8 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
66
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | (In millions, except share data) | |
| |
Common Stock | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 0.7 | | | $ | 0.7 | | | $ | 0.7 | |
| Issuance of common stock and stock-based compensation | | | 0.1 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 0.8 | | | $ | 0.7 | | | $ | 0.7 | |
| | | | | | | | | | | | | |
Additional Paid-in Capital | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 1,338.1 | | | $ | 1,108.6 | | | $ | 1,064.4 | |
| Net proceeds from the issuance of 8,695,653 shares of common stock | | | — | | | | 199.2 | | | | — | |
| Stock issued as part of merger termination fee | | | 12.5 | | | | — | | | | — | |
| Stock-based compensation | | | 22.7 | | | | 30.7 | | | | 43.8 | |
| Cumulative effect of a change in accounting principle | | | — | | | | (0.4 | ) | | | — | |
| Tax benefit of stock options exercised | | | — | | | | — | | | | 0.4 | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 1,373.3 | | | $ | 1,338.1 | | | $ | 1,108.6 | |
| | | | | | | | | | | | | |
Treasury Stock | | | | | | | | | | | | |
| Balance at beginning of period | | $ | (210.2 | ) | | $ | (225.5 | ) | | $ | (204.1 | ) |
| Issuances of 528,888 shares at an average price of $38.00 | | | 20.1 | | | | — | | | | — | |
| Purchases of 154,258 shares at an average price of $28.21 | | | (4.4 | ) | | | — | | | | — | |
| Issuances of 362,531 shares at an average price of $42.40 | | | — | | | | 15.3 | | | | — | |
| Purchases of 490,900 shares at an average price of $51.75 | | | — | | | | — | | | | (25.4 | ) |
| Issuances of 126,529 shares at an average price of $31.99 | | | — | | | | — | | | | 4.0 | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | (194.5 | ) | | $ | (210.2 | ) | | $ | (225.5 | ) |
| | | | | | | | | | | | | |
Retained Earnings (Deficit) | | | | | | | | | | | | |
| Balance at beginning of period | | $ | (362.5 | ) | | $ | 361.8 | | | $ | 1,810.5 | |
| Net income (loss) | | | 241.5 | | | | (707.5 | ) | | | (1,381.5 | ) |
| Adoption of FASB Interpretation No. 48 | | | 4.5 | | | | — | | | | — | |
| Dividends declared of $0.25 per share in 2006 and $1.00 per share in 2005 | | | — | | | | (16.8 | ) | | | (67.2 | ) |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | (116.5 | ) | | $ | (362.5 | ) | | $ | 361.8 | |
| | | | | | | | | | | | | |
Accumulated Other Comprehensive Income (Loss) | | | | | | | | | | | | |
| Defined Benefit Plans | | | | | | | | | | | | |
| Balance at beginning of period | | $ | (264.2 | ) | | $ | (115.0 | ) | | $ | (72.6 | ) |
| Defined benefit plan adjustments | | | 104.1 | | | | 17.4 | | | | (42.4 | ) |
| Adoption of SFAS No. 158 | | | — | | | | (166.6 | ) | | | — | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | (160.1 | ) | | $ | (264.2 | ) | | $ | (115.0 | ) |
| | | | | | | | | | | | | |
| Derivative Instruments and Hedging Activities | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 14.7 | | | $ | 9.0 | | | $ | 17.4 | |
| Derivative instruments and hedging activities adjustments | | | (20.2 | ) | | | 5.7 | | | | (8.4 | ) |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | (5.5 | ) | | $ | 14.7 | | | $ | 9.0 | |
| | | | | | | | | | | | | |
| Cumulative Translation Adjustments | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 3.9 | | | $ | (86.8 | ) | | $ | 65.6 | |
| Cumulative translation adjustments | | | 116.1 | | | | 90.7 | | | | (152.4 | ) |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 120.0 | | | $ | 3.9 | | | $ | (86.8 | ) |
| | | | | | | | | | | | | |
| Deferred Income Tax Asset | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 81.5 | | | $ | 58.2 | | | $ | 48.2 | |
| Deferred income tax asset adjustments | | | (8.3 | ) | | | 23.3 | | | | 10.0 | |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 73.2 | | | $ | 81.5 | | | $ | 58.2 | |
| | | | | | | | | | | | | |
| Accumulated other comprehensive income (loss) | | $ | 27.6 | | | $ | (164.1 | ) | | $ | (134.6 | ) |
| | | | | | | | | | | | | |
Total Stockholders’ Equity | | $ | 1,090.7 | | | $ | 602.0 | | | $ | 1,111.0 | |
| | | | | | | | | | | | | |
Comprehensive Income (Loss) | | | | | | | | | | | | |
| Net income (loss) | | $ | 241.5 | | | $ | (707.5 | ) | | $ | (1,381.5 | ) |
| Defined benefit plan adjustments | | | 104.1 | | | | 17.4 | | | | (42.4 | ) |
| Derivative instruments and hedging activities adjustments | | | (20.2 | ) | | | 5.7 | | | | (8.4 | ) |
| Cumulative translation adjustments | | | 116.1 | | | | 90.7 | | | | (152.4 | ) |
| Deferred income tax asset adjustments | | | (8.3 | ) | | | 23.3 | | | | 10.0 | |
| | | | | | | | | | | | | |
Comprehensive Income (Loss) | | $ | 433.2 | | | $ | (570.4 | ) | | $ | (1,574.7 | ) |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
67
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | (In millions) | |
| |
Cash Flows from Operating Activities: | | | | | | | | | | | | |
| Net income (loss) | | $ | 241.5 | | | $ | (707.5 | ) | | $ | (1,381.5 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities — | | | | | | | | | | | | |
| Cumulative effect of a change in accounting principle | | | — | | | | (2.9 | ) | | | — | |
| Goodwill impairment charges | | | — | | | | 2.9 | | | | 1,012.8 | |
| Divestiture of Interior business | | | 10.7 | | | | 636.0 | | | | — | |
| Fixed asset impairment charges | | | 16.8 | | | | 15.8 | | | | 97.4 | |
| Deferred tax provision (benefit) | | | (43.9 | ) | | | (55.0 | ) | | | 44.7 | |
| Equity in net (income) loss of affiliates | | | (33.8 | ) | | | (16.2 | ) | | | 51.4 | |
| Depreciation and amortization | | | 296.9 | | | | 392.2 | | | | 393.4 | |
| Net change in recoverable customer engineering and tooling | | | 47.1 | | | | 194.9 | | | | (112.5 | ) |
| Net change in working capital items | | | (67.3 | ) | | | (110.1 | ) | | | 9.7 | |
| Net change in sold accounts receivable | | | (168.9 | ) | | | (178.0 | ) | | | 411.1 | |
| Other, net | | | 167.8 | | | | 113.2 | | | | 34.3 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 466.9 | | | | 285.3 | | | | 560.8 | |
| | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (202.2 | ) | | | (347.6 | ) | | | (568.4 | ) |
| Cost of acquisitions, net of cash acquired | | | (33.4 | ) | | | (30.5 | ) | | | (11.8 | ) |
| Divestiture of Interior business | | | (100.9 | ) | | | (16.2 | ) | | | — | |
| Net proceeds from disposition of businesses and other assets | | | 10.0 | | | | 82.1 | | | | 33.3 | |
| Other, net | | | (13.5 | ) | | | — | | | | 5.3 | |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (340.0 | ) | | | (312.2 | ) | | | (541.6 | ) |
| | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
| Issuance of senior notes | | | — | | | | 900.0 | | | | — | |
| Repayment of senior notes | | | (2.9 | ) | | | (1,356.9 | ) | | | (600.0 | ) |
| Primary credit facility borrowings (repayments), net | | | (6.0 | ) | | | 597.0 | | | | 400.0 | |
| Other long-term debt repayments, net | | | (21.5 | ) | | | (36.5 | ) | | | (32.7 | ) |
| Short-term debt repayments, net | | | (10.2 | ) | | | (11.8 | ) | | | (23.8 | ) |
| Net proceeds from the sale of common stock | | | — | | | | 199.2 | | | | — | |
| Dividends paid | | | — | | | | (16.8 | ) | | | (67.2 | ) |
| Proceeds from exercise of stock options | | | 7.6 | | | | 0.2 | | | | 4.7 | |
| Repurchase of common stock | | | (4.4 | ) | | | — | | | | (25.4 | ) |
| Increase (decrease) in drafts | | | (12.4 | ) | | | 3.0 | | | | (3.3 | ) |
| Other, net | | | — | | | | — | | | | 0.7 | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | (49.8 | ) | | | 277.4 | | | | (347.0 | ) |
| | | | | | | | | | | | | |
| Effect of foreign currency translation | | | 21.5 | | | | 54.9 | | | | (59.8 | ) |
| | | | | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | | 98.6 | | | | 305.4 | | | | (387.6 | ) |
Cash and Cash Equivalents at Beginning of Year | | | 502.7 | | | | 197.3 | | | | 584.9 | |
| | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year | | $ | 601.3 | | | $ | 502.7 | | | $ | 197.3 | |
| | | | | | | | | | | | | |
Changes in Working Capital: | | | | | | | | | | | | |
| Accounts receivable | | $ | 78.9 | | | $ | 153.2 | | | $ | (250.3 | ) |
| Inventories | | | (6.9 | ) | | | 29.4 | | | | (76.9 | ) |
| Accounts payable | | | (125.9 | ) | | | (358.9 | ) | | | 298.1 | |
| Accrued liabilities and other | | | (13.4 | ) | | | 66.2 | | | | 38.8 | |
| | | | | | | | | | | | | |
| Net change in working capital items | | $ | (67.3 | ) | | $ | (110.1 | ) | | $ | 9.7 | |
| | | | | | | | | | | | | |
Supplementary Disclosure: | | | | | | | | | | | | |
| Cash paid for interest | | $ | 207.1 | | | $ | 218.5 | | | $ | 172.6 | |
| | | | | | | | | | | | | |
| Cash paid for income taxes, net of refunds received of $13.8 in 2007, $30.7 in 2006, and $76.7 in 2005 | | $ | 107.1 | | | $ | 84.8 | | | $ | 112.7 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
68
Lear Corporation and Subsidiaries
| |
| (1) | Basis of Presentation |
The consolidated financial statements include the accounts of Lear Corporation (“Lear” or the “Parent”), a Delaware corporation and the wholly owned and less than wholly owned subsidiaries controlled by Lear (collectively, the “Company”). In addition, Lear consolidates variable interest entities in which it bears a majority of the risk of the entities’ potential losses or stands to gain from a majority of the entities’ expected returns. Investments in affiliates in which Lear does not have control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method (Note 7, “Investments in Affiliates and Other Related Party Transactions”).
The Company and its affiliates design and manufacture complete automotive seat systems and the components thereof, as well as electrical distribution systems and select electronic products. Through the first quarter of 2007, the Company also supplied automotive interior systems and components, including instrument panels and cockpit systems, headliners and overhead systems, door panels and flooring and acoustic systems (Note 4, “Divestiture of Interior Business”). The Company’s main customers are automotive original equipment manufacturers. The Company operates facilities worldwide (Note 14, “Segment Reporting”).
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. As discussed in Note 9, “Long Term Debt,” as of December 31, 2008, the Company was in default under its primary credit facility. On March 17, 2009, the Company entered into an amendment and waiver with the lenders under its primary credit facility which provides, through May 15, 2009, for: (1) a waiver of the existing defaults under the primary credit facility and (2) an amendment of the financial covenants and certain other provisions contained in the primary credit facility. Based upon the foregoing, the Company has classified its obligations outstanding under the primary credit facility as current liabilities in the accompanying consolidated balance sheet as of December 31, 2008. As a result of these factors, as well as adverse industry conditions, the Company’s independent registered public accounting firm has included an explanatory paragraph with respect to the Company’s ability to continue as a going concern in its report on the Company’s consolidated financial statements for the year ended December 31, 2008. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company is currently reviewing strategic and financing alternatives available to it and has retained legal and financial advisors to assist it in this regard. The Company is engaged in continuing discussions with the lenders under its primary credit facility and others regarding a restructuring of its capital structure. Such a restructuring would likely affect the terms of the Company’s primary credit facility, its other debt obligations, including its senior notes, and its common stock and may be effected through negotiated modifications to the agreements related to its debt obligations or through other forms of restructurings, which the Company may be required to effect under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”). There can be no assurance that an agreement regarding any such restructuring will be obtained on acceptable terms with the necessary parties or at all. If an acceptable agreement is not obtained, the Company will be in default under its primary credit facility as of May 16, 2009, and the lenders would have the right to accelerate the obligations upon the vote of the lenders holding a majority of outstanding commitments and borrowings (the “required lenders”) thereunder. Acceleration of the Company’s obligations under the primary credit facility would constitute a default under its senior notes and would likely result in the acceleration of these obligations. In addition, a default under its primary credit facility could result in a cross-default or the acceleration of the Company’s payment obligations under other financing agreements. In any such event, the Company may be required to seek reorganization under Chapter 11.
67
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| |
| (2) | Summary of Significant Accounting Policies |
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of ninety days or less.
Accounts Receivable
The Company records accounts receivable as its products are shipped to its customers. The Company’s customers are the major automotive manufacturers in the world. The Company records accounts receivable reserves for known collectibility issues, as such issues relate to specific transactions or customer balances. As of December 31, 20072008 and 2006,2007, accounts receivable are reflected net of reserves of $16.9$16.0 million and $14.9$16.9 million, respectively. The Company writes off accounts receivable when it becomes apparent based upon age or customer circumstances that such amounts will not be collected. Generally, the Company does not require collateral for its accounts receivable.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using thefirst-in, first-out method. Finished goods andwork-in-process inventories include material, labor and manufacturing overhead costs. The Company records inventory reserves for inventory in excess of productionand/or forecasted requirements and for obsolete inventory in production and service inventories. As of December 31, 20072008 and 2006,2007, inventories are reflected net of reserves of $83.4$93.7 million and $87.1$83.4 million, respectively. A summary of inventories is shown below (in millions):
| | | | | | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| |
| Raw materials | | $ | 463.9 | | | $ | 439.9 | | | $ | 417.4 | | | $ | 463.9 | |
| Work-in-process | | | 37.5 | | | | 35.6 | | | | 29.8 | | | | 37.5 | |
| Finished goods | | | 104.1 | | | | 106.0 | | | | 85.0 | | | | 104.1 | |
| | | | | | | | | | | |
| Inventories | | $ | 605.5 | | | $ | 581.5 | | | $ | 532.2 | | | $ | 605.5 | |
| | | | | | | | | | | |
Assets and Liabilities of Business Held for Sale
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company classifies the assets and liabilities of a business as
69
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
held for sale when management approves and commits to a formal plan of sale and it is probable that the sale will be completed. The carrying value of the net assets of the business held for sale are then recorded at the lower of their carrying value or fair market value, less costs to sell. As of December 31, 2006, the assets and liabilities of the Company’s North American interior business were classified as held for sale (Note 4, “Divestiture of Interior Business”).
Pre-Production Costs Related to Long-Term Supply Arrangements
The Company incurs pre-production engineering, research and development (“ER&D”) and tooling costs related to the products produced for its customers under long-term supply agreements. The Company expenses all pre-production ER&D costs for which reimbursement is not contractually guaranteed by the customer. In addition, the Company expenses all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which the customer has not provided a non-cancelable right to use the tooling. During 20072008 and 2006,2007, the Company capitalized $105.5$136.7 million and $122.0$105.5 million, respectively, of pre-production ER&D costs for which reimbursement is contractually guaranteed by the customer. During 20072008 and 2006,2007, the Company also capitalized $152.3$154.8 million and $449.0$152.3 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling. These amounts are included in other current and other long-term assets in the consolidated balance sheets. During 20072008 and 2006,2007, the Company collected $298.4$337.1 million and $765.0$298.4 million, respectively, of cash related to ER&D and tooling costs.
68
During 2007Lear Corporation and 2006, the Company capitalized $0.1 million and $17.4 million, respectively, of Company-owned tooling. These amounts are included in property, plant and equipment, net, in the consolidated balance sheets.Subsidiaries
Notes to Consolidated Financial Statements (continued)
The classification of recoverable customer engineering and tooling costs related to long-term supply agreements is shown below (in millions):
| | | | | | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| |
| Current | | $ | 73.0 | | | $ | 87.7 | | | $ | 51.9 | | | $ | 73.0 | |
| Long-term | | | 94.5 | | | | 116.2 | | | | 66.8 | | | | 94.5 | |
| | | | | | | | | | | |
| Recoverable customer engineering and tooling | | $ | 167.5 | | | $ | 203.9 | | | $ | 118.7 | | | $ | 167.5 | |
| | | | | | | | | | | |
Gains and losses related to ER&D and tooling projects are reviewed on an aggregate program basis. Net gains on projects are deferred and recognized over the life of the related long-term supply agreement. Net losses on projects are recognized as costs are incurred.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciable property is depreciated over the estimated useful lives of the assets, using principally the straight-line method as follows:
| | | | | | | | | |
| Buildings and improvements | | | | | | | 20 to 40 years | |
| Machinery and equipment | | | | | | | 5 to 15 years | |
| | | | | | | | |
70
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
A summary of property, plant and equipment is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | | | | 2008 | | 2007 | |
| |
| Land | | $ | 138.8 | | | $ | 133.5 | | | | | | | $ | 143.0 | | | $ | 138.8 | |
| Buildings and improvements | | | 619.9 | | | | 559.1 | | | | | | | | 594.9 | | | | 619.9 | |
| Machinery and equipment | | | 2,055.2 | | | | 2,081.3 | | | | | | | | 2,002.1 | | | | 2,055.2 | |
| Construction in progress | | | 6.9 | | | | 12.0 | | | | | | | | 5.0 | | | | 6.9 | |
| | | | | | | | | | | |
| Total property, plant and equipment | | | 2,820.8 | | | | 2,785.9 | | | | | | | | 2,745.0 | | | | 2,820.8 | |
| Less — accumulated depreciation | | | (1,428.1 | ) | | | (1,314.2 | ) | | | | | | | (1,531.5 | ) | | | (1,428.1 | ) |
| | | | | | | | | | | |
| Property, plant and equipment, net | | $ | 1,392.7 | | | $ | 1,471.7 | | | | | | | $ | 1,213.5 | | | $ | 1,392.7 | |
| | | | | | | | | | | |
Depreciation expense was $294.0 million, $291.6 million $387.0 million and $388.5$387.0 million for the years ended December 31, 2008, 2007 2006 and 2005,2006, respectively.
Costs associated with the repair and maintenance of the Company’s property, plant and equipment are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency or safety of the Company’s property, plant and equipment are capitalized and depreciated over the remaining life of the related asset.
Impairment of Goodwill
Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment, or decline in value, may have occurred. In conducting its impairment testing, the Company compares the fair value of each of its reporting units to the related net book value. If the fair value of a reporting unit exceeds its net book value, goodwill is considered not to be impaired. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. The Company conducts its annual impairment testing onas of the first day of the fourth quarter each year.
The Company utilizes an income approach to estimate the fair value of each of its reporting units. The income approach is based on projected debt-free cash flow which is discounted to the present value using discount factors
69
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
that consider the timing and risk of cash flows. The Company believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in the industry. Fair value is estimated using recent automotive industry and specific platform production volume projections, which are based on both third-party and internally-developed forecasts, as well as commercial, wage and benefit, inflation and discount rate assumptions. The discount rate used is the value-weighted average of the Company’s estimated cost of equity and of debt (“cost of capital”) derived using, both known and estimated, customary market metrics. The Company’s weighted average cost of capital is adjusted by reporting unit to reflect a risk factor, if necessary. Risk adjustments for 2008 ranged from zero to 300 basis points. Other significant assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to management’s application of these assumptions to this analysis, the Company believes that the income approach provides a reasonable estimate of the fair value of its reporting units.
The Company’s 20072008 annual goodwill impairment analysis, completed as of the first day of the fourth quarter, resulted in no impairment.
During the third and fourth quarters of 2005, events occurred which indicated a significant decline in the fair value of the Company’s interiorelectrical and electronic segment, as well as an impairment of the related goodwill. These events includedThe decline in fair value resulted from unfavorable operating results, primarily as a result of higher raw material costs, lowerthe significant decline in estimated industry production volumes on key platforms, industry overcapacity, insufficient customer pricing and changes in certain customers’ sourcing strategies, as well as the Company’s decision to evaluate strategic alternatives with respect to this segment.volumes. The Company evaluated the net book value of goodwill within its interiorelectrical and electronic segment by comparing the fair value of theeach reporting unit to the related net book value. As a result, the Company recorded total goodwill impairment charges of
71
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
$1.0 billion in 2005 $530.0 million related to the interiorelectrical and electronic segment. The
In 2006, the Company also recognized a $2.9 million goodwill impairment charge related to thisits interior segment, during the second quarterwhich was divested in 2007 (Note 4, “Divestiture of 2006.Interior Business”). The goodwillcharge resulted from a $19.0 million purchase price adjustment, allocated to the Company’s electrical and electronic and interior segments, for an indemnification claim related to the Company’s acquisition of UT Automotive, Inc. (“UT Automotive”) from United Technologies Corporation (“UTC”) in May 1999. The purchase price adjustment was allocated to the Company’s electrical and electronic and interior segments. The Company completed the divestiture of its interior business in 2007.
A summary of the changes in the carrying amount of goodwill, by reportable operating segment, for each of the two years in the period ended December 31, 2007,2008, is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Electrical and
| | | | | | | | | Electrical and
| | | |
| | | Seating | | Electronic | | Interior | | Total | | | Seating | | Electronic | | Total | |
| |
| Balance as of January 1, 2006 | | $ | 1,034.2 | | | $ | 905.6 | | | $ | — | | | $ | 1,939.8 | | |
| Purchase price adjustment | | | — | | | | 16.1 | | | | 2.9 | | | | 19.0 | | |
| Goodwill impairment charges | | | — | | | | — | | | | (2.9 | ) | | | (2.9 | ) | |
| Foreign currency translation and other | | | 26.5 | | | | 14.3 | | | | — | | | | 40.8 | | |
| | | | | | | | | | | |
| Balance as of December 31, 2006 | | $ | 1,060.7 | | | $ | 936.0 | | | $ | — | | | $ | 1,996.7 | | |
| | | | | | | | | | | |
| Balance as of January 1, 2007 | | | $ | 1,060.7 | | | $ | 936.0 | | | $ | 1,996.7 | |
| Foreign currency translation and other | | | 36.8 | | | | 20.5 | | | | — | | | | 57.3 | | | | 36.8 | | | | 20.5 | | | | 57.3 | |
| | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2007 | | $ | 1,097.5 | | | $ | 956.5 | | | $ | — | | | $ | 2,054.0 | | | $ | 1,097.5 | | | $ | 956.5 | | | $ | 2,054.0 | |
| | | | | | | | | | | | | | | | | |
| Goodwill impairment charges | | | | — | | | | (530.0 | ) | | | (530.0 | ) |
| Foreign currency translation and other | | | | (20.6 | ) | | | (22.8 | ) | | | (43.4 | ) |
| | | | | | | | | |
| Balance as of December 31, 2008 | | | $ | 1,076.9 | | | $ | 403.7 | | | $ | 1,480.6 | |
| | | | | | | | | |
70
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Intangible Assets
The Company’s intangible assets acquired through business acquisitions are valued based on independent appraisals. A summary of intangible assets as of December 31, 20072008 and 2006,2007, is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted Average
| | | | | | | | | Weighted Average
| |
| | | Gross Carrying
| | Accumulated
| | Net Carrying
| | Useful Life
| | | Gross Carrying
| | Accumulated
| | Net Carrying
| | Useful Life
| |
| | | Value | | Amortization | | Value | | (Years) | | | Value | | Amortization | | Value | | (Years) | |
| |
| Technology | | $ | 2.8 | | | $ | (1.0 | ) | | $ | 1.8 | | | | 10.0 | | | $ | 2.8 | | | $ | (1.3 | ) | | $ | 1.5 | | | | 10.0 | |
| Customer contracts | | | 24.6 | | | | (12.1 | ) | | | 12.5 | | | | 7.8 | | | | 22.1 | | | | (13.6 | ) | | | 8.5 | | | | 7.8 | |
| Customer relationships | | | 32.0 | | | | (6.9 | ) | | | 25.1 | | | | 19.2 | | | | 29.5 | | | | (8.0 | ) | | | 21.5 | | | | 19.2 | |
| | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2007 | | $ | 59.4 | | | $ | (20.0 | ) | | $ | 39.4 | | | | 15.2 | | |
| Balance as of December 31, 2008 | | | $ | 54.4 | | | $ | (22.9 | ) | | $ | 31.5 | | | | 15.7 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted Average
| | | | | | | | | | | Weighted Average
| |
| | | Gross Carrying
| | Accumulated
| | Net Carrying
| | Useful Life
| | | | | Gross Carrying
| | Accumulated
| | Net Carrying
| | Useful Life
| |
| | | Value | | Amortization | | Value | | (Years) | | | | | Value | | Amortization | | Value | | (Years) | |
| |
| Technology | | $ | 2.8 | | | $ | (0.8 | ) | | $ | 2.0 | | | | 10.0 | | | | | | | $ | 2.8 | | | $ | (1.0 | ) | | $ | 1.8 | | | | 10.0 | |
| Customer contracts | | | 23.0 | | | | (8.4 | ) | | | 14.6 | | | | 7.7 | | | | | | | | 24.6 | | | | (12.1 | ) | | | 12.5 | | | | 7.8 | |
| Customer relationships | | | 29.8 | | | | (4.5 | ) | | | 25.3 | | | | 19.0 | | | | | | | | 32.0 | | | | (6.9 | ) | | | 25.1 | | | | 19.2 | |
| | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2006 | | $ | 55.6 | | | $ | (13.7 | ) | | $ | 41.9 | | | | 14.7 | | |
| Balance as of December 31, 2007 | | | | | | | $ | 59.4 | | | $ | (20.0 | ) | | $ | 39.4 | | | | 15.2 | |
| | | | | | | | | | | | | | | | | | | |
Excluding the impact of any future acquisitions, the Company’s estimated annual amortization expense is approximately $5.2 million infor each of the twofive succeeding years decreasing to approximately $4.9 million, $4.2 million and $2.8 million in the three years thereafter.is shown below (in millions):
| | | | | |
Year | | Expense | |
| |
| 2009 | | $ | 4.8 | |
| 2010 | | | 4.7 | |
| 2011 | | | 4.0 | |
| 2012 | | | 2.7 | |
| 2013 | | | 1.9 | |
Impairment of Long-Lived Assets
The Company monitors its long-lived assets for impairment indicators on an ongoing basis in accordance with SFASStatement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” If impairment indicators exist,
72
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
the Company performs the required analysis and records impairment charges in accordance with SFAS No. 144. In conducting its analysis, the Company compares the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the undiscounted cash flows exceed the net book value, the long-lived assets are considered not to be impaired. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated based upon either discounted cash flow analyses or estimated salvage values. Cash flows are estimated using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments, as well as assumptions related to discount rates. Changes in economic or operating conditions impacting these estimates and assumptions could result in the impairment of long-lived assets.
In the years ended December 31, 2008, 2007 and 2006, the Company recognized fixed asset impairment charges of $17.5 million, $16.8 million and $5.8 million, respectively, in conjunction with its restructuring actions (Note 6, “Restructuring”). The Company also recorded fixed asset impairment charges related to certain operating locations within its interior segment of $10.0 million and $82.3 million in the yearsyear ended December 31, 2006 and 2005, respectively.2006. The remaining fixed
71
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
assets of the Company’s North American interior business were written down to zero in the fourth quarter of 2006 as a result of entering into the agreement relating to the divestiture of the North American interior business (Note 4, “Divestiture of Interior Business”).
In the years ended December 31, 2007, 2006 and 2005, the Company also recognized fixed asset impairment charges of $16.8 million, $5.8 million and $15.1 million, respectively, in conjunction with its restructuring actions. See Note 6, “Restructuring.” The Company has certain other facilities that have generated operating losses in recent years. The results of the related impairment analyses indicated that impairment of the fixed assets was not material.
These fixedFixed asset impairment charges are recorded in cost of sales in the accompanying consolidated statements of operations for the years ended December 31, 2008, 2007 2006 and 2005.2006.
Impairment of Investments in Affiliates
The Company monitors its investments inaffiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with Accounting Principles Board No. 18, “The Equity Method of Accounting for Investments in Common Stock.” If the Company determines that an other than temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. See Note 7, “Investments in Affiliates and Other Related Party Transactions.”
Revenue Recognition and Sales Commitments
The Company enters into agreements with its customers to produce products at the beginning of a vehicle’s life. Although such agreements do not provide for minimum quantities, once the Company enters into such agreements, the Company is generally required to fulfill its customers’ purchasing requirements for the entire production life of the vehicle. These agreements generally may be terminated by the customer at any time. Historically, terminations of these agreements have been minimal. In certain instances, the Company may be committed under existing agreements to supply products to its customers at selling prices which are not sufficient to cover the direct cost to produce such products. In such situations, the Company recognizes losses as they are incurred.
The Company receives blanket purchase orders from its customers on an annual basis. Generally, each purchase order provides the annual terms, including pricing, related to a particular vehicle model. Purchase orders do not specify quantities. The Company recognizes revenue based on the pricing terms included in its annual purchase orders as its products are shipped to its customers. The Company is asked to provide its customers with annual cost reductions as part of certain agreements. The Company accrues for such amounts as a reduction of revenue as its products are shipped to its customers. In addition, the Company has ongoing adjustments to its pricing arrangements with its customers based on the related content, the cost of its products and other commercial factors. Such pricing accruals are adjusted as they are settled with the Company’s customers.
Amounts billed to customers related to shipping and handling costs are included in net sales in the consolidated statements of operations. Shipping and handling costs are included in cost of sales in the consolidated statements of operations.
Cost of Sales and Selling, General and Administrative Expenses
Cost of sales includes material, labor and overhead costs associated with the manufacture and distribution of the Company’s products. Distribution costs include inbound freight costs, purchasing and receiving costs,
73
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
inspection costs, warehousing costs and other costs of the Company’s distribution network. Selling, general and administrative expenses include selling, research and development and administrative costs not directly associated with the manufacture and distribution of the Company’s products.
72
Lear 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, to the extent not recoverable from the Company’s customers, are charged to selling, general and administrative expenses as incurred. These costs amounted to $113.0 million, $134.6 million $169.8 million and $174.0$169.8 million for the years ended December 31, 2008, 2007 2006 and 2005,2006, respectively.
Other Expense, Net
Other expense, net includes non-income related taxes, foreign exchange gains and losses, discounts and expenses associated with the Company’s asset-based securitization and factoring facilities, gains and loss related to derivative instruments and hedging activities, gains and losses on the extinguishment of debt (see Note(Note 9, “Long-Term Debt”), gains and losses on the sales of fixed assets and other miscellaneous income and expense. A summary of other expense, net is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Other expense | | $ | 47.0 | | | $ | 101.3 | | | $ | 41.8 | | | $ | 82.7 | | | $ | 47.0 | | | $ | 101.3 | |
| Other income | | | (6.3 | ) | | | (15.6 | ) | | | (3.8 | ) | | | (30.8 | ) | | | (6.3 | ) | | | (15.6 | ) |
| | | | | | | | | | | | | | | |
| Other expense, net | | $ | 40.7 | | | $ | 85.7 | | | $ | 38.0 | | | $ | 51.9 | | | $ | 40.7 | | | $ | 85.7 | |
| | | | | | | | | | | | | | | |
Foreign Currency Translation
With the exception of foreign subsidiaries operating in highly inflationary economies, which are measured in U.S. dollars, assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the foreign exchange rates in effect at the end of the period. Revenues and expenses of foreign subsidiaries are translated using an average of the foreign exchange rates in effect during the period. Translation adjustments that arise from translating a foreign subsidiary’s financial statements from the functional currency to U.S. dollars are reflected in accumulated other comprehensive income (loss) in the consolidated balance sheets.
Transaction gains and losses that arise from foreign exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except certain long-term intercompany transactions or those transactions which operate as a hedge of a foreign currency investment position, are included in the consolidated statements of operations as incurred.
Stock-Based Compensation
On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share-Based Payment,” using the modified prospective transition method and recognized income of $2.9 million as a cumulative effect of a change in accounting principle related to a change in accounting for forfeitures. There was no income tax effect resulting from this adoption. SFAS No. 123(R) requires the estimation of expected forfeitures at the grant date and the recognition of compensation cost only for those awards expected to vest. Previously, the Company accounted for forfeitures as they occurred. The adoption of SFAS No. 123(R) did not result in the recognition of additional compensation cost related to outstanding unvested awards, as the Company recognized compensation cost using the fair value provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” for all employee awards granted after January 1, 2003. The pro forma effect on net loss and net loss per share, as if the fair value recognition
74
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
provisions had been applied to all outstanding and unvested awards granted prior to January 1, 2003, is shown below (in millions, except per share data):
| | | | | |
For the Year Ended December 31, | | 2005 | |
| |
| Net loss, as reported | | $ | (1,381.5 | ) |
| Add: Stock-based employee compensation expense included in reported net loss | | | 14.7 | |
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards | | | (18.1 | ) |
| | | | | |
| Net loss, pro forma | | $ | (1,384.9 | ) |
| | | | | |
| Net loss per share: | | | | |
| Basic and diluted — as reported | | $ | (20.57 | ) |
| Basic and diluted — pro forma | | $ | (20.62 | ) |
| | | | | |
For the years ended December 31, 2008, 2007 and 2006, total stock-based employee compensation expense was $15.7 million $27.1 million and $32.0 million, respectively.
For further information related to the Company’s stock-based compensation programs, see Note 12, “Stock-Based Compensation.”
73
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average common shares outstanding during the period. Diluted net income (loss) per share includes the dilutive effect of common stock equivalents using the average share price during the period. In addition, when the impact is dilutive, diluted net income per share is calculated by increasing net income for the after-tax interest expense on convertible debt and by increasing total shares outstanding by the number of shares that would be issuable upon conversion. Prior to the repurchase of substantially all of the Company’s outstanding zero-coupon convertible notes during 2006, there were 4,813,056 shares issuable upon conversion of the Company’s convertible zero-coupon senior notes. For all periods presented, these shares had an antidilutive impact on net income (loss) per share. Summaries of net income (loss) (in millions) and shares outstanding are shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 |
| |
| Net income (loss) | | $ | 241.5 | | | $ | (707.5 | ) | | $ | (1,381.5 | ) | | $ | (689.9 | ) | | $ | 241.5 | | | $ | (707.5 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Weighted average common shares outstanding | | | 76,826,765 | | | | 68,607,262 | | | | 67,166,668 | | | | 77,242,360 | | | | 76,826,765 | | | | 68,607,262 | |
| Dilutive effect of common stock equivalents | | | 1,387,483 | | | | — | | | | — | | | | — | | | | 1,387,483 | | | | — | |
| | | | | | | | | | | | | | | |
| Diluted shares outstanding | | | 78,214,248 | | | | 68,607,262 | | | | 67,166,668 | | | | 77,242,360 | | | | 78,214,248 | | | | 68,607,262 | |
| | | | | | | | | | | | | | | |
For further information related to the zero-coupon convertible senior notes, see Note 9, “Long-Term Debt.”
The shares issuable upon conversion of the Company’s outstanding zero-coupon convertible debt and the effect of certain common stock equivalents, including options, restricted stock units, performance units and stock appreciation rights were excluded from the computation of diluted shares outstanding for the years ended December 31, 2008, 2007 2006 and 2005,2006, as inclusion would have resulted in antidilution. A summary of these options
75
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
and their exercise prices, as well as these restricted stock units, performance units and stock appreciation rights, is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Options | | | | | | | | | | | | | | | | | | | | | | | | |
| Antidilutive options | | | 1,805,530 | | | | 2,790,305 | | | | 2,983,405 | | | | 1,268,180 | | | | 1,805,530 | | | | 2,790,305 | |
| Exercise prices | | $ | 35.93 - $55.33 | | | $ | 22.12 - $55.33 | | | $ | 22.12 - $55.33 | | | $ | 22.12 - $55.33 | | | $ | 35.93 - $55.33 | | | $ | 22.12 - $55.33 | |
| Restricted stock units | | | — | | | | 1,964,571 | | | | 2,234,122 | | | | 1,040,740 | | | | — | | | | 1,964,571 | |
| Performance units | | | — | | | | 169,909 | | | | 123,672 | | | | 168,696 | | | | — | | | | 169,909 | |
| Stock appreciation rights | | | 1,301,922 | | | | 1,751,854 | | | | 1,215,046 | | | | 2,432,745 | | | | 1,301,922 | | | | 1,751,854 | |
| | | | | | | | | |
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. During 2007,2008, there were no material changes in the methods or policies used to establish estimates and assumptions. Generally, matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of intangible and fixed assets and unsettled pricing discussions with customers and suppliers (Note 2, “Summary of Significant Accounting Policies”); restructuring accruals (Note 6, “Restructuring”); deferred tax asset valuation allowances and income taxes (Note 10, “Income Taxes”); pension and other postretirement benefit plan assumptions (Note 11, “Pension and Other Postretirement Benefit Plans”); accruals related to litigation, warranty and environmental remediation costs (Note 13, “Commitments and Contingencies”); and self-insurance accruals. Actual results may differ from estimates provided.
Reclassifications
Certain amounts in prior years’ financial statements have been reclassified to conform to the presentation used in the year ended December 31, 2007.2008.
74
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On February 9, 2007, the Company entered into an Agreement and Plan of Merger, as amended (the “Merger Agreement”“AREP merger agreement”), with AREP Car Holdings Corp., a Delaware corporation (“AREP Car Holdings”), and AREP Car Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of AREP Car Holdings (“Merger Sub”). Under the terms of the Merger Agreement,AREP merger agreement, Merger Sub was to merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of AREP Car Holdings. AREP Car Holdings and Merger Sub are affiliates of Carl C. Icahn.
Pursuant to the Merger Agreement,AREP merger agreement, as of the effective time of the merger, each issued and outstanding share of common stock of the Company, other than shares (i) owned by AREP Car Holdings, Merger Sub or any subsidiary of AREP Car Holdings and (ii) owned by any shareholders who were entitled to and who had properly exercised appraisal rights under Delaware law, would have been canceled and automatically converted into the right to receive $37.25 in cash, without interest.
On July 16, 2007, the Company held its 2007 Annual Meeting of Stockholders, at which the proposal to approve the Merger AgreementAREP merger agreement did not receive the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock. As a result, the Merger AgreementAREP merger agreement terminated in accordance with its terms. Upon termination of the Merger Agreement,AREP merger agreement, the Company was obligated to (1) pay AREP Car Holdings $12.5 million, (2) issue to AREP Car Holdings 335,570 shares of its common stock valued at approximately
76
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
$12.5 $12.5 million, based on the closing price of the Company’s common stock on July 16, 2007, and (3) increase from 24% to 27% the share ownership limitation under the limited waiver of Section 203 of the Delaware General Corporation Law granted by the Company in October 2006 to affiliates of and funds managed by Carl C. Icahn (collectively, the “Termination Consideration”). The Termination Consideration to AREP Car Holdings iswas to be credited against anybreak-up fee that would otherwise be payable by the Company to AREP Car Holdings in the event that the Company enters into a definitive agreement with respect to an alternative acquisition proposal within twelve months after the termination of the Merger Agreement.AREP merger agreement. The Company recognized costs of approximately $34.9 million associated with the Termination Consideration and transaction costs relating to the proposed merger in selling, general and administrative expenses in 2007.
For further information regarding the Merger Agreement, please refer to the Merger Agreement and certain related documents, which are incorporated by reference as exhibits to this Report.
| |
| (4) | Divestiture of Interior Business |
European Interior Business
On October 16, 2006, the Company completed the contribution of substantially all of its European interior business to International Automotive Components Group, LLC (“IAC Europe”), the Company’s joint venture with WL Ross & Co. LLC (“WL Ross”) and Franklin Mutual Advisers, LLC (“Franklin”), in exchange for aan approximately one-third equity interest.interest in IAC Europe. In connection with the transaction, the Company entered into various ancillary agreements providing the Company with customary minority shareholder rights and registration rights with respect to its equity interest in IAC Europe. The Company’s European interior business included substantially all of its interior components business in Europe (other than Italy and one facility in France), consisting of nine manufacturing facilities in five countries supplying doorinstrument panels and cockpit systems, overhead systems, instrumentdoor panels cockpits and interior trim to various original equipment manufacturers. IAC Europe also owns the European interior business formerly held by Collins & Aikman Corporation.Corporation (“C&A”).
In connection with this transaction, the Company recorded the fair market value of its initial investment in IAC Europe at $105.6 million in 2006 and recognized a pretax loss of $35.2 million, of which $6.1 million was recognized in 2007 and $29.1 million was recognized in 2006. These losses are recorded as part of the Company’s loss on divestiture of interior business in the statement of operations for the years ended December 31, 2007 and 2006. The Company did not account for the divestiture of its European interior business as a discontinued operation due to its continuing involvement with IAC Europe. The Company’s investment in IAC Europe is accounted for under the equity method (Note 7, “Investments in Affiliates and Other Related Party Transactions).
75
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
North American Interior Business
On March 31, 2007, the Company completed the transfer of substantially all of the assets of its North American interior business (as well as its interests in two China joint ventures) to International Automotive Components Group North America, Inc. (“IAC”) (the “IAC North America Transaction”). The IAC North America Transaction was completed pursuant to the terms of an Asset Purchase Agreement (the “Purchase Agreement”) dated as of November 30, 2006, by and among the Company, IAC, affiliates of WL Ross and Franklin, and International Automotive Components Group North America, LLC (“IACNA”IAC North America”), as amended by Amendment No. 1 to the Purchase Agreement dated as of March 31, 2007. The legal transfer of certain assets included in the IAC North America Transaction is subject to the satisfaction of certain post-closing conditions. In connection with the IAC North America Transaction, IAC assumed the ordinary course liabilities of the Company’s North American interior business, and the Company retained certain pre-closing liabilities, including pension and postretirement healthcare liabilities incurred through the closing date of the transaction.
Also on March 31, 2007, a wholly owned subsidiary of the Company and certain affiliates of WL Ross and Franklin, entered into the Limited Liability Company Agreement of IAC North America (the “LLC Agreement”) of IACNA.. Pursuant to
77
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
the terms of the LLC Agreement, a wholly owned subsidiary of the Company contributed approximately $27.4 million in cash to IACNAIAC North America in exchange for a 25% equity interest in IACNAIAC North America and warrants for an additional 7% of the current outstanding common equity of IACNA.IAC North America. Certain affiliates of WL Ross and Franklin made aggregate capital contributions of approximately $81.2 million to IACNAIAC North America in exchange for the remaining equity and extended a $50 million term loan to IAC. The Company had agreed to fund up to an additional $40 million, and WL Ross and Franklin had agreed to fund up to an additional $45 million, in the event that IAC did not meet certain financial targets in 2007. During 2007, the Company completed negotiations related to the amount of additional funding, and on October 10, 2007, the Company made a cash payment to IAC of $12.5 million in full satisfaction of this contingent funding obligation.
In connection with the IAC North America Transaction, IAC assumed the ordinary course liabilities of the Company’s North American interior business, and the Company retained certain pre-closing liabilities, including pension and postretirement healthcare liabilities incurred through the closing date of the transaction. In addition, the Company recorded a loss on divestiture of interior business of $611.5 million, of which $4.6 million was recognized in 2007 and $606.9 million was recognized in the fourth quarter of 2006. The Company also recognized additional costs related to the IAC North America Transaction of $10.0 million, of which $7.5 million are recorded in cost of sales and $2.5 million are recorded in selling, general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2007. A summary of the major classes of the assets and liabilities of the Company’s North American interior business that are classified as held for sale in the Company’s consolidated balance sheet as of December 31, 2006, is shown below (in millions):
| | | | | |
| | | December 31,
| |
| | | 2006 | |
| |
| Cash and cash equivalents | | $ | 19.2 | |
| Accounts receivable | | | 284.5 | |
| Inventories | | | 69.2 | |
| Other current assets | | | 54.9 | |
| | | | | |
| Current assets of business held for sale | | $ | 427.8 | |
| | | | | |
| Accounts payable and drafts | | $ | 323.7 | |
| Accrued liabilities | | | 79.8 | |
| Current portion of long-term debt | | | 2.2 | |
| | | | | |
| Current liabilities of business held for sale | | | 405.7 | |
| | | | | |
| Long-term debt | | | 19.6 | |
| Other long-term liabilities | | | 28.9 | |
| | | | | |
| Long-term liabilities of business held for sale | | | 48.5 | |
| | | | | |
| Total liabilities of business held for sale | | $ | 454.2 | |
| | | | | |
The Company did not account for the divestiture of its North American interior business as a discontinued operation due to its continuing involvement with IACNA.IAC North America. The Company’s investment in IACNAIAC North America is accounted for under the equity method (Note 7, “Investments in Affiliates and Other Related Party Transactions)Transactions”).
On October 11, 2007, IACNAIAC North America completed the acquisition of the soft trim division of Collins & Aikman Corporation (“C&A”)&A (the “C&A Acquisition”). The soft trim division included 16 facilities in North America with annual net sales of approximately $550 million related to the manufacture of carpeting, molded flooring products, dash insulators and other related interior components. The purchase price for the C&A Acquisition was approximately $126 million, subject to increase based on the future performance of the soft trim business, plus the assumption by IACNAIAC North America of certain ordinary course liabilities.
In connection with the C&A Acquisition, IACNAIAC North America offered the senior secured creditors of C&A (the “C&A Creditors”) the right to purchase shares of Class B common stock of IACNA,IAC North America, up to an aggregate of 25% of the
78
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
outstanding equity of IACNA.IAC North America. On October 11, 2007, the participating C&A Creditors purchased all of the offered Class B shares for an aggregate purchase price of $82.3 million. In addition, in order to finance the C&A Acquisition, IACNAIAC North America issued to WL Ross, Franklin and the Company approximately $126 million of additional shares of Class A common stock of IACNAIAC North America in a preemptive rights offering. The Company purchased its entire 25% allocation of Class A shares in the preemptive rights offering for $31.6 million. After giving effect to the sale of the Class A and Class B shares, the Company owns 18.75% of the total outstanding shares of common stock of IACNA, plus a warrant to purchase an additional 2.6% of the outstanding IACNA shares.IAC North America. The Company also maintains the same governance and other rights in IACNAIAC North America that it possessed prior to the C&A Acquisition.
76
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
To effect the issuance of shares in the C&A Acquisition and the settlement of the Company’s contingent funding obligation, on October 11, 2007, IACNA,IAC North America, WL Ross, Franklin, the Company and the participating C&A Creditors entered into an Amended and Restated Limited Liability Company Agreement of IACNAIAC North America (the “Amended LLC Agreement”). The Amended LLC Agreement, among other things, (1) provides the participating C&A Creditors certain governance and transfer rights with respect to their Class B shares and (2) eliminates any further funding obligations to IACNA.IAC North America.
| |
| (5) | Stockholder Rights Plan and Sale of Common Stock |
In 2008, the Company adopted a stockholder rights plan (the “Rights Plan”). The Rights Plan is designed to preserve stockholder value and the value of certain U.S. tax assets primarily associated with net operating loss, capital loss and tax credit carryforwards (“Tax Attributes”).
Under the Internal Revenue Code (the “IRC”) and rules promulgated by the Internal Revenue Service, the Company may use Tax Attributes in certain circumstances to offset future taxable income and reduce federal income tax liability, subject to certain requirements and restrictions (Note 10, “Income Taxes”). The Company’s ability to use its Tax Attributes would be substantially limited in the event of an “ownership change” as defined under Section 382 of the IRC. An ownership change would occur if stockholders owning or deemed to own 5% or more of the Company’s outstanding common stock increase their collective ownership of the Company’s outstanding common stock by more than 50 percentage points over a three year period. The Rights Plan was adopted to reduce the likelihood of an ownership change under Section 382 of the IRC.
In connection with the adoption of the Rights Plan, the Company declared a dividend of one preferred share purchase right (“Rights”) for each outstanding share of common stock, payable to stockholders of record as of January 2, 2009. Effective December 23, 2008, if any person or group of persons, together with related persons, acquires 4.9% or more of the outstanding shares of the Company’s common stock, this triggering event would cause the significant dilution in the voting power of such person or group of persons. The Company’s Board of Directors has the discretion to exempt any acquisition of common stock from the provisions of the Rights Plan. The Rights Plan may be terminated by the Company’s Board of Directors at any time, prior to the triggering of the Rights.
The Rights Plan will expire on December 23, 2018, unless the expiration date is advanced or extended or unless the Rights are exchanged or redeemed earlier by the Company’s Board of Directors.
For further information regarding the Rights Plan, please refer to the Rights Agreement and certain related documents, which are incorporated by reference as exhibits to this Report.
On November 8, 2006, the Company completed the sale of 8,695,653 shares of common stock for an aggregate purchase price of $23 per share to affiliates of and funds managed by Carl C. Icahn. The net proceeds from the sale of $199.2 million were used for general corporate purposes, including strategic investments.
In order to address unfavorable industry conditions,2005, the Company began to implement consolidation, facility realignment and census actions in the second quarter of 2005. These actions were part ofimplemented a comprehensive restructuring strategy intended to (i) better align the Company’s manufacturing capacity with the changing needs of its customers, (ii) eliminate excess capacity and lower the operating costs of the Company and (iii) streamline the Company’s organizational structure and reposition its business for improved long-term profitability.
The In connection with these restructuring actions, the Company incurred pretax restructuring costs of approximately $350.9 million in connection with the restructuring actions through 2007. SuchIn 2008, the Company has continued to restructure its global operations and to aggressively reduce its costs. In light of current industry conditions and recent customer announcements, the Company expects continued restructuring and related investments in 2009.
Restructuring costs includedinclude employee termination benefits, fixed asset impairment charges and contract termination costs, as well as other incremental costs resulting from the restructuring actions. These incremental
77
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
costs principally includedinclude equipment and personnel relocation costs. The Company also incurredincurs incremental manufacturing inefficiency costs at the operating locations impacted by the restructuring actions during the related restructuring implementation period. Restructuring costs wereare recognized in the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States. Generally, charges are recorded as elements of the restructuring strategy are finalized.
In 2008, the Company recorded charges of $177.4 million in connection with the Company’sits prior restructuring actions and current activities. These charges consist of $147.1 million recorded as cost of sales, $24.0 million recorded as selling, general and administrative expenses and $6.3 million recorded as other expense, net. The 2008 restructuring charges consist of employee termination benefits of $127.9 million, fixed asset impairment charges of $17.5 million and net contract termination costs of $9.2 million, as well as other net costs of $22.8 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements and completed negotiations. Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values of $17.5 million in excess of related estimated fair values. Contract termination costs include net pension and other postretirement benefit plan charges of $7.5 million, lease cancellation costs of $1.6 million, a reduction in previously recorded repayments of various government-sponsored grants of ($1.6) million and various other costs of $1.7 million.
A summary of the 2008 restructuring charges, excluding the $5.4 million net pension and other postretirement benefit plan charges, related to prior restructuring actions is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | | Accrual as of
| | | | | | Utilization | | | Accrual as of
| |
| | | January 1, 2008 | | | Charges | | | Cash | | | Non-Cash | | | December 31, 2008 | |
| |
| Employee termination benefits | | $ | 68.7 | | | $ | 23.7 | | | $ | (65.4 | ) | | $ | — | | | $ | 27.0 | |
| Asset impairments | | | — | | | | 3.4 | | | | — | | | | (3.4 | ) | | | — | |
| Contract termination costs | | | 5.9 | | | | — | | | | — | | | | — | | | | 5.9 | |
| Other related costs | | | — | | | | 16.9 | | | | (16.9 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 74.6 | | | $ | 44.0 | | | $ | (82.3 | ) | | $ | (3.4 | ) | | $ | 32.9 | |
| | | | | | | | | | | | | | | | | | | | | |
A summary of the 2008 restructuring charges, excluding the $2.1 million net pension and other postretirement benefit plan charges, related to 2008 activities is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | | Utilization | | | Accrual as of
| |
| | | Charges | | | Cash | | | Non-Cash | | | December 31, 2008 | |
| |
| Employee termination benefits | | $ | 104.2 | | | $ | (58.1 | ) | | $ | — | | | $ | 46.1 | |
| Asset impairments | | | 14.1 | | | | — | | | | (14.1 | ) | | | — | |
| Contract termination costs | | | 1.7 | | | | (0.1 | ) | | | — | | | | 1.6 | |
| Other related costs | | | 5.9 | | | | (5.9 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 125.9 | | | $ | (64.1 | ) | | $ | (14.1 | ) | | $ | 47.7 | |
| | | | | | | | | | | | | | | | | |
In 2007, the Company recorded charges of $168.8 million in 2007.connection with its restructuring actions. These charges consist of $152.7 million recorded as cost of sales and $16.1 million recorded as selling, general and administrative expenses. The 2007 restructuring charges consist of employee termination benefits of $115.5 million, fixed asset impairment charges of $16.8 million and net contract termination costs of $24.8 million, as well as other net costs of $11.7 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements and completed negotiations. Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values of $16.8 million in excess of related estimated fair values. Contract termination costs include a net pension and other postretirement benefit curtailment chargecharges of $18.8 million, lease cancellation costs of $4.8 million and the repayment of various government-sponsored grants and other costs of $1.2 million.
7978
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
A summary of the 2007 restructuring charges, excluding the $18.8 million net pension and other postretirement benefit plan charge,curtailment charges, is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accrual as of
| | | | Utilization | | Accrual as of
| | | Accrual as of
| | | | Utilization | | Accrual as of
| |
| | | December 31, 2006 | | Charges | | Cash | | Non-Cash | | December 31, 2007 | | | January 1, 2007 | | Charges | | Cash | | Non-Cash | | December 31, 2007 | |
| |
| Employee termination benefits | | $ | 36.4 | | | $ | 115.5 | | | $ | (83.2 | ) | | $ | — | | | $ | 68.7 | | | $ | 36.4 | | | $ | 115.5 | | | $ | (83.2 | ) | | $ | — | | | $ | 68.7 | |
| Asset impairments | | | — | | | | 16.8 | | | | — | | | | (16.8 | ) | | | — | | | | — | | | | 16.8 | | | | — | | | | (16.8 | ) | | | — | |
| Contract termination costs | | | 3.4 | | | | 6.0 | | | | (3.5 | ) | | | — | | | | 5.9 | | | | 3.4 | | | | 6.0 | | | | (3.5 | ) | | | — | | | | 5.9 | |
| Other related costs | | | — | | | | 11.7 | | | | (11.7 | ) | | | — | | | | — | | | | — | | | | 11.7 | | | | (11.7 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 39.8 | | | $ | 150.0 | | | $ | (98.4 | ) | | $ | (16.8 | ) | | $ | 74.6 | | | $ | 39.8 | | | $ | 150.0 | | | $ | (98.4 | ) | | $ | (16.8 | ) | | $ | 74.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
In connection with the Company’s restructuring actions,2006, the Company recorded charges of $93.2 million in 2006. This consistsconnection with its restructuring actions. These charges consist of $81.9 million recorded as cost of sales and $17.2 million recorded as selling, general and administrative expenses, offset by net gains on the sales of two facilities and machinery and equipment, which are recorded as other expense, net. The 2006 restructuring charges consist of employee termination benefits of $79.3 million, fixed asset impairment charges of $5.8 million and contract termination costs of $6.5 million, as well as other net costs of $1.6 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements and completed negotiations. Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values of $5.8 million in excess of related estimated fair values. Contract termination costs include lease cancellation costs of $0.8 million, the repayment of various government-sponsored grants of $0.7 million, costs associated with the termination of subcontractor and other relationships of $4.1 million, pension and pensionother postretirement benefit plan curtailment charges of $0.9 million, lease cancellation costs of $0.8 million and the repayment of various government-sponsored grants of $0.7 million.
A summary of the 2006 restructuring charges, excluding the $0.9 million pension and other postretirement benefit plan curtailments,curtailment charges, is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accrual as of
| | | | Utilization | | Accrual as of
| | | Accrual as of
| | | | Utilization | | Accrual as of
| |
| | | December 31, 2005 | | Charges | | Cash | | Non-Cash | | December 31, 2006 | | | January 1, 2006 | | Charges | | Cash | | Non-Cash | | December 31, 2006 | |
| |
| Employee termination benefits | | $ | 15.1 | | | $ | 79.3 | | | $ | (58.0 | ) | | $ | — | | | $ | 36.4 | | | $ | 15.1 | | | $ | 79.3 | | | $ | (58.0 | ) | | $ | — | | | $ | 36.4 | |
| Asset impairments | | | — | | | | 5.8 | | | | — | | | | (5.8 | ) | | | — | | | | — | | | | 5.8 | | | | — | | | | (5.8 | ) | | | — | |
| Contract termination costs | | | 5.0 | | | | 5.6 | | | | (7.2 | ) | | | — | | | | 3.4 | | | | 5.0 | | | | 5.6 | | | | (7.2 | ) | | | — | | | | 3.4 | |
| Other related costs | | | — | | | | 1.6 | | | | (1.6 | ) | | | — | | | | — | | | | — | | | | 1.6 | | | | (1.6 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 20.1 | | | $ | 92.3 | | | $ | (66.8 | ) | | $ | (5.8 | ) | | $ | 39.8 | | | $ | 20.1 | | | $ | 92.3 | | | $ | (66.8 | ) | | $ | (5.8 | ) | | $ | 39.8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
In connection with the Company’s restructuring actions, the Company recorded charges of $88.9 million in 2005, including $84.6 million recorded as cost of sales and $6.2 million recorded as selling, general and administrative expenses. The remaining amounts include a gain on the sale of a facility, which is recorded as other expense, net. The 2005 charges consist of employee termination benefits of $56.5 million, asset impairment charges of $15.1 million and contract termination costs of $13.5 million, as well as other net costs of $3.8 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements and completed negotiations. Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values of $15.1 million in excess of related estimated fair values. Contract termination costs include lease cancellation costs of $3.4 million, the repayment of various government-sponsored grants of $4.8 million, the termination of joint venture, subcontractor and other relationships of $3.2 million and pension and other postretirement benefit plan curtailments of $2.1 million.
8079
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
A summary of the 2005 restructuring charges, excluding the $2.1 million pension and other postretirement benefit plan curtailments, is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | | Utilization | | | Accrual as of
| |
| | | Charges | | | Cash | | | Non-Cash | | | December 31, 2005 | |
| |
| Employee termination benefits | | $ | 56.5 | | | $ | (41.4 | ) | | $ | — | | | $ | 15.1 | |
| Asset impairments | | | 15.1 | | | | — | | | | (15.1 | ) | | | — | |
| Contract termination costs | | | 11.4 | | | | (6.4 | ) | | | — | | | | 5.0 | |
| Other related costs | | | 3.8 | | | | (3.8 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 86.8 | | | $ | (51.6 | ) | | $ | (15.1 | ) | | $ | 20.1 | |
| | | | | | | | | | | | | | | | | |
| |
| (7) | Investments in Affiliates and Other Related Party Transactions |
The Company’s beneficial ownership in affiliates accounted for under the equity method is shown below:
| | | | | | | | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Honduras Electrical Distribution Systems S. de R.L. de C.V. (Honduras) | | | 60 | % | | | 60 | % | | | 60 | % | |
| Lear-Kyungshin Sales and Engineering LLC | | | 60 | | | | 60 | | | | 60 | | |
| Shanghai Lear STEC Automotive Parts Co., Ltd. (China) | | | 55 | | | | 55 | | | | 55 | | | | 55 | % | | | 55 | % | | | 55 | % |
| Chongqing Lear Chang’an Automotive Trim, Co., Ltd. (China) | | | 55 | | | | — | | | | — | | |
| Lear Changan (Chongqing) Automotive System Co., Ltd. (China) | | | 55 | | | | — | | | | — | | |
| Lear Shurlok Electronics (Proprietary) Limited (South Africa) | | | 51 | | | | 51 | | | | 51 | | | | 51 | | | | 51 | | | | 51 | |
| Industrias Cousin Freres, S.L. (Spain) | | | 50 | | | | 50 | | | | 50 | | | | 50 | | | | 50 | | | | 50 | |
| Hanil Lear India Private Limited (India) | | | 50 | | | | 50 | | | | 50 | | |
| Nanjing Lear Xindi Automotive Interiors Systems Co., Ltd. (China) | | | 50 | | | | 50 | | | | 50 | | | | 50 | | | | 50 | | | | 50 | |
| Lear Dongfeng Automotive Seating Co., Ltd. (China) | | | 50 | | | | 50 | | | | 50 | | | | 50 | | | | 50 | | | | 50 | |
| Dong Kwang Lear Yuhan Hoesa (Korea) | | | 50 | | | | 50 | | | | 50 | | | | 50 | | | | 50 | | | | 50 | |
| Lear Jiangling (Jiangxi) Interior Systems Co. Ltd. (China) | | | 50 | | | | 41 | | | | 41 | | | | 50 | | | | 50 | | | | 41 | |
| Beijing BAI Lear Automotive Systems Co., Ltd. (China) | | | 50 | | | | — | | | | — | | | | 50 | | | | 50 | | | | — | |
| Beijing BAIC Lear Automotive Electronics and Electrical Products Co., Ltd. (China) | | | 50 | | | | — | | | | — | | |
| Beijing Lear Automotive Electronics and Electrical Products Co., Ltd. (China) | | | | 50 | | | | 50 | | | | — | |
| Honduras Electrical Distribution Systems S. de R.L. de C.V. (Honduras) | | | | 49 | | | | 60 | | | | 60 | |
| Kyungshin-Lear Sales and Engineering LLC | | | | 49 | | | | 60 | | | | 60 | |
| Tacle Seating USA, LLC | | | 49 | | | | 49 | | | | — | | | | 49 | | | | 49 | | | | 49 | |
| TS Lear Automotive Sdn Bhd. (Malaysia) | | | 46 | | | | — | | | | — | | | | 46 | | | | 46 | | | | — | |
| Beijing Lear Dymos Automotive Seating and Interior Co., Ltd. (China) | | | 40 | | | | 40 | | | | 40 | | |
| Total Interior Systems — America, LLC | | | 39 | | | | 39 | | | | 39 | | |
| Beijing Lear Dymos Automotive Systems Co., Ltd. (China) | | | | 40 | | | | 40 | | | | 40 | |
| UPM S.r.L. (Italy) | | | 39 | | | | 39 | | | | 39 | | | | 39 | | | | 39 | | | | 39 | |
| Hanil Lear India Private Limited (India) | | | | 35 | | | | 50 | | | | 50 | |
| Markol Otomotiv Yan Sanayi VE Ticaret A.S. (Turkey) | | | 35 | | | | 35 | | | | 35 | | | | 35 | | | | 35 | | | | 35 | |
| International Automotive Components Group, LLC (Europe) | | | 34 | | | | 33 | | | | — | | | | 34 | | | | 34 | | | | 33 | |
| International Automotive Components Group North America, LLC | | | 19 | | | | — | | | | — | | | | 19 | | | | 19 | | | | — | |
| Lear Diamond Electro-Circuit Systems Co., Ltd. (Japan) | | | — | | | | — | | | | 50 | | |
| RecepTec Holdings, L.L.C. | | | — | | | | — | | | | 21 | | |
| Chongqing Lear Chang’an Automotive Trim, Co., Ltd. (China) | | | | — | | | | 55 | | | | — | |
| Lear Changan (Chongqing) Automotive System Co., Ltd. (China) | | | | — | | | | 55 | | | | — | |
| Total Interior Systems — America, LLC | | | | — | | | | 39 | | | | 39 | |
Summarized group financial information for affiliates accounted for under the equity method as of December 31, 2008 and 2007, and for the years ended December 31, 2008, 2007 and 2006, is shown below (unaudited; in millions):
| | | | | | | | | |
December 31, | | 2008 | | | 2007 | |
| |
| Balance sheet data: | | | | | | | | |
| Current assets | | $ | 970.2 | | | $ | 1,564.6 | |
| Non-current assets | | | 863.7 | | | | 898.7 | |
| Current liabilities | | | 852.7 | | | | 1,184.5 | |
| Non-current liabilities | | | 278.7 | | | | 399.7 | |
| | | | | | | | | | | | | |
For the Year Ended December 31, | | 2008 | | | 2007 | | | 2006 | |
| |
| Income statement data: | | | | | | | | | | | | |
| Net sales | | $ | 5,053.9 | | | $ | 4,738.0 | | | $ | 956.8 | |
| Gross profit | | | 248.9 | | | | 317.3 | | | | 50.7 | |
| Income (loss) before provision for income taxes | | | (107.0 | ) | | | 135.2 | | | | 16.3 | |
| Net income (loss) | | | (111.9 | ) | | | 104.9 | | | | 11.5 | |
8180
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
Summarized group financial information for affiliates accounted for under the equity method as of December 31, 2007 and 2006, and for the years ended December 31, 2007, 2006 and 2005, is shown below (unaudited; in millions):
| | | | | | | | | |
December 31, | | 2007 | | | 2006 | |
| |
| Balance sheet data: | | | | | | | | |
| Current assets | | $ | 1,564.6 | | | $ | 580.1 | |
| Non-current assets | | | 898.7 | | | | 317.2 | |
| Current liabilities | | | 1,184.5 | | | | 610.0 | |
| Non-current liabilities | | | 399.7 | | | | 12.9 | |
| | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | | 2006 | | | 2005 | |
| |
| Income statement data: | | | | | | | | | | | | |
| Net sales | | $ | 4,738.0 | | | $ | 956.8 | | | $ | 1,248.4 | |
| Gross profit | | | 317.3 | | | | 50.7 | | | | 56.1 | |
| Income before provision for income taxes | | | 135.2 | | | | 16.3 | | | | 0.9 | |
| Net income (loss) | | | 104.9 | | | | 11.5 | | | | (4.2 | ) |
As of December 31, 20072008 and 2006,2007, the Company’s aggregate investment in affiliates was $265.6$189.7 million and $141.3$265.6 million, respectively. In addition, the Company had receivables due from affiliates, including notes and advances, and (payables) due to affiliates of $(24.7) million and $12.8$6.3 million as of December 31, 20072008, and 2006, respectively.payables due to affiliates of $24.7 million as of December 31, 2007.
A summary of transactions with affiliates and other related parties is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Sales to affiliates | | $ | 82.4 | | | $ | 35.8 | | | $ | 144.9 | | | $ | 95.8 | | | $ | 82.4 | | | $ | 35.8 | |
| Purchases from affiliates | | | 250.1 | | | | 51.1 | | | | 224.9 | | | | 250.8 | | | | 250.1 | | | | 51.1 | |
| Purchases from other related parties(1) | | | 8.8 | | | | 13.2 | | | | 16.0 | | | | 9.2 | | | | 10.0 | | | | 13.2 | |
| Management and other fees for services provided to affiliates | | | 8.6 | | | | — | | | | 0.6 | | | | 8.5 | | | | 8.6 | | | | — | |
| Dividends received from affiliates | | | 13.5 | | | | 1.6 | | | | 5.3 | | | | 4.1 | | | | 13.5 | | | | 1.6 | |
| | |
| (1) | | Includes $2.5$5.2 million, $4.2 million and $4.0 million in 2008, 2007 and $4.3 million in 2007, 2006, and 2005, respectively, paid to CB Richard Ellis (formerly Trammell Crow Company in 2005) for real estate brokerage services, as well as property and project management services; includes $4.0 million, $5.3 million and $6.6 million in 2008, 2007 and $7.0 million in 2007, 2006, and 2005, respectively, paid to Analysts International, Sequoia Services Group for the purchase of computer equipment and for computer-related services; includes $0.5 million $0.5 million and $0.4 million in 2007 2006 and 2005, respectively,2006 paid to Elite Support Management Group, L.L.C. for the provision of information technology temporary support personnel; includes $0.5 million, $1.4 million and $1.9 million in 2007, 2006 and 2005, respectively, paid to Creative Seating Innovations, Inc. for prototype tooling and parts; and includes $0.7 million and $2.4 million in 2006 and 2005, respectively, paid to the Materials Group for plastic resins. Each entity employed a relative of the Company’s Chairman, Chief Executive Officer and President. In addition, Elite Support Management was partially owned by a relative of the Company’s Chairman, Chief Executive Officer and President in 2007. As a result, such entities may be deemed to be related parties. These purchases were made in the ordinary course of the Company’s business and in accordance with the Company’s normal procedures for engaging service providers or normal sourcing procedures for suppliers, as applicable. |
The Company’s investmentsinvestment in Honduras Electrical Distribution Systems S. de R.L. de C.V., Lear-Kyungshin Sales and Engineering LLC, Shanghai Lear STEC Automotive Parts Co., Ltd., Chongqing Lear Chang’an Automotive Trim, Co., Ltd. and Lear Changan (Chongqing) Automotive System Co., Ltd. are is accounted for under the equity method as the result of certain approval rights granted to the minority shareholders. The
82
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Company’s investment in International Automotive Components Group North America, LLC is accounted for under the equity method due to the Company’s ability to exert significant influence over the venture.
The Company guarantees 40% of certain of the debt of Beijing Lear Dymos Automotive Seating and InteriorSystems Co., Ltd., 49% of certain of the debt of Tacle Seating USA, LLC and 60%49% of certain of the debt of Honduras Electrical Distribution Systems S. de R.L. de C.V. As of December 31, 2007,2008, the aggregate amount of debt guaranteed by the Company was $14.2$6.3 million.
2008
In December 2008, the Company divested its ownership interest in Total Interior Systems — America, LLC for $35.0 million, recognizing a gain on the transaction of $19.5 million, which is reflected in other expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2008. In June 2008, the Company divested of a portion of its ownership interests in Honduras Electrical Distribution Systems S. de R.L. de C.V. and Kyungshin-Lear Sales and Engineering LLC, thereby reducing its ownership interests in these ventures to 49% from 60%. In connection with this transaction, the Company recognized a gain of $2.7 million, which is reflected in other expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2008. In April 2008, the Company divested of a portion of its ownership interest in Hanil Lear India Private Limited, thereby reducing its ownership interest in this venture to 35% from 50%. In connection with this transaction, the Company recognized an impairment charge of $1.0 million in the first quarter of 2008, which is reflected in equity in net (income) loss of affiliates in the accompanying consolidated statement of operations for the year ended December 31, 2008.
81
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Also in 2008, the Company recognized an impairment charge of $34.2 million related to its investment in International Automotive Components Group North America, LLC (“IAC North America”). The impairment charge was based on the significant decline in the operating results of IAC North America, as well as a recently completed financing transaction between IAC North America and certain of its lenders and is reflected in equity in net (income) loss of affiliates in the accompanying consolidated statement of operations for the year ended December 31, 2008. The Company has no further funding obligations with respect to this affiliate. Therefore, in the event that IAC North America requires additional capital to fund its existing operations, the Company’s equity ownership percentage in IAC North America will likely be diluted. See Note 2, “Summary of Significant Accounting Policies.”
In the second quarter of 2008, the Company began to consolidate the financial position and operating results of Chongqing Lear Chang’an Automotive Trim, Co., Ltd. and Lear Changan (Chongqing) Automotive System Co., Ltd. as a result of the elimination of certain approval rights granted to the minority shareholders. Previously, the Company’s investments in these ventures were accounted for under the equity method.
2007
In March 2007, the Company completed the transfer of substantially all of the assets of its North American interior business (as well as the interests in two China joint ventures) and contributed cash in exchange for a 25% equity interest and warrants for an additional 7% of the current outstanding common equity of International Automotive Components GroupIAC North America, LLC as part of the IAC North America Transaction. In addition, in October 2007, the Company purchased additional shares as part of an offering by the venture. After giving effect to the shares purchased in the equity offering, the Company owns 18.75% of the total outstanding shares, plus a warrant to purchase an additional 2.6% of the outstanding shares (Note 4, “Divestiture of Interior Business”).
In January 2007, the Company formed Beijing BAI Lear Automotive Systems Co., Ltd., a joint venture with Beijing Automobile Investment Co., Ltd,Ltd., to manufacture and supply automotive seat systems and components. In December 2007, the Company formed Beijing BAIC Lear Automotive Electronics and Electrical Products Co., Ltd., a joint venture with Beijing Automotive Industry Holding Co., Ltd., to manufacture and supply automotive wire harnesses, junction boxes and other electrical and electronic products. Also in December 2007, the Company purchased a 46% stake in TS Hi Tech, a Malaysian manufacturer of automotive seat systems and components. Concurrent with Lear’sthe Company’s investment, the name of the venture was changed to TS Lear Automotive Sdn Bhd.
In addition, the Company’s ownership interest in Lear Jiangling (Jiangxi) Interior Systems Co., Ltd Ltd. increased due to the purchase of shares from a joint venture partner. The Company’s ownership interest in International Automotive Components Group, LLC (Europe) increased due to the issuance of additional equity shares to the Company.
2006
In October 2006, the Company completed the contribution of substantially all of its European interior business to International Automotive Components Group, LLC (Europe), a joint venture the Company formed with WL Ross and Franklin (Note 4, “Divestiture of Interior Business”). In February 2006, the Company formed Tacle Seating USA, LLC, a joint venture with Tachi-S Engineering U.S.A., Inc., to manufacture and supply automotive seat systems.
Also in 2006, the Company divested its ownership interest in RecepTec Holdings, L.L.C, recognizing a gain on the transaction of $13.4 million, which is reflected in equity in net (income) loss inof affiliates in the accompanying consolidated statement of operations for the year ended December 31, 2006. In addition, the Company and its joint venture partner dissolved Lear Diamond Electro-Circuit Systems Co., Ltd.
2005
| |
| (8) | Short-Term Borrowings |
InThe Company utilizes uncommitted lines of credit as needed for its short-term working capital fluctuations. As of December 2005,31, 2008, the Company engaged inhad unused unsecured lines of credit available from banks of $25.1 million, subject to certain restrictions imposed by the restructuringprimary credit facility (Note 9, “Long-Term Debt”). As of two of its previously unconsolidated affiliates, Bing Assembly Systems, L.L.C. (“BAS”) and JL Automotive, LLC (“JLA”), which involved capital restructurings, changes in the investors and amendments to the related operating agreements. Each venture assembles, sequences and manufactures automotive interior components. These restructurings resulted in the recognition of a $29.8 million loss, which is reflected in equity in net (income) loss of affiliates in the accompanying statement of operations for the year ended December 31, 2005. In addition, as part of the restructurings, a new joint venture partner, Comer Holdings, LLC, acquired a 51% ownership interest in Integrated Manufacturing and Assembly, LLC (formerly BAS) and CL Automotive, LLC (formerly JLA) with Lear retaining a 49% ownership2008
8382
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
interest in both of these ventures. Upon the completion of these restructurings, which were effective December 31, 2005, it was determined that both of these ventures are variable interest entities and that the Company is the primary beneficiary due to its financing of the ventures through member loans and through various amendments to the respective operating agreements. Accordingly, the assets and liabilities of these ventures are reflected in the Company’s consolidated financial statements. The equity interests of the ventures not owned by the Company are reflected as minority interests in the Company’s consolidated financial statements as of December 31, 2005. The operating results of these ventures are included in the consolidated statements of operations from the date of consolidation, December 31, 2005.
In January 2005, the Company acquired an additional 29% of Lear Furukawa Corporation (“Lear Furukawa”) for $2.3 million, increasing its ownership interest to 80%. The acquisition was accounted for as a purchase, and accordingly, the assets purchased and liabilities assumed are reflected in the Company’s consolidated financial statements. The operating results of Lear Furukawa are included in the consolidated statement of operations from the date of acquisition. The operating results of the Company, after giving pro forma effect to this acquisition, are not materially different from reported results. Previously, Lear Furukawa was accounted for under the equity method as shareholder resolutions required a two-thirds majority vote for approval of corporate actions.
In July 2005, the Company began reflecting the financial position and results of operations of Shenyang Lear Automotive Seating and Interior Systems Co., Ltd. (“Shenyang”) in its consolidated financial statements, due to a change in the approval rights granted to the minority shareholder. Previously, Shenyang was accounted for under the equity method as certain shareholder resolutions required unanimous shareholder approval.
Also in 2005, the Company divested its ownership interest in Precision Fabrics Group, Inc. (“Precision Fabrics”) and recognized a charge of $16.9 million. This charge is reflected in equity in net (income) loss of affiliates in the consolidated statement of operations for the year ended December 31, 2005. In addition, in 2005, the Company sold its ownership interests in Klingel Italiana S.R.L and dissolved Lear-NHK Seating and Interior Co., Ltd.
| |
(8) | Short-Term Borrowings |
The Company utilizes other uncommitted lines of credit as needed for its short-term working capital fluctuations. As of December 31, 2007, the Company had unused unsecured lines of credit available from banks of $168.0 million, subject to certain restrictions imposed by the primary credit facility (Note 9, “Long-Term Debt”). As of December 31, 2007 and 2006, the weighted average interest rate on outstanding borrowings under these lines of credit was 4.1%13.5% and 4.0%4.1%, respectively.
84
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
A summary of long-term debt and the related weighted average interest rates, including the effect of hedging activities described in Note 15, “Financial Instruments,” is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | | Long-Term
| | Weighted Average
| | Long-Term
| | Weighted Average
| | | Long-Term
| | Weighted Average
| | Long-Term
| | Weighted Average
| |
Debt Instrument | | Debt | | Interest Rate | | Debt | | Interest Rate | | | Debt | | Interest Rate | | Debt | | Interest Rate | |
| |
| Primary Credit Facility | | $ | 991.0 | | | | 7.619 | % | | $ | 997.0 | | | | 7.49 | % | |
| Primary Credit Facility — Revolver | | | $ | 1,192.0 | | | | 4.09 | % | | $ | — | | | | N/A | |
| Primary Credit Facility — Term Loan | | | | 985.0 | | | | 5.46 | % | | | 991.0 | | | | 7.61 | % |
| 8.50% Senior Notes, due 2013 | | | 300.0 | | | | 8.50 | % | | | 300.0 | | | | 8.50 | % | | | 298.0 | | | | 8.50 | % | | | 300.0 | | | | 8.50 | % |
| 8.75% Senior Notes, due 2016 | | | 600.0 | | | | 8.75 | % | | | 600.0 | | | | 8.75 | % | | | 589.3 | | | | 8.75 | % | | | 600.0 | | | | 8.75 | % |
| 5.75% Senior Notes, due 2014 | | | 399.4 | | | | 5.635 | % | | | 399.3 | | | | 5.635 | % | | | 399.5 | | | | 5.635 | % | | | 399.4 | | | | 5.635 | % |
| Zero-Coupon Convertible Senior Notes, due 2022 | | | 0.8 | | | | 4.75 | % | | | 3.6 | | | | 4.75 | % | | | 0.8 | | | | 4.75 | % | | | 0.8 | | | | 4.75 | % |
| 8.125% Euro-denominated Senior Notes, due 2008 | | | 81.0 | | | | 8.125 | % | | | 73.3 | | | | 8.125 | % | | | — | | | | 8.125 | % | | | 81.0 | | | | 8.125 | % |
| 8.11% Senior Notes, due 2009 | | | 41.4 | | | | 8.11 | % | | | 41.4 | | | | 8.11 | % | | | — | | | | 8.11 | % | | | 41.4 | | | | 8.11 | % |
| Other | | | 27.1 | | | | 7.04 | % | | | 45.5 | | | | 7.06 | % | | | 19.7 | | | | 4.27 | % | | | 27.1 | | | | 7.04 | % |
| | | | | | | | | | | |
| | | | 2,440.7 | | | | | | | | 2,460.1 | | | | | | | | 3,484.3 | | | | | | | | 2,440.7 | | | | | |
| Less — current portion | | | (96.1 | ) | | | | | | | (25.6 | ) | | | | | |
| Less — Current portion | | | | (4.3 | ) | | | | | | | (96.1 | ) | | | | |
| Primary Credit Facility | | | | (2,177.0 | ) | | | | | | | N/A | | | | | |
| | | | | | | | | | | |
| Long-term debt | | $ | 2,344.6 | | | | | | | $ | 2,434.5 | | | | | | | $ | 1,303.0 | | | | | | | $ | 2,344.6 | | | | | |
| | | | | | | | | | | |
Primary Credit Facility
The Company’s primary credit facility contains certain affirmative and negative covenants, including (i) limitations on fundamental changes involving the Company or its subsidiaries, asset sales and restricted payments, (ii) a limitation on indebtedness with a maturity shorter than the term loan facility, (iii) a limitation on aggregate subsidiary indebtedness to an amount which is no more than 5% of consolidated total assets, (iv) a limitation on aggregate secured indebtedness to an amount which is no more than $100 million and (v) requirements that the Company maintain a leverage ratio of not more than 3.25 to 1, as of December 31, 2008, and an interest coverage ratio of not less than 3.00 to 1, as of December 31, 2008. As of December 31, 2007,2008, the Company’sCompany was in compliance with the required interest coverage ratio covenant under its primary credit facility.
During the fourth quarter of 2008, the Company elected to borrow $1.2 billion under its primary credit facility consists of an amendedto protect against possible disruptions in the capital markets and restated credit and guarantee agreement, which provides for maximum revolving borrowing commitments of $1.7 billion and a term loan facility of $1.0 billion. The $1.7 billion revolving credit facility matures on March 23, 2010, and the $1.0 billion term loan facility matures on April 25, 2012. Principal payments of $3 million are required on the term loan facility every six months.uncertain industry conditions, as well as to further bolster its liquidity position. As of December 31, 2007,2008, the Company had $991.0 millionapproximately $1.6 billion in borrowings outstanding undercash and cash equivalents on hand, providing adequate resources to satisfy ordinary course business obligations. The Company elected not to repay the term loan facility, with no additional availability. There were no amounts outstanding under the revolving credit facility.borrowed at year end in light of continued market and industry uncertainty. As a result, as of December 31, 2007,2008, the commitment fee onCompany was no longer in compliance with the $1.7 billion revolving credit facility was 0.25% per annum. Borrowings and repayments under theleverage ratio covenant contained in its primary credit facility (as well as predecessor facilities) are shown below (in millions):
| | | | | | | | | |
Year | | Borrowings | | | Repayments | |
| |
| 2007 | | $ | 1,134.8 | | | $ | 1,140.8 | |
| 2006 | | | 11,978.2 | | | | 11,381.2 | |
| 2005 | | | 8,942.4 | | | | 8,542.4 | |
facility. The Company has been engaged in active discussions with a steering committee consisting of several significant lenders to address issues under its primary credit facility provides for multicurrency borrowings in a maximum aggregate amount of $750 million, Canadian borrowings in a maximum aggregate amount of $200 million and swing-line borrowings in a maximum aggregate amount of $300 million, the commitments for which are part of the aggregate revolving credit facility commitment.
In 2006,facility. On March 17, 2009, the Company entered into an amendment and waiver with the lenders under its existing primary credit facility the proceeds of which were used to repay the term loan facility under the Company’s prior primary credit facility and to repurchase outstanding zero-coupon convertible senior notes with an accreted value of $303.2 million, Euro 13.0 million aggregate principal amount of the Company’s senior notes due 2008 and $206.6 million aggregate principal amount of the Company’s senior notes due 2009. In connection with these transactions, the Company recognized a net gain of $0.6 million on theprovides,
8583
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
through May 15, 2009, for: (1) a waiver of the existing defaults under the primary credit facility and (2) an amendment of the financial covenants and certain other provisions contained in the primary credit facility. The Company is engaged in continuing discussions with the lenders under its primary credit facility and others regarding a restructuring of its capital structure. If an acceptable agreement is not obtained, the Company will be in default under its primary credit facility as of May 16, 2009, and the lenders would have the right to accelerate the obligations upon the vote of the required lenders thereunder. Acceleration of the Company’s obligations under the primary credit facility would constitute a default under its senior notes and would likely result in the acceleration of these obligations. In addition, a default under the Company’s primary credit facility could result in a cross-default or the acceleration of its payment obligations under other financing agreements. See Note 15, “Financial Instruments.” As a result of these factors, as well as adverse industry conditions, the Company’s independent registered public accounting firm has included an explanatory paragraph with respect to the Company’s ability to continue as a going concern in its report on the Company’s consolidated financial statements for the year ended December 31, 2008. For further discussion of the Company’s plans in regard to these matters, see Note 1, “Basis of Presentation.”
On July 3, 2008, the Company amended its then existing primary credit facility to, among other things, extend certain of the revolving credit commitments thereunder from March 23, 2010 to January 31, 2012. Prior to the amendment, the Company’s primary credit facility consisted of an amended and restated credit and guarantee agreement, which provided for revolving borrowing commitments of $1.7 billion and a term loan facility of $1.0 billion. The extension was offered to each revolving lender, and lenders consenting to the amendment had their revolving credit commitments reduced by 33.33% on July 11, 2008. After giving effect to the amendment, the Company had outstanding approximately $1.3 billion of revolving credit commitments, $467.5 million of which mature on March 23, 2010, and $821.7 million of which mature on January 31, 2012. The primary credit facility, as amended, provides for multicurrency borrowings in a maximum aggregate amount of $400 million, Canadian borrowings in a maximum aggregate amount of $100 million and swing-line borrowings in a maximum aggregate amount of $200 million, the commitments for which are part of the aggregate revolving credit commitments. The amendment had no effect on the Company’s $1.0 billion term loan facility issued under the prior primary credit facility, which continues to have a maturity date of April 25, 2012. As of December 31, 2008, the Company had $1.2 billion, excluding outstanding letters of credit, and $985.0 million in borrowings outstanding under the revolving credit facility and the term loan facility, respectively, with no additional availability under the term loan facility. As of December 31, 2007, the Company had $991.0 million in borrowings outstanding under the term loan facility and no amounts outstanding under the revolving credit facility. Principal payments of $3 million are required on the term loan facility every six months. As of December 31, 2008, the weighted average commitment fee on the $1.3 billion revolving credit facility was 0.46% per annum. Borrowings and repayments under the primary credit facility, as amended, (as well as predecessor facilities) are shown below (in millions):
| | | | | | | | | |
Year | | Borrowings | | | Repayments | |
| |
| 2008 | | $ | 1,418.9 | | | $ | 232.9 | |
| 2007 | | | 1,134.8 | | | | 1,140.8 | |
| 2006 | | | 11,978.2 | | | | 11,381.2 | |
In 2006, the Company entered into a primary credit facility, the proceeds of which were used to repay the term loan facility under the then existing primary credit facility and to repurchase outstanding zero-coupon convertible senior notes with an accreted value of $303.2 million, €13.0 million aggregate principal amount of senior notes due 2008 and $206.6 million aggregate principal amount of senior notes due 2009. In connection with these transactions, the Company recognized a net gain of $0.6 million on the extinguishment of debt, which is included in other expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2006.
Senior Notes
The Company repaid €55.6 million ($87.0 million based on the exchange rate in effect as of the transaction date) aggregate principal amount of senior notes on April 1, 2008 (the “2008 Notes”), the maturity date. In
84
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
connection with the amendment of its primary credit facility discussed above, in August 2008, the Company repurchased its remaining senior notes due 2009 (the “2009 Notes”), with an aggregate principal amount of $41.4 million, for a purchase price of $43.1 million, including the call premium and related fees. In connection with this transaction, the Company recognized a loss on the extinguishment of debt of $1.7 million, which is included in other expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2008.
In November 2006, the Company issued $300 million aggregate principal amount of unsecured 8.50% senior notes due 2013 (the “2013 Notes”) and $600 million aggregate principal amount of unsecured 8.75% senior notes due 2016 (the “2016 Notes”). The notes are unsecured and rank equally with the Company’s other unsecured senior indebtedness, including the Company’s other senior notes. The proceeds from these notesthis note offering were used to repurchase the Company’s senior notes due 2008 (the “2008 Notes”) and senior notes due 2009 (the “2009 Notes”). The Company repurchased 2008 Notes and 2009 Notes, with an aggregate principal amount of Euro 181.4€181.4 million and $552.0 million, respectively, for an aggregate purchase price of $835.8 million, including related fees. In connection with these transactions, the Company recognized a loss of $48.5 million on the extinguishment of debt, which is included in other expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2006. In January 2007, the Company completed an exchange offer of the 2013 Notes and the 2016 Notes for substantially identical notes registered under the Securities Act of 1933, as amended. Interest on both the 2013 Notes and the 2016 Notes is payable on June 1 and December 1 of each year.
The Company may redeem all or part of the 2013 Notes and the 2016 Notes, at its option, at any time subsequent to December 1, 2010, in the case of the 2013 Notes, and December 1, 2011, in the case of the 2016 Notes, at the redemption prices set forth below, together with any interest accrued but not yet paid to the date of redemption. These redemption prices, expressed as a percentage of the principal amount due, are set forth below:
| | | | | | | | | | | | | | | | | |
Twelve-Month Period Commencing December 1, | | 2013 Notes | | 2016 Notes | | | 2013 Notes | | 2016 Notes | |
| |
| 2010 | | | 104.250 | % | | | N/A | | | | 104.250 | % | | | N/A | |
| 2011 | | | 102.125 | % | | | 104.375 | % | | | 102.125 | % | | | 104.375 | % |
| 2012 | | | 100.0 | % | | | 102.917 | % | | | 100.0 | % | | | 102.917 | % |
| 2013 | | | 100.0 | % | | | 101.458 | % | | | 100.0 | % | | | 101.458 | % |
| 2014 and thereafter | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
The Company may redeem all or part of the 2013 Notes and the 2016 Notes, at its option, at any time prior to December 1, 2010, in the case of the 2013 Notes, and December 1, 2011, in the case of the 2016 Notes, at the greater of (a) 100% of the principal amount of the notes to be redeemed or (b) the sum of the present values of the redemption price set forth above and the remaining scheduled interest payments from the redemption date through December 1, 2010, in the case of the 2013 Notes, or December 1, 2011, in the case of the 2016 Notes, discounted to the redemption date on a semiannual basis at the applicable treasury rate plus 50 basis points, together with any interest accrued but not yet paid to the date of redemption. In December 2008, the Company repurchased a portion of the 2013 Notes and the 2016 Notes, with an aggregate principal amount of $2.0 million and $10.7 million, respectively, in the open market for an aggregate purchase price of $3.4 million, including related fees. In connection with these transactions, the Company recognized a gain on the extinguishment of debt of $9.2 million, which is included in other expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2008.
In addition to the senior notes discussed above, the Company has outstanding $399.4$399.5 million aggregate principal amount of senior notes due 2014 (the “2014 Notes”). Interest on the 2014 Notes is payable on February 1 and August 1 of each year. The Company also has outstanding Euro 55.6 million ($81.0 million based on the exchange rate in effect as of December 31, 2007) aggregate principal amount of 2008 Notes. Interest on the 2008 Notes is payable on April 1 and October 1 of each year. During 2006, the Company repurchased an aggregate principal amount of Euro 194.4 million ($257.0 million based on the exchange rates in effect as of the transaction dates) of the 2008 Notes using proceeds from the issuance of the 2013 Notes and 2016 Notes and borrowings under the primary credit facility. In addition, the Company has outstanding $41.4 million aggregate principal amount of 2009 Notes. Interest on the 2009 Notes is payable on May 15 and November 15 of each year. During 2006, the Company repurchased an aggregate principal amount of $758.6 million of the 2009 Notes using proceeds from the issuance of the 2013 Notes and 2016 Notes and borrowings under the New Credit Agreement.
The Company may redeem all or part of the 2014 Notes, the 2008 Notes and the 2009 Notes at its option, at any time, at the greater of (a) 100% of the principal amount of the notes to be redeemed or (b) the sum of the present
86
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
values of the remaining scheduled payments of principal and interest thereon from the redemption date to the maturity date, discounted to the redemption date on a semiannual basis at the applicable treasury rate plus 20 basis points, in the case of the 2014 Notes, at the Bund rate plus 50 basis points in the case of the 2008 Notes and at the applicable treasury rate plus 50 basis points in the case of the 2009 Notes, together with any interest accrued but not yet paid to the date of the redemption.
85
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In February 2002, the Company issued $640.0 million aggregate principal amount at maturity of zero-coupon convertible senior notes due 2022 (the “Convertible Notes”), yielding gross proceeds of $250.3 million. The Convertible Notes are unsecured and rank equally with the Company’s other unsecured senior indebtedness, including the Company’s other senior notes. Each Convertible Note of $1,000 principal amount at maturity was issued at a price of $391.06, representing a yield to maturity of 4.75%. Holders of the Convertible Notes may convert their notes at any time on or before the maturity date at a conversion rate, subject to adjustment, of 7.5204 shares of the Company’s common stock per note, provided that the average per share price of the Company’s common stock for the 20 trading days immediately prior to the conversion date is at least a specified percentage, beginning at 120% upon issuance and declining1/2% each year thereafter to 110% at maturity, of the accreted value of the Convertible Note, divided by the conversion rate (the “Contingent Conversion Trigger”). The Convertible Notes are also convertible (1) if the long-term credit rating assigned to the Convertible Notes by either Moody’s Investors Service or Standard & Poor’s Ratings Services is reduced below Ba3 or BB-, respectively (which is currently the case), or either ratings agency withdraws its long-term credit rating assigned to the notes, (2) if the Company calls the Convertible Notes for redemption or (3) upon the occurrence of specified other events.
As discussed above, in 2006, the Company repurchased substantially all of the outstanding Convertible Notes with borrowings under its new primary credit facility.
Other
As of December 31, 2007,2008, other long-term debt was principally made up of amounts outstanding under term loans and capital leases.
Guarantees
The Company’s senior notes of the Company are senior unsecured obligations and rank pari passu in right of payment with all of the Company’s existing and future unsubordinated unsecured indebtedness. The Company’s obligations under the senior notes are guaranteed, on a joint and several basis, by certain of its subsidiaries, which are primarily domestic subsidiaries and all of which are directly or indirectly wholly100% owned by the Company (Note 18, “Supplemental Guarantor Condensed Consolidating Financial Statements”). The Company’s obligations under the primary credit facility are secured by a pledge of all or a portion of the capital stock of certain of its subsidiaries, including substantially all of its first-tier subsidiaries, and are partially secured by a security interest in the Company’s assets and the assets of certain of its domestic subsidiaries. In addition, the Company’s obligations under the primary credit facility are guaranteed by the same subsidiaries that guarantee the Company’s obligations under the senior notes.
Covenants
The primary credit facility contains certainIn addition to the affirmative and negative covenants including (i) limitations on fundamental changes involvingdiscussed above, the Company or its subsidiaries, asset sales and restricted payments, (ii) a limitation on indebtedness with a maturity shorter than the term loan facility, (iii) a limitation on aggregate subsidiary indebtedness to an amount which is no more than 4% of consolidated total assets, (iv) a limitation on aggregate secured indebtedness to an amount which is no more than $100 million and (v) requirements that the Company maintain a leverage ratio of not more than 3.50 to 1, as of December 31, 2007, with decreases over time and an interest coverage ratio of not less than 2.75 to 1, as of December 31, 2007, with increases over time.
87
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The leverage and interest coverage ratios, as well as the related components of their computation, are defined in the primary credit facility. The leverage ratio is calculated as the ratio of consolidated indebtedness to consolidated operating profit. For the purpose of the covenant calculation, (i) consolidated indebtedness is generally defined as reported debt, net of cash and cash equivalents and excludes transactions related to the Company’s asset-backed securitization and factoring facilities and (ii) consolidated operating profit is generally defined as net income excluding income taxes, interest expense, depreciation and amortization expense, other income and expense, minority interests in income of subsidiaries in excess of net equity earnings in affiliates, certain restructuring and other non-recurring charges, extraordinary gains and losses and other specified non-cash items. Consolidated operating profit is a non-GAAP financial measure that is presented not as a measure of operating results, but rather as a measure used to determine covenant compliance under the Company’s primary credit facility. The interest coverage ratio is calculated as the ratio of consolidated operating profit to consolidated interest expense. For the purpose of the covenant calculation, consolidated interest expense is generally defined as interest expense plus any discounts or expenses related to the Company’s asset-backed securitization facility less amortization of deferred finance fees and interest income. As of December 31, 2007, the Company was in compliance with all covenants set forth in the primary credit facility. The Company’s leverage and interest coverage ratios were 1.9 to 1 and 5.5 to 1, respectively.
Reconciliations of (i) consolidated indebtedness to reported debt, (ii) consolidated operating profit to income before provision for income taxes and cumulative effect of a change in accounting principle and (iii) consolidated interest expense to reported interest expense are shown below (in millions):
| | | | | |
| | | December 31,
| |
| | | 2007 | |
| |
| Consolidated indebtedness | | $ | 1,853.3 | |
| Cash and cash equivalents | | | 601.3 | |
| | | | | |
| Reported debt | | $ | 2,454.6 | |
| | | | | |
| | | | | |
| | | Year Ended
| |
| | | December 31,
| |
| | | 2007 | |
| |
| Consolidated operating profit | | $ | 990.6 | |
| Depreciation and amortization | | | (296.9 | ) |
| Consolidated interest expense | | | (181.2 | ) |
| Costs related to divestiture of interior business | | | (20.7 | ) |
| Other expense, net (excluding certain amounts related to asset-backed securitization facility) | | | (41.5 | ) |
| Restructuring charges (subject to $285 million limitation) | | | (73.3 | ) |
| Other excluded items | | | 1.4 | |
| Other non-cash items | | | (55.2 | ) |
| | | | | |
| Income before provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle | | $ | 323.2 | |
| | | | | |
| Consolidated interest expense | | $ | 181.2 | |
| Certain amounts related to asset-backed securitization facility | | | 0.8 | |
| Amortization of deferred financing fees | | | 8.8 | |
| Bank facility and other fees | | | 8.4 | |
| | | | | |
| Reported interest expense | | $ | 199.2 | |
| | | | | |
88
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The primary credit facility also contains customary events of default, including an event of default triggered by a change of control of the Company. The senior notes due 2013 Notes and the 2016 Notes (having an aggregate principal amount outstanding of $900$887.3 million as of December 31, 2007)2008) provide holders of the notes the right to require the Company to repurchase all or any part of their notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, upon a “change of control” (as defined in the indenture governing the notes). The indentures governing the Company’s other senior notes do not contain a change in control repurchase obligation.
With the exception of the Convertible Notes, the senior notes also contain covenants restricting the ability of the Company and its subsidiaries to incur liens and to enter into sale and leaseback transactions. With respect to the indenture governing the Company’s Convertible Notes, the Company received consents from a majority of the holders of the Convertible Notes allowing the Company to execute a supplemental indenture which eliminated the covenants and related provisions in the indenture that restricted the Company’s ability to incur liens and to enter into sale and leaseback transactions. As of December 31, 2007,2008, the Company was in compliance with all covenants and other requirements set forth in its senior notes. As discussed above, acceleration of the Company’s obligations under the primary credit facility would constitute a default under the Company’s senior notes and would likely result in the acceleration of these obligations.
Scheduled Maturities
As of December 31, 2007,2008, the scheduled maturities of long-term debt, excluding obligations under the primary credit facility, for the five succeeding years are shown below (in millions):
| | | | | | | | | |
Year | | Maturities | | | Maturities | |
| |
| 2008 | | $ | 96.1 | | |
| 2009 | | | 53.2 | | | $ | 4.3 | |
| 2010 | | | 10.4 | | | | 7.5 | |
| 2011 | | | 8.1 | | | | 1.8 | |
| 2012 | | | 968.2 | | | | 1.3 | |
| 2013 | | | | 301.7 | |
8986
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
(10) Income Taxes
A summary of income (loss) before provision for income taxes, minority interests in consolidated subsidiaries, and equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle and the components of provision for income taxes is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic | | $ | (5.7 | ) | | $ | (785.3 | ) | | $ | (1,520.8 | ) | | $ | (665.6 | ) | | $ | (5.7 | ) | | $ | (785.3 | ) |
| Foreign | | | 328.9 | | | | 131.9 | | | | 392.2 | | | | 124.2 | | | | 328.9 | | | | 131.9 | |
| | | | | | | | | | | | | | | |
| | | $ | 323.2 | | | $ | (653.4 | ) | | $ | (1,128.6 | ) | | $ | (541.4 | ) | | $ | 323.2 | | | $ | (653.4 | ) |
| | | | | | | | | | | | | | | |
| Domestic provision for income taxes: | | | | | | | | | | | | | | | | | | | | | | | | |
| Current provision (benefit) | | $ | 20.5 | | | $ | 30.6 | | | $ | (12.9 | ) | |
| Deferred provision (benefit) | | | — | | | | (1.6 | ) | | | 65.3 | | |
| Current provision | | | $ | 3.4 | | | $ | 20.5 | | | $ | 30.6 | |
| Deferred benefit | | | | — | | | | — | | | | (1.6 | ) |
| | | | | | | | | | | | | | | |
| Total domestic provision | | | 20.5 | | | | 29.0 | | | | 52.4 | | | | 3.4 | | | | 20.5 | | | | 29.0 | |
| | | | | | | | | | | | | | | |
| Foreign provision for income taxes: | | | | | | | | | | | | | | | | | | | | | | | | |
| Current provision | | | 113.3 | | | | 79.3 | | | | 162.5 | | | | 52.0 | | | | 113.3 | | | | 79.3 | |
| Deferred benefit | | | (43.9 | ) | | | (53.4 | ) | | | (20.6 | ) | |
| Deferred provision (benefit) | | | | 30.4 | | | | (43.9 | ) | | | (53.4 | ) |
| | | | | | | | | | | | | | | |
| Total foreign provision | | | 69.4 | | | | 25.9 | | | | 141.9 | | | | 82.4 | | | | 69.4 | | | | 25.9 | |
| | | | | | | | | | | | | | | |
| Provision for income taxes | | $ | 89.9 | | | $ | 54.9 | | | $ | 194.3 | | | $ | 85.8 | | | $ | 89.9 | | | $ | 54.9 | |
| | | | | | | | | | | | | | | |
The domestic provision includes withholding taxes related to dividends and royalties paid by the Company’s foreign subsidiaries. The foreign deferred benefitprovision (benefit) includes the benefit of prior unrecognized net operating loss carryforwards of $36.6 million, $15.6 million $14.1 million and $1.8$14.1 million for the years ended December 31, 2008, 2007 2006 and 2005,2006, respectively.
A summary of the differences between the provision for income taxes calculated at the United States federal statutory income tax rate of 35% and the consolidated provision for income taxes is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle multiplied by the United States federal statutory rate | | $ | 113.1 | | | $ | (228.7 | ) | | $ | (395.0 | ) | |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle multiplied by the United States federal statutory income tax rate | | | $ | (189.5 | ) | | $ | 113.1 | | | $ | (228.7 | ) |
| Differences in income taxes on foreign earnings, losses and remittances | | | 16.7 | | | | 10.2 | | | | (34.0 | ) | | | (15.3 | ) | | | 16.7 | | | | 10.2 | |
| Valuation allowance adjustments | | | (64.2 | ) | | | 259.4 | | | | 275.2 | | | | 138.1 | | | | (64.2 | ) | | | 259.4 | |
| Research and development credits | | | (3.2 | ) | | | (11.4 | ) | | | (22.6 | ) | |
| Goodwill impairment | | | — | | | | 1.0 | | | | 354.4 | | |
| Investment credit/grants | | | (0.7 | ) | | | (6.7 | ) | | | (22.8 | ) | |
| Tax credits | | | | (0.5 | ) | | | (3.9 | ) | | | (18.1 | ) |
| Goodwill impairment charges | | | | 181.6 | | | | — | | | | 1.0 | |
| Other | | | 28.2 | | | | 31.1 | | | | 39.1 | | | | (28.6 | ) | | | 28.2 | | | | 31.1 | |
| | | | | | | | | | | | | | | |
| Provision for income taxes | | $ | 89.9 | | | $ | 54.9 | | | $ | 194.3 | | | $ | 85.8 | | | $ | 89.9 | | | $ | 54.9 | |
| | | | | | | | | | | | | | | |
For the years ended December 31, 2008, 2007 and 2006, income in foreign jurisdictions with tax holidays was $104.4 million, $142.6 million and $109.2 million, respectively. Such tax holidays generally expire from 2009 through 2017.
9087
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
For the years ended December 31, 2007, 2006 and 2005, income in foreign jurisdictions with tax holidays was $142.6 million, $109.2 million and $54.7 million, respectively. Such tax holidays generally expire from 2008 through 2017.
Deferred income taxes represent temporary differences in the recognition of certain items for income tax and financial reporting purposes. A summary of the components of the net deferred income tax asset (liability) is shown below (in millions):
| | | | | | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| |
| Deferred income tax assets: | | | | | | | | | | | | | | | | |
| Tax loss carryforwards | | $ | 623.5 | | | $ | 451.1 | | | $ | 580.5 | | | $ | 623.5 | |
| Tax credit carryforwards | | | 192.2 | | | | 140.1 | | | | 218.9 | | | | 169.9 | |
| Retirement benefit plans | | | 85.9 | | | | 113.5 | | | | 106.1 | | | | 85.9 | |
| Accrued liabilities | | | 122.5 | | | | 66.7 | | | | 92.2 | | | | 122.5 | |
| Self-insurance reserves | | | | 15.9 | | | | 12.0 | |
| Reserves related to current assets | | | — | | | | 41.1 | | | | — | | | | 9.0 | |
| Self-insurance reserves | | | 12.0 | | | | 19.6 | | |
| Defined benefit plan liability adjustments | | | 44.0 | | | | 84.0 | | | | 13.8 | | | | 44.0 | |
| Deferred compensation | | | 11.9 | | | | 15.3 | | | | 20.8 | | | | 11.9 | |
| Recoverable customer engineering and tooling | | | 19.6 | | | | — | | | | 15.7 | | | | 9.6 | |
| Long-term asset basis differences | | | — | | | | 102.2 | | |
| Derivative instruments and hedging | | | 13.6 | | | | 8.2 | | | | 18.7 | | | | 13.6 | |
| Other | | | 0.4 | | | | 0.2 | | | | — | | | | 0.4 | |
| | | | | | | | | | | |
| | | | 1,125.6 | | | | 1,042.0 | | | | 1,082.6 | | | | 1,102.3 | |
| Valuation allowance | | | (769.4 | ) | | | (843.9 | ) | | | (928.3 | ) | | | (769.4 | ) |
| | | | | | | | | | | |
| | | $ | 356.2 | | | $ | 198.1 | | | $ | 154.3 | | | $ | 332.9 | |
| | | | | | | | | | | |
| Deferred income tax liabilities: | | | | | | | | | | | | | | | | |
| Long-term asset basis differences | | $ | (108.1 | ) | | $ | — | | | $ | (84.3 | ) | | $ | (108.1 | ) |
| Recoverable customer engineering and tooling | | | — | | | | (14.7 | ) | |
| Undistributed earnings of foreign subsidiaries | | | (124.3 | ) | | | (106.4 | ) | | | (9.0 | ) | | | (102.0 | ) |
| Current asset basis differences | | | | (7.1 | ) | | | — | |
| Other | | | (1.0 | ) | | | — | | | | (1.9 | ) | | | — | |
| | | | | | | | | | | |
| | | $ | (233.4 | ) | | $ | (121.1 | ) | | $ | (102.3 | ) | | $ | (210.1 | ) |
| | | | | | | | | | | |
| Net deferred income tax asset | | $ | 122.8 | | | $ | 77.0 | | | $ | 52.0 | | | $ | 122.8 | |
| | | | | | | | | | | |
During 2005, the Company concluded that it was no longer more likely than not that it would realize its U.S. deferred tax assets. As a result, in the fourth quarter of 2005, the Company recorded a tax charge of $300.3 million comprised of (i) a full valuation allowance in the amount of $255.0 million with respect to its net U.S. deferred tax assets and (ii) an increase in related tax reserves of $45.3 million. During 2007 and 2006,Since that time, the Company continued to maintain a valuation allowance with respect to its net U.S. deferred tax assets. In addition, the Company maintains valuation allowances related to its net deferred tax assets in certain foreign jurisdictions. The Company’s current and future provision for income taxes is significantly impacted by the initial recognition of and changes in valuation allowances in certain countries, particularly the United States. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company’s future provision for income taxes will include no tax benefit with respect to losses incurred and no tax benefitexpense with respect to income generated in these countries
9188
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
to income generated in these countries until the respective valuation allowance is eliminated. The classification of the net deferred income tax liabilityasset is shown below (in millions):
| | | | | | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| |
| Deferred income tax assets: | | | | | | | | | | | | | | | | |
| Current | | $ | 108.8 | | | $ | 83.3 | | | $ | 62.3 | | | $ | 108.8 | |
| Long-term | | | 131.2 | | | | 110.5 | | | | 74.4 | | | | 131.2 | |
| Deferred income tax liabilities: | | | | | | | | | | | | | | | | |
| Current | | | (13.0 | ) | | | (20.8 | ) | | | (4.4 | ) | | | (13.0 | ) |
| Long-term | | | (104.2 | ) | | | (96.0 | ) | | | (80.3 | ) | | | (104.2 | ) |
| | | | | | | | | | | |
| Net deferred income tax asset | | $ | 122.8 | | | $ | 77.0 | | | $ | 52.0 | | | $ | 122.8 | |
| | | | | | | | | | | |
Deferred income taxes have not been provided on $1.3$1.2 billion of certain undistributed earnings of the Company’s foreign subsidiaries as such amounts are considered to be permanently reinvested. It is not practicable to determine the unrecognized deferred income tax liability on these earnings because the actual tax liability on these earnings, if any, is dependent on circumstances existing when remittance occurs.
As of December 31, 2007,2008, the Company had tax loss carryforwards of $2.0$1.9 billion. Of the total loss carryforwards, $958.4$968 million has no expiration date, and $1.0 billion$939 million expires from 20082009 through 2027.2028. In addition, the Company had tax credit carryforwards of $192.2$218.9 million comprised principally of U.S. foreign tax credits, research and development credits and investment tax credits that generally expire between 2014 and 2025.
New Accounting Pronouncement2028.
On January 1, 2007, the Company adopted the provisions of Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes by establishing minimum standards for the recognition and measurement of tax positions taken or expected to be taken in a tax return. Under the requirements of FIN 48, the Company must review all of its tax positions and make a determination as to whether its position is more-likely-than-not to be sustained upon examination by regulatory authorities. If a tax position meets the more-likely-than-not standard, then the related tax benefit is measured based on a cumulative probability analysis of the amount that is more-likely-than-not to be realized upon ultimate settlement or disposition of the underlying issue.
The Company recognized the cumulative impact of the adoption of FIN 48 as a $4.5 million decrease to its liability for unrecognized tax benefits with a corresponding decrease to its retained deficit balance as of January 1, 2007.
As of January 1, 2007 and December 31, 2008 and 2007, the Company’s gross unrecognized tax benefits were $120.0$99.8 million and $135.8 million, respectively (excluding interest and penalties of $28.6 million and $41.8 million, respectively)penalties), of which $93.9$92.4 million and $105.9 million, respectively, if recognized, would affect the Company’s effective tax rate. The gross unrecognized tax benefits differ from the amount that would affect the Company’s effective tax rate due primarily to the impact of the valuation allowance. The gross unrecognized tax benefits are recorded as a long term liabilityin other long-term liabilities, with the exception of $9.0$9.4 million (excluding interest and penalties) which is classified as a current liability.recorded in accrued liabilities.
9289
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
A summary of the changes in the gross amount of unrecognized tax benefits for each of the yeartwo years in the period ended December 31, 2007,2008, is shown below (in millions):
| | | | | | | | | | | | | |
| Balance as of January 1, 2007 | | $ | 120.0 | | |
| | | | 2008 | | 2007 | |
| | |
| Balance as of January 1, | | | $ | 135.8 | | | $ | 120.0 | |
| Additions based on tax positions related to the current year | | | 9.6 | | | | 10.3 | | | | 9.6 | |
| Additions based on tax positions of prior years | | | 6.0 | | | | 0.7 | | | | 6.0 | |
| Settlements | | | (3.5 | ) | | | (0.2 | ) | | | (3.5 | ) |
| Statute expirations | | | (1.9 | ) | | | (30.1 | ) | | | (1.9 | ) |
| Foreign currency translation | | | 5.6 | | | | (16.7 | ) | | | 5.6 | |
| | | | | | | | | |
| Balance as of December 31, 2007 | | $ | 135.8 | | |
| Balance as of December 31, | | | $ | 99.8 | | | $ | 135.8 | |
| | | | | | | | | |
The Company continues to recognize bothrecognizes interest and penalties with respect to unrecognized tax benefits as income tax expense. As of January 1, 2007 and December 31, 2008 and 2007, the Company had recorded reserves of $28.6$36.4 and $41.8 million, respectively, related to interest and penalties, respectively, of which $21.0$29.6 million and $30.2 million, respectively, if recognized, would affect the Company’s effective tax rate. During the yearyears ended December 31, 2008 and 2007, the Company recorded tax expense related to an increase in its liabilityreserves for interest and penalties of $11.9 million and $12.6 million.million, respectively.
The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign tax authorities. During the next twelve months, it is reasonably possible that, as a result of audit settlements, the conclusion of current examinations and the expiration of the statute of limitations in several jurisdictions, the Company may decrease the amount of its gross unrecognized tax benefits by approximately $32.3$13.9 million, of which $6.5$9.4 million, if recognized, would affect its effective tax rate. The gross unrecognized tax benefits subject to potential decrease involve issues related to transfer pricing, tax credits and various other tax items in several jurisdictions. However, as a result of ongoing examinations, tax proceedings in certain countries, additions to the gross unrecognized tax benefits for positions taken and interest and penalties, if any, arising in 2008,2009, it is not possible to estimate the potential net increase or decrease to the Company’s gross unrecognized tax benefits during the next twelve months.
The Company considers its significant tax jurisdictions to include Canada, Germany, Hungary, Italy, Mexico, Poland, Spain and the United States. The Company or its subsidiaries remain subject to income tax examination in certain U.S. state and local jurisdictions for years after 1998, in Germany andfor years after 2000, in Mexico for years after 2000 and2001, in Canada, Hungary Italy,and Poland for years after 2002, in Spain and Italy generally for years after 2003, and in the U.S. federal jurisdiction for years after 2002.2006.
| |
| (11) | Pension and Other Postretirement Benefit Plans |
The Company has noncontributory defined benefit pension plans covering certain domestic employees and certain employees in foreign countries, principally Canada. The Company’s salaried pension plans provide benefits based on final average earnings formulas. The Company’s hourly pension plans provide benefits under flat benefit and cash balance formulas. The Company also has contractual arrangements with certain employees which provide for supplemental retirement benefits. In general, the Company’s policy is to fund its pension benefit obligation based on legal requirements, tax considerations and local practices.
The Company has postretirement benefit plans covering a portion of the Company’scertain domestic and Canadian employees. The Company’s postretirement benefit plans generally provide for the continuation of medical benefits for all eligible employees who complete ten years of service after age 45 and retire from the Company at age 55 or older. The Company does not fund its postretirement benefit obligation. Rather, payments are made as costs are incurred by covered retirees.
9390
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
Obligations and Funded Status
A reconciliation of the change in benefit obligation, the change in plan assets and the net amount recognized in the consolidated balance sheets is shown below (primarily(based on a December 31 measurement date in 2008 and primarily based on a September 30 measurement date in 2007, in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension | | Other Postretirement | | | Pension | | Other Postretirement | |
December 31, | | 2007 | | 2006 | | 2007 | | 2006 | | | 2008 | | 2007 | | 2008 | | 2007 | |
| |
| Change in benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 860.9 | | | $ | 788.3 | | | $ | 267.9 | | | $ | 265.5 | | | $ | 887.4 | | | $ | 860.9 | | | $ | 273.9 | | | $ | 267.9 | |
| Adoption of FASB Statement No. 158 | | | | 14.9 | | | | — | | | | 6.1 | | | | — | |
| Service cost | | | 26.2 | | | | 50.3 | | | | 10.6 | | | | 12.7 | | | | 16.0 | | | | 26.2 | | | | 7.2 | | | | 10.6 | |
| Interest cost | | | 44.9 | | | | 44.2 | | | | 15.0 | | | | 15.0 | | | | 48.0 | | | | 44.9 | | | | 15.4 | | | | 15.0 | |
| Amendments | | | 20.3 | | | | 3.5 | | | | 0.3 | | | | — | | | | — | | | | 20.3 | | | | (23.2 | ) | | | 0.3 | |
| Actuarial gain | | | (41.3 | ) | | | (30.5 | ) | | | (13.1 | ) | | | (16.3 | ) | | | (38.9 | ) | | | (41.3 | ) | | | (68.8 | ) | | | (13.1 | ) |
| Benefits paid | | | (33.5 | ) | | | (24.9 | ) | | | (10.4 | ) | | | (9.1 | ) | | | (70.0 | ) | | | (33.5 | ) | | | (13.0 | ) | | | (10.4 | ) |
| Curtailment gain | | | (60.0 | ) | | | (4.6 | ) | | | (20.9 | ) | | | — | | | | (4.1 | ) | | | (60.0 | ) | | | (3.6 | ) | | | (20.9 | ) |
| Special termination benefits | | | 5.9 | | | | 1.7 | | | | 1.2 | | | | 0.4 | | | | 3.4 | | | | 5.9 | | | | 0.4 | | | | 1.2 | |
| Acquisitions, new plans and other | | | — | | | | 22.5 | | | | — | | | | — | | |
| Translation adjustment | | | 64.0 | | | | 10.4 | | | | 23.3 | | | | (0.3 | ) | | | (78.2 | ) | | | 64.0 | | | | (22.0 | ) | | | 23.3 | |
| | | | | | | | | | | | | | | | | | | |
| Benefit obligation at end of year | | $ | 887.4 | | | $ | 860.9 | | | $ | 273.9 | | | $ | 267.9 | | | $ | 778.5 | | | $ | 887.4 | | | $ | 172.4 | | | $ | 273.9 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | Pension | | Other Postretirement | |
December 31, | | | 2008 | | 2007 | | 2008 | | 2007 | |
| | |
| Change in plan assets: | | | | | | | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | | | $ | 728.3 | | | $ | 573.6 | | | $ | — | | | $ | — | |
| Actual return on plan assets | | | | (149.2 | ) | | | 66.5 | | | | — | | | | — | |
| Employer contributions | | | | 81.5 | | | | 69.6 | | | | 13.0 | | | | 10.4 | |
| Benefits paid | | | | (70.0 | ) | | | (33.5 | ) | | | (13.0 | ) | | | (10.4 | ) |
| Translation adjustment | | | | (66.8 | ) | | | 52.1 | | | | — | | | | — | |
| | | | | | | | | | | |
| Fair value of plan assets at end of year | | | $ | 523.8 | | | $ | 728.3 | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
| Funded status | | | $ | (254.7 | ) | | $ | (159.1 | ) | | $ | (172.4 | ) | | $ | (273.9 | ) |
| Contributions between September 30 and December 31 | | | | N/A | | | | 29.6 | | | | N/A | | | | 2.3 | |
| | | | | | | | | | | |
| | | | $ | (254.7 | ) | | $ | (129.5 | ) | | $ | (172.4 | ) | | $ | (271.6 | ) |
| | | | | | | | | | | |
| Amounts recognized in the consolidated balance sheets: | | | | | | | | | | | | | | | | | |
| Other long-term assets | | | $ | 27.5 | | | $ | 32.9 | | | $ | — | | | $ | — | |
| Accrued liabilities | | | | (11.0 | ) | | | (14.1 | ) | | | (11.3 | ) | | | (11.1 | ) |
| Other long-term liabilities | | | | (271.2 | ) | | | (148.3 | ) | | | (161.1 | ) | | | (260.5 | ) |
| | | | | | | | | | | | | | | | | |
| | | Pension | | | Other Postretirement | |
December 31, | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| |
| Change in plan assets: | | | | | | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 573.6 | | | $ | 474.2 | | | $ | — | | | $ | — | |
| Actual return on plan assets | | | 66.5 | | | | 42.7 | | | | — | | | | — | |
| Employer contributions | | | 69.6 | | | | 69.5 | | | | 10.4 | | | | 9.1 | |
| Benefits paid | | | (33.5 | ) | | | (24.9 | ) | | | (10.4 | ) | | | (9.1 | ) |
| Acquisitions, new plans and other | | | — | | | | 11.5 | | | | — | | | | — | |
| Translation adjustment | | | 52.1 | | | | 0.6 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Fair value of plan assets at end of year | | $ | 728.3 | | | $ | 573.6 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Funded status | | $ | (159.1 | ) | | $ | (287.3 | ) | | $ | (273.9 | ) | | $ | (267.9 | ) |
| Contributions between September 30 and December 31 | | | 29.6 | | | | 11.9 | | | | 2.3 | | | | 2.1 | |
| | | | | | | | | | | | | | | | | |
| | | $ | (129.5 | ) | | $ | (275.4 | ) | | $ | (271.6 | ) | | $ | (265.8 | ) |
| | | | | | | | | | | | | | | | | |
| Amounts recognized in the consolidated balance sheets: | | | | | | | | | | | | | | | | |
| Other long-term assets | | $ | 32.9 | | | $ | — | | | $ | — | | | $ | — | |
| Accrued liabilities | | | (14.1 | ) | | | (4.9 | ) | | | (11.1 | ) | | | (10.0 | ) |
| Other long-term liabilities | | | (148.3 | ) | | | (270.5 | ) | | | (260.5 | ) | | | (255.8 | ) |
| | | | | | | | | | | | | | | | | |
As a result of the change in the Company’s measurement date discussed below, employer contributions to the Company’s pension plans in 2008 include $29.6 million of contributions for the period from October 1, 2007 to December 31, 2007. In addition, pension and other postretirement benefits paid in 2008 include $8.7 million and $2.3 million, respectively, of benefit payments for the period from October 1, 2007 to December 31, 2007.
As of December 31, 20072008 and 2006,2007, the accumulated benefit obligation for all of the Company’s pension plans was $880.3$775.1 million and $766.2$880.3 million, respectively. As of December 31, 2008 and 2007, the majority of the Company’s pension plans had accumulated benefit obligations in excess of plan assets. As of December 31, 2006, substantially all of the
91
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Company’s pension plans had accumulated benefit obligations in excess of plan assets. The projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets of pension plans with accumulated benefit obligations in excess of plan assets were $591.1 million, $589.3 million and $309.8 million, respectively, as of December 31, 2008, and $566.4 million, $559.7 million and $385.0 million,
94
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
respectively, as of December 31, 2007,2007.
Effective January 1, 2009, the Company elected to amend certain of its U.S. salaried other postretirement benefits plan to eliminate post-65 salaried retiree medical and $860.4life insurance coverage and to increase the retiree contribution rate for pre-65 salaried retiree medical coverage. This amendment resulted in a reduction of the other postretirement benefit obligation of $21.8 million $765.9 million and $573.3 million, respectively, as of December 31, 2006.2008. This reduction will be amortized as a credit to net periodic benefit cost from the date of the amendment through either the full benefit eligibility date for the active participants or over their expected remaining lifetime.
Change in Measurement Date
On January 1, 2008, the Company adopted the measurement date provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R),” which requires the measurement of defined benefit plan assets and liabilities as of the annual balance sheet date beginning in the fiscal period ending after December 15, 2008. In previous years, the Company measured its defined benefit plan assets and liabilities using a measurement date of September 30, as allowed by the original provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” As of January 1, 2008, the required adjustment to recognize the net periodic benefit cost for the transition period from October 1, 2007 to December 31, 2007, was determined using the15-month measurement approach. Under this approach, the net periodic benefit cost was determined for the period from October 1, 2007 to December 31, 2008, and the adjustment for the transition period was calculated on a pro-rata basis. The Company recorded an after-tax transition adjustment of $6.9 million as an increase to beginning retained deficit, $1.0 million as an increase to beginning accumulated other comprehensive income and $5.9 million as an increase to the net pension and other postretirement liability related accounts, including the deferred tax accounts, in the accompanying consolidated balance sheet as of December 31, 2008.
Change in Recognition Provisions
The Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendmentAs of FASB Statements No. 87, 88, 106, and 132(R).” This statement requires recognition ofDecember 31, 2006, the funded status of a company’s defined benefit pension and postretirement benefit plans as an asset or liability on the balance sheet. Previously, under the provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” the asset or liability recorded on the balance sheet reflected the funded status of the plan, net of certain unrecognized items that qualified for delayed income statement recognition. Under SFAS No. 158, these previously unrecognized items are to be recorded in accumulated other comprehensive income (loss) when the recognition provisions are adopted. The Company adopted the recognition provisions as of December 31, 2006,SFAS No. 158 and has since reflected the funded status of its defined benefit plans is reflected in its consolidated balance sheets as of December 31, 2007 and December 31, 2006.sheets. The incremental effect of applying the recognition provisions of SFAS No. 158 on the Company’s consolidated balance sheetfinancial statements as of December 31, 2006, is shown below (in millions):
| | | | | | | | | | | | | |
| | | Before Adoption of
| | | | | | After Adoption of
| |
| | | SFAS No. 158 | | | Adjustments | | | SFAS No. 158 | |
| |
| Intangible assets (other long-term assets) | | $ | 45.7 | | | $ | (45.7 | ) | | $ | — | |
| Liability for defined benefit plan obligations (current and long-term liabilities) | | | (420.3 | ) | | | (120.9 | ) | | | (541.2 | ) |
| Accumulated other comprehensive loss — (stockholders’ equity) | | | 97.6 | | | | 166.6 | | | | 264.2 | |
See Note 17, “Accounting Pronouncements,” forresulted in a discussion of other provisions of SFAS No. 158 that have not yet been adopted by the Company.
Accumulated Other Comprehensive Income (Loss) and Comprehensive Income (Loss)
Amounts recognizeddecrease in other long-term assets of $45.7 million, an increase in the liability for defined benefit obligations of $120.9 million and an increase in accumulated other comprehensive income (loss) for the year ended December 31, 2007, are shown below (in millions):
| | | | | | | | | |
| | | | | | Other
| |
| | | Pension | | | Postretirement | |
| |
| Actuarial gains recognized: | | | | | | | | |
| Reclassification adjustments | | $ | 49.9 | | | $ | 10.9 | |
| Actuarial gain arising during the period | | | 61.1 | | | | 13.1 | |
| Prior service (cost) credit recognized: | | | | | | | | |
| Reclassification adjustments | | | 15.7 | | | | (3.7 | ) |
| Prior service cost arising during the period | | | (20.3 | ) | | | (0.3 | ) |
| Transition asset (obligation) | | | | | | | | |
| Reclassification adjustments | | | (0.1 | ) | | | 2.5 | |
| Translation adjustment | | | (15.1 | ) | | | (9.6 | ) |
| | | | | | | | | |
| | | $ | 91.2 | | | $ | 12.9 | |
| | | | | | | | | |
loss of $166.6 million.
9592
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
Accumulated Other Comprehensive Income (Loss) and Comprehensive Income (Loss)
Amounts recognized in comprehensive income (loss) for the year ended December 31, 2008, are shown below (in millions):
| | | | | | | | | |
| | | | | | Other
| |
For the Year Ended December 31, 2008 | | Pension | | | Postretirement | |
| |
| SFAS No. 158 transition adjustment, before tax | | $ | 1.3 | | | $ | 0.2 | |
| Actuarial gains recognized: | | | | | | | | |
| Reclassification adjustments | | | 1.5 | | | | 3.9 | |
| Actuarial gain (loss) arising during the period | | | (174.2 | ) | | | 69.7 | |
| Prior service (cost) credit recognized: | | | | | | | | |
| Reclassification adjustments | | | 15.0 | | | | (4.0 | ) |
| Prior service cost arising during the period | | | — | | | | 22.6 | |
| Transition asset (obligation) recognized: | | | | | | | | |
| Reclassification adjustments | | | (0.1 | ) | | | 1.5 | |
| Translation adjustment | | | 17.1 | | | | 0.9 | |
| | | | | | | | | |
| | | $ | (139.4 | ) | | $ | 94.8 | |
| | | | | | | | | |
Amounts recorded in accumulated other comprehensive income (loss) that are not yet recognized in net periodic benefit cost are shown below (in millions):
| | | | | | | | | | | | | | | | | |
| | | Pension | | | Other Postretirement | |
December 31, | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| |
| Net actuarial loss | | $ | (193.8 | ) | | $ | (47.9 | ) | | $ | (1.9 | ) | | $ | (76.5 | ) |
| Net transition obligation | | | (0.1 | ) | | | — | | | | (3.7 | ) | | | (6.3 | ) |
| Prior service (cost) credit | | | (52.2 | ) | | | (58.8 | ) | | | 47.0 | | | | 29.4 | |
| | | | | | | | | | | | | | | | | |
| | | $ | (246.1 | ) | | $ | (106.7 | ) | | $ | 41.4 | | | $ | (53.4 | ) |
| | | | | | | | | | | | | | | | | |
Amounts recorded in accumulated other comprehensive income (loss) that are expected to be recognized as components of net periodic benefit cost in the year ended December 31, 2008,2009, are shown below (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | Other
| | | | | Other
| |
| | | Pension | | Postretirement | | |
For the Year Ended December 31, 2009 | | | Pension | | Postretirement | |
| |
| Amortization of actuarial loss | | $ | 0.6 | | | $ | 3.7 | | | $ | 6.3 | | | $ | 0.4 | |
| Amortization of net transition obligation | | | — | | | | 0.8 | | | | — | | | | 0.6 | |
| Amortization of prior service cost (credit) | | | 5.0 | | | | (3.6 | ) | | | 5.6 | | | | (7.1 | ) |
| | | | | | | | | | | |
| | | $ | 5.6 | | | $ | 0.9 | | | $ | 11.9 | | | $ | (6.1 | ) |
| | | | | | | | | | | |
93
Lear Corporation and Subsidiaries
Amounts recorded in accumulated other comprehensive income (loss) not yet recognized in net periodic benefit cost are shown below (in millions):
| | | | | | | | | | | | | | | | | |
| | | Pension | | | Other Postretirement | |
December 31, | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| |
| Net actuarial loss | | $ | (47.9 | ) | | $ | (150.1 | ) | | $ | (76.5 | ) | | $ | (91.8 | ) |
| Net transition (asset) obligation | | | — | | | | 0.1 | | | | (6.3 | ) | | | (7.8 | ) |
| Prior service (cost) credit | | | (58.8 | ) | | | (47.9 | ) | | | 29.4 | | | | 33.3 | |
| | | | | | | | | | | | | | | | | |
| | | $ | (106.7 | ) | | $ | (197.9 | ) | | $ | (53.4 | ) | | $ | (66.3 | ) |
| | | | | | | | | | | | | | | | | |
Notes to Consolidated Financial Statements (continued)
Net Periodic Benefit Cost
The components of the Company’s net periodic benefit cost are shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension | | Other Postretirement | | | Pension | | Other Postretirement | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | |
| |
| Service cost | | $ | 26.2 | | | $ | 50.3 | | | $ | 41.0 | | | $ | 10.6 | | | $ | 12.7 | | | $ | 11.7 | | | $ | 16.0 | | | $ | 26.2 | | | $ | 50.3 | | | $ | 7.2 | | | $ | 10.6 | | | $ | 12.7 | |
| Interest cost | | | 44.9 | | | | 44.2 | | | | 37.6 | | | | 15.0 | | | | 15.0 | | | | 13.5 | | | | 48.0 | | | | 44.9 | | | | 44.2 | | | | 15.4 | | | | 15.0 | | | | 15.0 | |
| Expected return on plan assets | | | (46.7 | ) | | | (39.4 | ) | | | (30.2 | ) | | | — | | | | — | | | | — | | | | (54.7 | ) | | | (46.7 | ) | | | (39.4 | ) | | | — | | | | — | | | | — | |
| Amortization of actuarial loss | | | 3.0 | | | | 7.1 | | | | 3.0 | | | | 4.7 | | | | 5.8 | | | | 3.6 | | | | 0.4 | | | | 3.0 | | | | 7.1 | | | | 3.4 | | | | 4.7 | | | | 5.8 | |
| Amortization of transition (asset) obligation | | | (0.2 | ) | | | (0.1 | ) | | | (0.2 | ) | | | 0.9 | | | | 1.0 | | | | 1.1 | | | | (0.1 | ) | | | (0.2 | ) | | | (0.1 | ) | | | 0.8 | | | | 0.9 | | | | 1.0 | |
| Amortization of prior service cost (credit) | | | 4.9 | | | | 5.4 | | | | 5.4 | | | | (3.6 | ) | | | (3.7 | ) | | | (3.1 | ) | | | 6.8 | | | | 4.9 | | | | 5.4 | | | | (3.5 | ) | | | (3.6 | ) | | | (3.7 | ) |
| Settlement loss | | | — | | | | — | | | | 1.0 | | | | — | | | | — | | | | — | | | | 1.2 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Special termination benefits | | | 5.9 | | | | 1.7 | | | | — | | | | 1.1 | | | | 0.4 | | | | 0.3 | | | | 2.9 | | | | 5.9 | | | | 1.7 | | | | 0.3 | | | | 1.1 | | | | 0.4 | |
| Curtailment (gain) loss | | | (0.8 | ) | | | 0.9 | | | | 0.5 | | | | (13.5 | ) | | | — | | | | 1.4 | | |
| Curtailment (gain) loss, net | | | | 7.4 | | | | (0.8 | ) | | | 0.9 | | | | (2.8 | ) | | | (13.5 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net periodic benefit cost | | $ | 37.2 | | | $ | 70.1 | | | $ | 58.1 | | | $ | 15.2 | | | $ | 31.2 | | | $ | 28.5 | | | $ | 27.9 | | | $ | 37.2 | | | $ | 70.1 | | | $ | 20.8 | | | $ | 15.2 | | | $ | 31.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
EffectiveFor the years ended December 31, 2008, 2007 and 2006, the Company electedrecognized net pension and other postretirement benefit curtailment and other losses of $7.5 million, $18.8 million and $0.9 million, respectively, related to its restructuring actions. Also in 2007, the Company recognized a curtailment gain of $36.4 million resulting from the Company’s election to freeze its U.S. salaried defined benefit pension plan and recognized curtailment gains of approximately $36.4 million and $14.7 million with respect to pension and other postretirement benefit plans, respectively, in the first quarter of 2007. The pension plan curtailmenteffective December 31, 2006. This gain resulted from the suspension of the accrual of defined benefits related to the Company’s U.S. salaried defined benefit pension plan. The other postretirement benefit plan curtailment gain resulted from employee terminations associated with a facility closure in the fourth quarter of 2006. These gains werewas recognized in 2007 as the related curtailmentscurtailment occurred after the 2006 measurement date. In addition to the other postretirement benefit curtailment gain described above, the Company recognized pension and other postretirement benefit curtailment losses of $33.5 million related to other restructuring actions in 2007.
96
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Assumptions
The weighted-average actuarial assumptions used in determining the benefit obligation are shown below:
| | | | | | | | | | | | | | | | | | |
| | | | | Other
| | | | | | | | | | | | | | | | | |
| | | Pension | | Postretirement | | | Pension | | Other Postretirement | |
December 31, | | 2007 | | 2006 | | 2007 | | 2006 | | | 2008 | | 2007 | | 2008 | | 2007 | |
| |
| Discount rate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic plans | | | 6.25 | % | | | 6.00 | % | | | 6.10 | % | | | 5.90 | % | | | 5.73 | % | | | 6.25 | % | | | 5.75 | % | | | 6.10 | % |
| Foreign plans | | | 5.40 | % | | | 5.00 | % | | | 5.60 | % | | | 5.30 | % | | | 6.25 | % | | | 5.40 | % | | | 7.50 | % | | | 5.60 | % |
| Rate of compensation increase: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic plans | | | N/A | | | | 3.75 | % | | | N/A | | | | N/A | | |
| Foreign plans | | | 4.00 | % | | | 4.00 | % | | | N/A | | | | N/A | | | | 3.25 | % | | | 4.00 | % | | | N/A | | | | N/A | |
94
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The weighted-average actuarial assumptions used in determining net periodic benefit cost are shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension | | | | Other Postretirement | | | Pension | | Other Postretirement | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | |
| |
| Discount rate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic plans | | | 6.00 | % | | | 5.75 | % | | | 6.00 | % | | | 5.90 | % | | | 5.70 | % | | | 6.00 | % | | | 6.25 | % | | | 6.00 | % | | | 5.75 | % | | | 6.10 | % | | | 5.90 | % | | | 5.70 | % |
| Foreign plans | | | 5.00 | % | | | 5.00 | % | | | 6.00 | % | | | 5.30 | % | | | 5.30 | % | | | 6.50 | % | | | 5.40 | % | | | 5.00 | % | | | 5.00 | % | | | 5.60 | % | | | 5.30 | % | | | 5.30 | % |
| Expected return on plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic plans | | | 8.25 | % | | | 8.25 | % | | | 7.75 | % | | | N/A | | | | N/A | | | | N/A | | | | 8.25 | % | | | 8.25 | % | | | 8.25 | % | | | N/A | | | | N/A | | | | N/A | |
| Foreign plans | | | 6.90 | % | | | 6.90 | % | | | 7.00 | % | | | N/A | | | | N/A | | | | N/A | | | | 6.90 | % | | | 6.90 | % | | | 6.90 | % | | | N/A | | | | N/A | | | | N/A | |
| Rate of compensation increase: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic plans | | | N/A | | | | 3.75 | % | | | 3.00 | % | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | 3.75 | % | | | N/A | | | | N/A | | | | N/A | |
| Foreign plans | | | 3.90 | % | | | 3.90 | % | | | 3.25 | % | | | N/A | | | | N/A | | | | N/A | | | | 3.90 | % | | | 3.90 | % | | | 3.90 | % | | | N/A | | | | N/A | | | | N/A | |
The expected return on plan assets is determined based on several factors, including adjusted historical returns, historical risk premiums for various asset classes and target asset allocations within the portfolio. Adjustments made to the historical returns are based on recent return experience in the equity and fixed income markets and the belief that deviations from historical returns are likely over the relevant investment horizon.
For measurement purposes, domestic healthcare costs were assumed to increase 9% in 2007, grading down over time to 5% in seven years. Foreign healthcare costs were assumed to increase 6% in 2007, grading down over time to 4% in ten years on a weighted average basis.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefit plans. A 1% increase in the assumed rate of healthcare cost increases each year would increase the postretirement benefit obligation as of December 31, 2007,2008, by $61.8$32.1 million and increase the postretirement net periodic benefit cost by $7.1$6.0 million for the year then ended. A 1% decrease in the assumed rate of healthcare cost increases each year would decrease the postretirement benefit obligation as of December 31, 2007,2008, by $48.5$26.2 million and decrease the postretirement net periodic benefit cost by $5.4$4.6 million for the year then ended.
97
Lear Corporation and Subsidiaries
For the measurement of the 2008 postretirement benefit obligation, domestic healthcare costs were assumed to increase 9% in 2009, grading down over time to 5% in nine years. Foreign healthcare costs were assumed to increase 7% in 2009, grading down over time to 5% in 16 years on a weighted average basis.
Notes to Consolidated Financial Statements — (Continued)
Plan Assets
The Company’s pension plan asset allocations by asset category are shown below (primarily(based on a December 31 measurement date in 2008 and primarily based on a September 30 measurement date)date in 2007). Pension plan asset allocations for the foreign plans relate to the Company’s pension plans in Canada and the United Kingdom.
| | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| |
| Equity securities: | | | | | | | | | | | | | | | | |
| Domestic plans | | | 70 | % | | | 69 | % | | | 66 | % | | | 70 | % |
| Foreign plans | | | 58 | % | | | 58 | % | | | 57 | % | | | 58 | % |
| Debt securities: | | | | | | | | | | | | | | | | |
| Domestic plans | | | 28 | % | | | 28 | % | | | 32 | % | | | 28 | % |
| Foreign plans | | | 37 | % | | | 36 | % | | | 38 | % | | | 37 | % |
| Cash and other: | | | | | | | | | | | | | | | | |
| Domestic plans | | | 2 | % | | | 3 | % | | | 2 | % | | | 2 | % |
| Foreign plans | | | 5 | % | | | 6 | % | | | 5 | % | | | 5 | % |
The Company’s investment policies incorporate an asset allocation strategy that emphasizes the long-term growth of capital. The Company believes this strategy is consistent with the long-term nature of plan liabilities and ultimate cash needs of the plans. For the domestic portfolio, the Company targets an equity allocation of 60% —
95
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
80% of plan assets, a fixed income allocation of 15% —- 40% and a cash allocation of 0% — 15%. For the foreign portfolio, the Company targets an equity allocation of 50% — 70% of plan assets, a fixed income allocation of 30% — 50% and a cash allocation of 0% — 10%. Differences in the target allocations of the domestic and foreign portfolios are reflective of differences in the underlying plan liabilities. Diversification within the investment portfolios is pursued by asset class and investment management style. The investment portfolios are reviewed on a quarterly basis to maintain the desired asset allocations, given the market performance of the asset classes and investment management styles.
The Company utilizes investment management firms to manage these assets in accordance with the Company’s investment policies. Retained investment managers are provided investment guidelines that indicate prohibited assets, which include commodities contracts, futures contracts, options, venture capital, real estate and interest-only or principal-only strips. Derivative instruments are also prohibited without the specific approval of the Company. Investment managers are limited in the maximum size of individual security holdings and the maximum exposure to any one industry relative to the total portfolio. Fixed income managers are provided further investment guidelines that indicate minimum credit ratings for debt securities and limitations on weighted average maturity and portfolio duration.
The Company evaluates investment manager performance against market indices which the Company believes are appropriate to the investment management style for which the investment manager has been retained. The Company’s investment policies incorporate an investment goal of aggregate portfolio returns which exceed the returns of the appropriate market indices by a reasonable spread over the relevant investment horizon.
Contributions
The Company expects to contribute approximately $40$50 million to its domestic and foreign pension plans in 2008.2009. Contributions to the pension plans are consistent withmeet or exceed the minimum funding requirements of the relevant governmental authorities. The Company may make contributions in excess of the minimum funding requirements in response to investment performance and changes in interest rates, to achieve funding levels required by the Company’s defined benefit plan arrangements or when the Company believes it is financially advantageous to do so and based on its other capital requirements. In addition, the Company’s future funding obligations may be affected by changes in applicable legal requirements.
98
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Benefit Payments
As of December 31, 2007,2008, the Company’s estimate of expected benefit payments, excluding expected settlements relating to ourits restructuring actions, in each of the five succeeding years and in the aggregate for the five years thereafter are shown below (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | Other
| | | | | Other
| |
| | | Pension | | Postretirement | | | Pension | | Postretirement | |
| |
| 2008 | | $ | 54.6 | | | | $11.1 | | |
| 2009 | | | 37.3 | | | | 11.9 | | | $ | 44.0 | | | $ | 11.3 | |
| 2010 | | | 38.3 | | | | 12.8 | | | | 59.7 | | | | 10.6 | |
| 2011 | | | 39.8 | | | | 13.3 | | | | 36.4 | | | | 10.9 | |
| 2012 | | | 38.9 | | | | 14.1 | | | | 34.6 | | | | 11.2 | |
| 2013 | | | �� | 31.6 | | | | 11.5 | |
| Five years thereafter | | | 201.0 | | | | 81.3 | | | | 189.5 | | | | 60.2 | |
Defined Contribution and Multi-employer Pension Plans
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. Contributions are
96
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
based on collective bargaining agreements. For the years ended December 31, 2008, 2007 2006 and 2005,2006, the aggregate cost of the defined contribution and multi-employer pension plans was $6.8 million, $13.1 million $22.7 million and $25.8$22.7 million, respectively.
In addition, the Company established a new defined contribution retirement program for its salaried employees effective January 1, 2007, in conjunction with theits election to freeze of its U.S. salaried defined benefit pension plan. Contributions to this program are determined as a percentage of each covered employee’s eligible compensation and thecompensation. The Company recorded related expense of $12.3 million and $16.1 million in 2008 and 2007, respectively.
Adoption of New Accounting Pronouncement
The Emerging Issues Task Force (“EITF”) issued EITF IssueNo. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.”EITF 06-4 requires the recognition of a liability for endorsement split-dollar life insurance arrangements that provide postretirement benefits. This EITF is effective for fiscal periods beginning after December 15, 2007. In accordance with the EITF’s transition provisions, the Company recorded $4.9 million as a cumulative effect of a change in accounting principle as of January 1, 2008. The cumulative effect adjustment was recorded as an increase to beginning retained deficit and an increase to other long-term liabilities.
| |
| (12) | Stock-Based Compensation |
The Company has threetwo plans under which it has issued stock options as shown below: the 1994 Stock Option Plan, the 1996 Stock Option Plan and the Long-Term Stock Incentive Plan. Options issued to date under these plans generally vest three years following the grant date and expire ten years from the issuance date.
A summary of option transactions during each of the three years in the period ended December 31, 2007,2008, is shown below:
| | | | | | | | | |
| | | Stock Options | | | Price Range | |
| |
| Outstanding as of January 1, 2005 | | | 3,294,680 | | | $ | 22.12 - $55.33 | |
| Expired or cancelled | | | (176,800 | ) | | $ | 22.12 - $54.22 | |
| Exercised | | | (134,475 | ) | | $ | 22.12 - $54.22 | |
| | | | | | | | | |
| Outstanding as of December 31, 2005 | | | 2,983,405 | | | $ | 22.12 - $55.33 | |
| Expired or cancelled | | | (186,100 | ) | | $ | 22.12 - $54.22 | |
| Exercised | | | (7,000 | ) | | | $22.12 | |
| | | | | | | | | |
| Outstanding as of December 31, 2006 | | | 2,790,305 | | | $ | 22.12 - $55.33 | |
| Expired or cancelled | | | (690,675 | ) | | $ | 22.12 - $55.33 | |
| Exercised | | | (228,400 | ) | | $ | 22.12 - $39.00 | |
| | | | | | | | | |
| Outstanding as of December 31, 2007 | | | 1,871,230 | | | | | |
| | | | | | | | | |
| | | Stock Options | | | Price Range | |
| |
| Outstanding as of January 1, 2006 | | | 2,983,405 | | | $ | 22.12 - $55.33 | |
| Expired or cancelled | | | (186,100 | ) | | $ | 22.12 - $54.22 | |
| Exercised | | | (7,000 | ) | | | $22.12 | |
| | | | | | | | | |
| Outstanding as of December 31, 2006 | | | 2,790,305 | | | $ | 22.12 - $55.33 | |
| Expired or cancelled | | | (690,675 | ) | | $ | 22.12 - $55.33 | |
| Exercised | | | (228,400 | ) | | $ | 22.12 - $39.00 | |
| | | | | | | | | |
| Outstanding as of December 31, 2007 | | | 1,871,230 | | | $ | 22.12 - $55.33 | |
| Expired or cancelled | | | (601,200 | ) | | $ | 22.12 - $54.22 | |
| Exercised | | | (1,850 | ) | | | $22.12 | |
| | | | | | | | | |
| Outstanding as of December 31, 2008 | | | 1,268,180 | | | $ | 22.12 - $55.33 | |
| | | | | | | | | |
9997
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
A summary of options outstanding as of December 31, 2007,2008, is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of exercise prices | | $ | 22.12 - 27.25 | | | $ | 35.93 - 39.83 | | | $ | 41.83 - 42.32 | | | $ | 54.22 - 55.33 | | | $ | 22.12 - 27.25 | | | $ | 35.93 - 39.83 | | | $ | 41.83 - 42.32 | | | $ | 55.33 | |
| Options outstanding and exercisable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number outstanding and exercisable | | | 65,700 | | | | 499,305 | | | | 1,052,575 | | | | 255,650 | | | | 61,750 | | | | 390,255 | | | | 802,175 | | | | 14,000 | |
| Weighted average remaining contractual life (years) | | | 2.15 | | | | 2.54 | | | | 4.42 | | | | 0.64 | | | | 1.16 | | | | 1.76 | | | | 3.42 | | | | 4.83 | |
| Weighted average exercise price | | $ | 22.50 | | | $ | 37.25 | | | $ | 41.83 | | | $ | 54.22 | | | $ | 22.53 | | | $ | 37.00 | | | $ | 41.83 | | | $ | 55.33 | |
As of December 31, 2005, 2,967,405 options were exercisable. During 2006, an additional 16,000 options became exercisable. As of December 31,2008, 2007 and 2006, all outstanding options were exercisable.
The Long-Term Stock Incentive Plan also permits the grants of stock appreciation rights, restricted stock, restricted stock units and performance shares (collectively, “Incentive Units”) to officers and other key employees of the Company. As of December 31, 2007,2008, the Company had outstanding stock-settled stock appreciation rights covering 2,179,6752,432,745 shares with a weighted average exercise price of $30.61$24.84 per right and outstanding restricted stock units and performance shares convertible into a maximum of 1,890,0121,209,436 shares of common stock of the Company. Restricted stock units and performance shares include 1,102,732646,865 restricted stock units at no cost to the employee, 529,255393,875 restricted stock units at a weighted average cost to the employee of $32.42$22.22 per unit and 258,025168,696 performance shares at no cost to the employee. As of December 31, 2007,2008, the Company also had outstanding 470,153610,791 cash-settled stock appreciation rights with a weighted average exercise price of $29.75$25.12 per right.
Stock appreciation rights granted in 2008 primarily vest in equal installments six months and 18 months following the grant date and primarily expire three and a half years following the grant date. Certain stock appreciation rights granted in 2008 and all stock appreciation rights granted in 2007 and 2006 vest three years following the grant date and expire seven years fromfollowing the date of grant.grant date. Stock appreciation rights granted prior to 2006 vest in equal annual installments over the three yearthree-year period following the grant date and expire seven years fromfollowing the grant date. Restricted stock units issued at no cost to the employee granted in 2008, 2007, 2006 and 20062005 vest in equal installments two years and four years following the grant date. Restricted stock units issued at no cost to the employee granted prior to 20062005 vest in equal installments twothree years toand five years following the grant date. PerformanceRestricted stock units issued at a cost to the employee and performance shares vest three years following the grant date.
10098
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
A summary of Incentive Unit transactions during each of the three years in the period ended December 31, 2006,2008, is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Stock Appreciation
| | Restricted Stock
| | Performance
| | | Stock Appreciation
| | Restricted Stock
| | Performance
| |
| | | Rights(1) | | Units | | Shares(2) | | | Rights(1) | | Units | | Shares(2) | |
| |
| Outstanding as of January 1, 2005 | | | — | | | | 1,833,684 | | | | 209,027 | | |
| Granted | | | 1,215,046 | | | | 605,811 | | | | 56,733 | | |
| Expired or cancelled | | | — | | | | (74,528 | ) | | | (67,452 | ) | |
| Distributed | | | — | | | | (130,845 | ) | | | (74,636 | ) | |
| | | | | | | | | |
| Outstanding as of December 31, 2005 | | | 1,215,046 | | | | 2,234,122 | | | | 123,672 | | |
| Outstanding as of January 1, 2006 | | | | 1,215,046 | | | | 2,234,122 | | | | 123,672 | |
| Granted | | | 642,285 | | | | 406,086 | | | | 130,655 | | | | 642,285 | | | | 406,086 | | | | 130,655 | |
| Expired or cancelled | | | (91,002 | ) | | | (146,045 | ) | | | (84,418 | ) | | | (91,002 | ) | | | (146,045 | ) | | | (84,418 | ) |
| Distributed or exercised | | | (14,475 | ) | | | (529,592 | ) | | | — | | | | (14,475 | ) | | | (529,592 | ) | | | — | |
| | | | | | | | | | | | | | | |
| Outstanding as of December 31, 2006 | | | 1,751,854 | | | | 1,964,571 | | | | 169,909 | | | | 1,751,854 | | | | 1,964,571 | | | | 169,909 | |
| Granted | | | 685,179 | | | | 468,823 | | | | 104,928 | | | | 685,179 | | | | 468,823 | | | | 104,928 | |
| Expired or cancelled | | | (48,149 | ) | | | (68,705 | ) | | | (16,812 | ) | | | (48,149 | ) | | | (68,705 | ) | | | (16,812 | ) |
| Distributed or exercised | | | (209,209 | ) | | | (732,702 | ) | | | — | | | | (209,209 | ) | | | (732,702 | ) | | | — | |
| | | | | | | | | | | | | | | |
| Outstanding as of December 31, 2007 | | | 2,179,675 | | | | 1,631,987 | | | | 258,025 | | | | 2,179,675 | | | | 1,631,987 | | | | 258,025 | |
| Granted | | | | 510,550 | | | | 286,030 | | | | — | |
| Expired or cancelled(3) | | | | (158,515 | ) | | | (162,779 | ) | | | (47,316 | ) |
| Distributed or exercised | | | | (98,965 | ) | | | (714,498 | ) | | | (42,013 | ) |
| | | | | | | | | | | | | | | |
| Outstanding as of December 31, 2008 | | | | 2,432,745 | | | | 1,040,740 | | | | 168,696 | |
| | | | | | | | | |
| | |
| (1) | | Does not includeExcludes cash-settled stock appreciation rights. |
| |
| (2) | | Performance shares reflected as “granted” are notional shares granted at the beginning of a three-year performance period whose eventual payout is subject to satisfaction of performance criteria. Performance shares reflected as “distributed” are those performance shares that are paid out in shares of common stock upon satisfaction of the performance criteria at the end of the three-year performance period. |
|
| (3) | | In 2008, eligible plan participants were provided the opportunity to exchange up to 50% of certain of their existing restricted stock units, in 25% increments, for either notional cash account credits or cash-settled stock appreciation rights. With respect to the notional cash account credit alternative, each eligible restricted stock unit was exchanged for a notional cash account credit in the amount of the closing stock price on the date of exchange. With respect to the cash-settled stock appreciation right alternative, each eligible restricted stock unit was exchanged for cash-settled stock appreciation rights covering three to four shares of the Company’s common stock. The notional cash account credits and the cash-settled stock appreciation rights vest in accordance with the terms of the original restricted stock units, generally three years from the original grant date. In connection with these transactions, restricted stock units reflected as “expired or cancelled” in 2008 include 75,084 of exchanged units. |
A summary of the weighted average grant date fair value of nonvested stock-settled stock appreciation rights for the year ended December 31, 2007,2008, is shown below:
| | | | | | | | | | | | | | | | | |
| | | Stock Appreciation
| | Weighed Average Grant
| | | Stock Appreciation
| | Weighed Average Grant
| |
| | | Rights | | Date Fair Value | | | Rights | | Date Fair Value | |
| |
| Nonvested as of January 1, 2007 | | | 1,390,998 | | | $ | 11.11 | | |
| Nonvested as of January 1, 2008 | | | | 1,668,742 | | | $ | 12.59 | |
| Granted | | | 685,179 | | | | 13.80 | | | | 510,550 | | | | 1.13 | |
| Vested | | | (374,357 | ) | | | 9.30 | | | | (323,973 | ) | | | 9.31 | |
| Expired or cancelled | | | (33,078 | ) | | | 12.31 | | | | (158,515 | ) | | | 12.33 | |
| | | | | | | |
| Outstanding as of December 31, 2007 | | | 1,668,742 | | | | 12.59 | | |
| Nonvested as of December 31, 2008 | | | | 1,696,804 | | | | 9.80 | |
| | | | | | | | | |
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
All outstanding restricted stock units and performance shares are nonvested. Restricted stock units and performance shares are distributed when vested. As of December 31, 2007,2008, unrecognized compensation cost related to nonvested Incentive Units was $37.9$14.0 million. This amount is expected to be recognized over the next 1.61.3 years on a weighted average basis.
The fair values of the stock-settled stock appreciation right grants,rights, which primarily have a seven-year term,terms, were estimated as of the grant dates using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yields of 0.00% in 2008, 2007 and 2006 and 1.91% in 2005;2006; expected life of 5four years in 2008 and five years in 2007 and 2006 and 41/2 years in 2005;2006; risk-free interest rate of 2.2% in 2008, 3.82% in 2007 and 4.58% in 2006 and 4.40% in 2005;2006; and expected volatility of 40.00%60% in 2008 and 40% in 2007 2006 and 2005.2006. The weighted average fair value of the stock-settled stock appreciation rights were $1.13 per right grants werein 2008, $13.80 per right in 2007 and $13.21 per right in 2006 and $9.30 per right in 2005.
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)2006.
| |
| (13) | Commitments and Contingencies |
Legal and Other Contingencies
As of December 31, 20072008 and December 31, 2006,2007, the Company had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $37.5$31.4 million and $18.0$37.5 million, respectively. Such reserves reflect amounts recognized in accordance with accounting principles generally accepted in the United States and typically exclude the cost of legal representation. Product warranty liabilities are recorded separately from legal liabilities, as described below.
Commercial Disputes
The Company is involved from time to time in legal proceedings and claims, including, without limitation, commercial or contractual disputes with its suppliers, competitors and customers. These disputes vary in nature and are usually resolved by negotiations between the parties.
On January 26, 2004, the Company filed a patent infringement lawsuit against Johnson Controls Inc. and Johnson Controls Interiors LLC (together, “JCI”) in the U.S. District Court for the Eastern District of Michigan alleging that JCI’s garage door opener products infringed certain of the Company’s radio frequency transmitter patents. The Company is seeking a declaration that JCI infringes its patents, to enjoin JCI from further infringing those patents by making, selling or offering to sell its garage door opener products and an award of compensatory damages, attorney fees and costs. JCI counterclaimed seeking a declaratory judgment that the subject patents are invalid and unenforceable and that JCI is not infringing these patents.patents and an award of attorney fees and costs. JCI also has filed motions for summary judgment asserting that its garage door opener products do not infringe the Company’s patents and that one of the Company’s patents is invalid and unenforceable. The Company is pursuing its claims against JCI. On November 2, 2007, the court issued an opinion and order granting, in part, and denying, in part, JCI’s motion for summary judgment on one of the Company’s patents. The court found that JCI’s product does not literally infringe the patent,patent; however, there are issues of fact that precluded a finding as to whether JCI’s product infringes under the doctrine of equivalents. The court also ruled that one of the claims the Company has asserted is invalid. Finally, the court denied JCI’s motion to hold the patent unenforceable. The opinion and order does not address the other two patents involved in the lawsuit.lawsuit, and JCI’s motion for summary judgment on those patents has not yet been subject to a court hearing. On May 22, 2008, JCI filed a motion seeking reconsideration of the court’s ruling of November 2, 2007. On June 9, 2008, the Company filed its opposition to this motion, and on June 23, 2008, JCI filed its reply brief. A trial date has not been scheduled.
After the Company filed its patent infringement action against JCI, affiliates of JCI sued one of the Company’s vendors and certain of the vendor’s employees in Ottawa County, Michigan Circuit Court on July 8, 2004, alleging misappropriation of trade secrets and disclosure of confidential information. The suit alleges that the defendants misappropriated and shared with the Company trade secrets involving JCI’s universal garage door opener product. JCI seeks to enjoin the defendants from selling or attempting to sell a competing product, as well as compensatory damages and attorney fees. The Company is not a defendant in this lawsuit; however, the agreements between the Company and the defendants contain customary indemnification provisions. The Company does not believe that its garage door opener product benefited from any allegedly misappropriated trade secrets or technology. However, JCI has sought discovery of certain information which the Company believes is confidential and proprietary, and the Company has intervened in the case as a non-party for the limited purpose of protecting its rights with respect to JCI’s discovery efforts. The defendants have moved for summary judgment. The motion is fully briefed and the parties are awaiting a decision. No trial date has been set.
On June 13, 2005, The Chamberlain Group (“Chamberlain”) filed a lawsuit against the Company and Ford Motor Company (“Ford”) in the Northern District of Illinois alleging patent infringement. Two counts were asserted against the Company and Ford based upon two Chamberlain rolling-code garage door opener system patents. Two additional counts were asserted against Ford only (not the Company) based upon different Chamberlain patents. The Chamberlain lawsuit was filed in connection with the marketing of the Company’s universal garage door
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
opener system, which competes with a product offered by JCI. JCI obtained technology from Chamberlain to operate its product. In October 2005, JCIChamberlain filed an amended complaint and joined the lawsuitJCI as a plaintiff along with Chamberlain.plaintiff. The Company answered and filed a counterclaim seeking a declaration that the patents were not infringed and were invalid, as well as attorney fees and costs. In October 2006, Ford was dismissed from the suit. Chamberlain and JCI seek a declaration that the Company infringes Chamberlain’s patents and an order enjoining the Company from making, selling or attempting to sell products which, they allege, infringe Chamberlain’s patents, as well as compensatory damages and attorney fees and costs. JCI and Chamberlain filed a motion for a preliminary injunction, and on
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
March 30, 2007, the court issued a decision granting plaintiffs’ motion for a preliminary injunction but did not enter an injunction at that time. In response, the Company filed a motion seeking to stay the effectiveness of any injunction that may be entered and General Motors Corporation (“GM”) moved to intervene. On April 25, 2007, the court granted GM’s motion to intervene, entered a preliminary injunction order that exempts the Company’s existing GM programs and denied the Company’s motion to stay the effectiveness of the preliminary injunction order pending appeal. On April 27, 2007, the Company filed its notice of appeal from the granting of the preliminary injunction and the denial of its motion to stay its effectiveness. On May 7, 2007, the Company filed a motion for stay with the Federal Circuit Court of Appeals, which the court denied on June 6, 2007. The appeal is currently pending beforeOn February 19, 2008, the Federal Circuit Court of Appeals. AllAppeals issued a decision in the Company’s favor that vacated the preliminary injunction and reversed the district court’s interpretation of a key claim term. A petition by JCI for a rehearing on the matter was denied on April 10, 2008. The case is now remanded to the district court. The Company has moved for summary judgment, and limited discovery on the Company’s motion occurred in July and August 2008. On August 18, 2008 and August 15, 2008, respectively, Chamberlain and JCI moved to extend the briefing has been completed,schedule and oral arguments were held on December 3, 2007. No trial date has been setto compel additional discovery from the Company. The court extended the briefing schedule. The parties are awaiting a ruling by the district court.court on the motion to compel discovery and the Company’s motion for summary judgment. On August 12, 2008, a new patent was issued to Chamberlain relating to the same technology as the patents disputed in this lawsuit. On August 19, 2008, Chamberlain and JCI filed a second amended complaint against the Company alleging patent infringement with respect to the new patent and seeking the same types of relief. The Company has filed an answer and counterclaim seeking a declaration that its products are non-infringing and that the new patent is invalid and unenforceable due to inequitable conduct, as well as attorney fees and costs. On December 8, 2008, the Company filed a motion for summary judgment on the claims and counterclaims relating to the new patent and a motion for a protective order from further discovery. The court granted in part and denied in part the motion for a protective order. The court granted the protective order as to discovery on invalidity and damages but denied the protective order as to discovery on infringement. A date has not yet been set for Chamberlain’ s and JCI’s opposition to the motion for summary judgment. The Company intends to continue to vigorously defend this matter.
On September 12, 2008, a consultant that the Company retained filed an arbitration action against the Company seeking royalties under the parties’ Joint Development Agreement (“JDA”) for the Company’s sales of its garage door opener products. The Company denies that it owes the consultant any royalty payments under the JDA. No dates have been set in this matter, and the Company intends to vigorously defend this matter.
Product Liability Matters
In the event that use of the Company’s products results in, or is alleged to result in, bodily injuryand/or property damage or other losses, the Company may be subject to product liability lawsuits and other claims. Such lawsuits generally seek compensatory damages, punitive damages and attorney fees and costs. In addition, the Company is a party to warranty-sharing and other agreements with certain of its customers relating to its products. These customers may pursue claims against the Company for contribution of all or a portion of the amounts sought in connection with product liability and warranty claims. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend such claims. In addition, if any of the Company’s products are, or are alleged to be, defective, the Company may be required or requested by its customers to participate in a recall or other corrective action involving such products. Certain of the Company’s
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
customers have asserted claims against the Company for costs related to recalls or other corrective actions involving its products. In certain instances, the allegedly defective products were supplied by tier II suppliers against whom the Company has sought or will seek contribution. The Company carries insurance for certain legal matters, including product liability claims, but such coverage may be limited. The Company does not maintain insurance for product warranty or recall matters.
The Company records product warranty liabilities based on its individual customer agreements. Product warranty liabilities are recorded for known warranty issues when amounts related to such issues are probable and reasonably estimable. In certain product liability and warranty matters, the Company may seek recovery from its suppliers that supply materials or services included within the Company’s products that are associated with the related claims.
A summary of the changes in reserves for product liability and warranty liabilitiesclaims for each of the two years in the period ended December 31, 2007,2008, is shown below (in millions):
| | | | | | | | | |
| Balance as of January 1, 2006 | | $ | 32.4 | | |
| Expense, net | | | 17.5 | | |
| Settlements | | | (12.4 | ) | |
| Foreign currency translation and other | | | 3.4 | | |
| | | | | |
| Balance as of December 31, 2006 | | | 40.9 | | |
| Balance as of January 1, 2007 | | | $ | 40.9 | |
| Expense, net | | | 12.5 | | | | 12.5 | |
| Settlements | | | (14.2 | ) | | | (14.2 | ) |
| Foreign currency translation and other | | | 1.5 | | | | 1.5 | |
| | | | | | | |
| Balance as of December 31, 2007 | | $ | 40.7 | | | | 40.7 | |
| Expense, net and changes in estimates | | | | (3.4 | ) |
| Settlements | | | | (12.0 | ) |
| Foreign currency translation and other | | | | (3.7 | ) |
| | | | | | | |
| Balance as of December 31, 2008 | | | $ | 21.6 | |
| | | | | |
Environmental Matters
The Company is subject to local, state, federal and foreign laws, regulations and ordinances which govern activities or operations that may have adverse environmental effects and which impose liability forclean-up costs
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
resulting from past spills, disposals or other releases of hazardous wastes and environmental compliance. The Company’s policy is to comply with all applicable environmental laws and to maintain an environmental management program based on ISO 14001 to ensure compliance. However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures.
The Company has been named as a potentially responsible party at several third-party landfill sites and is engaged in the cleanup of hazardous waste at certain sites owned, leased or operated by the Company, including several properties acquired in its 1999 acquisition of UT Automotive. Certain present and former properties of UT Automotive are subject to environmental liabilities which may be significant. The Company obtained agreements and indemnities with respect to certain environmental liabilities from UTC in connection with its acquisition of UT Automotive. UTC manages and directly funds these environmental liabilities pursuant to its agreements and indemnities with the Company.
As of December 31, 20072008 and December 31, 2006,2007, the Company had recorded reserves for environmental matters of $2.7$2.9 million and $3.1$2.7 million, respectively. While the Company does not believe that the environmental liabilities associated with its current and former properties will have a material adverse effect on its business, consolidated financial position, results of operations or cash flows, no assurances can be given in this regard.
One of the Company’s subsidiaries and certain predecessor companies were named as defendants in an action filed by three plaintiffs in August 2001 in the Circuit Court of Lowndes County, Mississippi, asserting claims stemming from alleged environmental contamination caused by an automobile parts manufacturing plant located in Columbus, Mississippi. The plant was acquired by the Company as part of its acquisition of UT Automotive in May 1999 and sold almost immediately thereafter, in June 1999, to Johnson Electric Holdings Limited (“Johnson Electric”). In December 2002, 61 additional cases were filed by approximately 1,000 plaintiffs in the same court against the Company and other defendants relating to similar claims. In September 2003, the Company was dismissed as a party to these cases. In the first half of 2004, the Company was named again as a defendant in these same 61 additional cases and was also named in five new actions filed by approximately 150 individual plaintiffs related to alleged environmental contamination from the same facility. The plaintiffs in these actions are persons who allegedly were either residentsand/or owned property near the facility or worked at the facility. In November 2004, two additional lawsuits were filed by 28 plaintiffs (individuals and organizations), alleging property damage as a result of the alleged contamination. Each of these complaints seeks compensatory and punitive damages.
All of the plaintiffs subsequently dismissed their claims for health effects and personal injury damages and the cases proceeded with approximately 280 plaintiffs alleging property damage claims only. In March 2005, the venue for these lawsuits was transferred from Lowndes County, Mississippi, to Lafayette County, Mississippi. In April 2005, certain plaintiffs filed an amended complaint alleging negligence, nuisance, intentional tort and conspiracy claims and seeking compensatory and punitive damages.
In the first quarter of 2006, co-defendant UTC entered into a settlement agreement with the plaintiffs. During the third quarter of 2006, the Company and co-defendant Johnson Electric entered into a settlement memorandum with the plaintiffs’ counsel outlining the terms of a global settlement, including establishing the requisite percentage of executed settlement agreements and releases that were required to be obtained from the individual plaintiffs for a final settlement to proceed. This settlement memorandum was amended in January 2007. In the first half of 2007, the Company reached a final settlement with respect to approximately 85% of the plaintiffs involving aggregate payments of $875,000. These plaintiffs have been dismissed from the litigation. The Company is in the process of resolving the remaining claims through a combination of settlements, motions to withdraw by plaintiffs’ counsel and motions to dismiss. Additional settlements are not expected to exceed $90,000 in the aggregate.
UTC, the former owner of UT Automotive, and Johnson Electric each sought indemnification for losses associated with the Mississippi claims from the Company under the respective acquisition agreements, and the Company has claimed indemnification from them under the same agreements. In the first quarter of 2006, UTC filed a lawsuit against the Company in the State of Connecticut Superior Court, District of Hartford, seeking
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
declaratory relief and indemnification from the Company for the settlement amount, attorney fees, costs and expenses UTC paid in settling and defending the Columbus, Mississippi lawsuits. In the second quarter of 2006, the Company filed a motion to dismiss this matter and filed a separate action against UTC and Johnson Electric in the State of Michigan, Circuit Court for the County of Oakland, seeking declaratory relief and indemnification from UTC or Johnson Electric for the settlement amount, attorney fees, costs and expenses the Company has paid, or will pay, in settling and defending the Columbus, Mississippi lawsuits. During the fourth quarter of 2006, UTC agreed to dismiss the lawsuit filed in the State of Connecticut Superior Court, District of Hartford and agreed to proceed with the lawsuit filed in the State of Michigan, Circuit Court for the County of Oakland. During the first quarter of 2007, Johnson Electric and UTC each filed counter-claims against the Company seeking declaratory relief and indemnification from the Company for the settlement amount, attorney fees, costs and expenses each has paid or will pay in settling and defending the Columbus, Mississippi lawsuits. All three of the parties to this action filed motions for summary judgment. On June 14, 2007, UTC’s motion for summary disposition was granted holding that the Company was obligated to indemnify UTC with respect to the Mississippi lawsuits. Judgment for UTC was entered on July 18, 2007, in the amount of $2.8 million plus interest. The court denied both the Company’s and Johnson Electric’s motions for summary disposition leaving the claims between the Company and Johnson Electric to proceed to trial. UTC moved to sever its judgment from the Lear/Johnson Electric dispute for the purpose of allowing it to enforce its judgment immediately. During the fourth quarter of 2007, UTC, Johnson Electric and Lear entered into a settlement agreement resolving all claims among the parties related to the Columbus, Mississippi lawsuits under which Lear paid UTC $2.65 million and Johnson Electric paid Lear $2.83 million, and the case was dismissed with prejudice.
Other Matters
In January 2004, the Securities and Exchange Commission (the “SEC”) commenced an informal inquiry into the Company’s September 2002 amendment of its 2001Form 10-K. The amendment was filed to report the Company’s employment of relatives of certain of its directors and officers and certain related party transactions. The SEC’s inquiry does not relate to the Company’s consolidated financial statements. In February 2005, the staff of the SEC informed the Company that it proposed to recommend to the SEC that it issue an administrative “cease and desist” order as a result of the Company’s failure to disclose the related party transactions in question prior to the amendment of its 2001Form 10-K. The Company expects to consent to the entry of the order as part of a settlement of this matter.
In April 2006, a former employee of the Company filed a purported class action lawsuit in the U.S. District Court for the Eastern District of Michigan against the Company, members of its Board of Directors, members of its
102
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Employee Benefits Committee (the “EBC”) and certain members of its human resources personnel alleging violations of the Employment Retirement Income Security Act (“ERISA”) with respect to the Company’s retirement savings plans for salaried and hourly employees. In the second quarter of 2006, the Company was served with three additional purported class action ERISA lawsuits, each of which contained similar allegations against the Company, members of its Board of Directors, members of its EBC and certain members of its senior management and its human resources personnel. At the end of the second quarter of 2006, the court entered an order consolidating these four lawsuits asIn re: Lear Corp. ERISA Litigation. During the third quarter of 2006, plaintiffs filed their consolidated complaint, which alleges breaches of fiduciary duties substantially similar to those alleged in the four individually filed lawsuits. The consolidated complaint continues to name certain current and former members of the Board of Directors and the EBC and certain members of senior management and adds certain other current and former members of the EBC. The consolidated complaint generally alleges that the defendants breached their fiduciary duties to plan participants in connection with the administration of the Company’s retirement savings plans for salaried and hourly employees. The fiduciary duty claims are largely based on allegations of breaches of the fiduciary duties of prudence and loyalty and of over-concentration of plan assets in the Company’s common stock. The plaintiffs purport to bring these claims on behalf of the plans and all persons who were participants in or beneficiaries of the plans from October 21, 2004, to the presentpresent. The consolidated complaint seeks a declaration that defendants breached their fiduciary duties and seekan order compelling defendants to recoverrestore to the plans all losses allegedly suffered by the
105
Lear Corporationresulting from defendants’ alleged breach of those duties, as well as actual damages, attorney fees and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
plans.costs. The complaints doconsolidated complaint does not specify the amount of damages sought. During the fourth quarter of 2006, the defendants filed a motion to dismiss all defendants and all counts in the consolidated complaint. During the second quarter of 2007, the court denied defendants’ motion to dismiss, and defendants’ answer to the consolidated complaint was filed in August 2007. On August 8, 2007, the court ordered that discovery be completed by April 30, 2008. To date, significantDuring the first quarter of 2008, the parties exchanged written discovery hasrequests, the defendants filed with the court a motion to compel plaintiffs to provide more complete discovery responses, which was granted in part and denied in part, and the plaintiffs filed a motion for class certification. In April 2008, the parties entered into an agreement to stay all matters pending mediation. The mediation took place on May 12, 2008, but did not taken place. No determination has been maderesult in a settlement of the matters. Defendants took the named plaintiffs’ depositions in June 2008. Discovery closed on June 23, 2008, and defendants filed their opposition to plaintiffs’ motion for class certification on July 7, 2008. On September 25, 2008, the parties informed the court that they had reached a settlement in principle. On March 6, 2009, the parties executed a class action can be maintained,settlement agreement. The settlement agreement provides, among other things, for the payment of $5.3 million into a settlement fund in exchange for a release of all defendants from any and there have been no decisions onall of plantiffs’ claims, whether known or unknown, based upon investment in the merits ofCompany’s common stock or the cases.Lear Corporation Stock Fund by or through the plans from October 21, 2004 through March 6, 2009. The Company intendssettlement agreement remains subject to vigorously defendclass certification an d preliminary and final approval by the consolidated lawsuit.court. The court has scheduled the preliminary settlement approval hearing for March 23, 2009.
Between February 9, 2007 and February 21, 2007, certain stockholders filed three purported class action lawsuits against the Company, certain members of the Company’s Board of Directors and American Real Estate Partners, L.P. (currently known as Icahn Enterprises, L.P.) and certain of its affiliates (collectively, “AREP”) in the Delaware Court of Chancery. On February 21, 2007, these lawsuits were consolidated into a single action. The amended complaint in the consolidated action generally alleges that the Merger AgreementAREP merger agreement with AREP Car Holdings Corp. and AREP Car Acquisition Corp. (collectively the “AREP Entities”) unfairly limited the process of selling the Company and that certain members of the Company’s Board of Directors breached their fiduciary duties in connection with the Merger AgreementAREP merger agreement and acted with conflicts of interest in approving the Merger Agreement.AREP merger agreement. The amended complaint in the consolidated action further alleges that Lear’sthe Company’s preliminary and definitive proxy statements for the Merger AgreementAREP merger agreement were misleading and incomplete, and that Lear’sthe Company’s payments to AREP as a result of the termination of the Merger AgreementAREP merger agreement constituted unjust enrichment and waste. The amended complaint seeks injunctive relief, compensatory damages and attorneys fees and costs. On February 23, 2007, the plaintiffs filed a motion for expedited proceedings and a motion to preliminarily enjoin the transactions contemplated by the Merger Agreement.AREP merger agreement. On March 27, 2007, the
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
plaintiffs filed an amended complaint. On June 15, 2007, the Delaware court issued an order entering a limited injunction of Lear’sthe Company’s planned shareholder vote on the Merger AgreementAREP merger agreement until the Company made supplemental proxy disclosure. That supplemental proxy disclosure was approved by the Delaware court and made on June 18, 2007. On June 26, 2007, the Delaware court granted the plaintiffs’ motion for leave to file a second amended complaint. On September 11, 2007, the plaintiffs filed a third amended complaint. On January 30, 2008, the Delaware court granted the plaintiffs’ motion for leave to file a fourth amended complaint leaving only derivative claims against the Lear directorsCompany’s Board of Directors and AREP based on the payment by Learthe Company to AREP of a termination fee pursuant to the Merger Agreement.AREP merger agreement. The derivative claims seek recovery of the termination fee, as well as attorney fees and costs. On March 14, 2008, the plaintiffs were also granted leave to filefiled an interim petition for an award of fees and expenses related to the supplemental proxy disclosure. The Company believes that this lawsuit is without merit and intends to defend against it vigorously.
On March 1, 2007, a purported class action ERISA lawsuit was filed on behalf of participants in the Company’s 401(k) plans. The lawsuit was filed in the United States District Court for the Eastern District of Michigan and alleges that the Company, members of its Board of Directors, and members of the Employee Benefits Committee (collectively, the “Lear Defendants”) breached their fiduciary duties to the participants in the 401(k) plans by approving the Merger Agreement. On March 8, 2007, the plaintiff filed a motion for expedited discovery to support a potential motion for preliminary injunction to enjoin the Merger Agreement. The Lear Defendants filed an opposition to the motion for expedited discovery on March 22, 2007. The plaintiff filed a reply on April 11, 2007. On April 18, 2007,14, 2008, the Judge denied the plaintiff’s motion for expedited discovery. On March 15, 2007, the plaintiff requested that the case be reassigned to the Judge overseeingIn re: Lear Corp. ERISA Litigation (described above). The Lear Defendants sent a letter opposing the reassignment on March 21, 2007. On March 22, 2007, the Lear Defendantsdefendants filed a motion to dismiss all counts of the complaint againstremaining claims in the Lear Defendants. The plaintiff filed his oppositionfourth amended complaint. A hearing on both the defendants’ motion to the motion on April 10, 2007,dismiss and the Lear Defendants filed their reply in support on April 20, 2007. On April 10, 2007, the plaintiff also filed a motion for a preliminary injunction to enjoin the merger, which motionplaintiffs’ interim fee petition was deniedheld on June 25, 2007.3, 2008. The Delaware court granted the plaintiffs’ interim fee petition, awarding the plaintiffs $800,000 in attorneys’ fees and expenses, and the Company subsequently satisfied that order. On July 6, 2007,September 2, 2008, the plaintiff filed an amended complaint. On August 3, 2007,Delaware court issued a written ruling granting the court dismissed the AREP Entities from the case without prejudice. On August 31, 2007, the court dismissed the Lear Defendants without prejudice.defendants’ motion to dismiss. The plaintiffs had until October 2, 2008, to appeal that ruling and did not file a notice of appeal. Plaintiffs no longer have any rights to appeal, and this matter is now concluded.
Although the Company records reserves for legal disputes, product liability and warranty claims and environmental and other matters in accordance with SFAS No. 5, “Accounting for Contingencies,” the ultimate outcomes of these matters are inherently uncertain. Actual results may differ significantly from current estimates.
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The Company is involved from time to time in certainvarious other legal actionsproceedings and claims, arising in the ordinary course of business, including, without limitation, commercial and contractual disputes, intellectual property matters, personal injury claims, tax claims and employment matters. Although the outcome of any legal matter cannot be predicted with certainty, the Company does not believe that any of these other legal proceedings or mattersclaims in which the Company is currently involved, either individually or in the aggregate, will have a material adverse effect on its business, consolidated financial position, results of operations or cash flows.
Employees
Approximately 78%69% of the Company’s employees are members of industrial trade unions and are employed under the terms of collective bargaining agreements. Collective bargaining agreements covering approximately 64%62% of the Company’s unionized workforce of approximately 73,00055,000 employees, including 21%38% of the Company’s unionized workforce in the United States and Canada, are scheduled to expire in 2008.2009. Management does not anticipate any significant difficulties with respect to the agreements as they are renewed.
Lease Commitments
A summary of lease commitments as of December 31, 2007,2008, under non-cancelable operating leases with terms exceeding one year is shown below (in millions):
| | | | | | | | | |
| 2008 | | $ | 86.0 | | |
| 2009 | | | 70.7 | | | $ | 77.3 | |
| 2010 | | | 53.1 | | | | 61.1 | |
| 2011 | | | 40.3 | | | | 46.1 | |
| 2012 | | | 32.0 | | | | 33.5 | |
| 2013 and thereafter | | | 75.9 | | |
| 2013 | | | | 29.1 | |
| 2014 and thereafter | | | | 58.2 | |
| | | | | | | |
| Total | | $ | 358.0 | | | $ | 305.3 | |
| | | | | | | |
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company’s operating leases cover principally buildings and transportation equipment. Rent expense was $109.8 million, $110.2 million $133.8 million and $136.1$133.8 million for the years ended December 31, 2008, 2007 2006 and 2005,2006, respectively.
Historically, the Company has had three reportable operating segments: seating, electrical and electronic and interior. The seating segment includes seat systems and the components thereof. The electrical and electronic segment includes electrical distribution systems and electronic products, primarily wire harnesses;harnesses, junction boxes, terminals and connectors, various electronic control modules, as well as audio sound systems and in-vehicle television and video entertainment systems. The interior segment, which has been divested, included instrument panels and cockpit systems, headliners and overhead systems, door panels, flooring and acoustic systems and other interior products. See Note 4, “Divestiture of Interior Business.”
Each of the Company’s operating segments reports its results from operations and makes its requests for capital expenditures directly to the chief operating decision-making group. The economic performance of each operating segment is driven primarily by automobileautomotive production volumes in the geographic regions in which it operates, as well as by the success of the vehicle platforms for which it supplies products. Also, each operating segment operates in the competitive tier I automotive supplier environment and is continually working with its customers to manage costs and improve quality. The Company’s manufacturing facilities generally usejust-in-time manufacturing techniques to produce and distribute their automotive products. The Company’s production processes generally make use of unskilled labor, dedicated facilities, sequential manufacturing processes and commodity raw materials.
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Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The Other category includes theunallocated costs related to corporate headquarters, geographic headquarters and the elimination of intercompany activities, none of which meets the requirements of being classified as an operating segment.
The accounting policies of the Company’s operating segments are the same as those described in Note 2, “Summary of Significant Accounting Policies.” The Company evaluates the performance of its operating segments based primarily on (i) revenues from external customers, (ii) income (loss) before goodwill impairment charges, divestiture of interiorInterior business, interest expense, other expense, provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle (“segment earnings”) and (iii) cash flows, being defined as segment earnings less capital expenditures plus depreciation and amortization.
A summary of revenues from external customers and other financial information by reportable operating segment is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | 2008 | |
| | | | | Electrical
| | | | | | | | | | | Electrical
| | | | | |
| | | Seating | | and Electronic | | Interior | | Other | | Consolidated | | | Seating | | and Electronic | | Other | | Consolidated | |
| |
| Revenues from external customers | | $ | 12,206.1 | | | $ | 3,100.0 | | | $ | 688.9 | | | $ | — | | | $ | 15,995.0 | | | $ | 10,726.9 | | | $ | 2,843.6 | | | $ | — | | | $ | 13,570.5 | |
| Segment earnings(1) | | | 758.7 | | | | 40.8 | | | | 8.2 | | | | (233.9 | ) | | | 573.8 | | | | 386.7 | | | | 44.7 | | | | (200.6 | ) | | | 230.8 | |
| Depreciation and amortization | | | 169.7 | | | | 110.3 | | | | 2.3 | | | | 14.6 | | | | 296.9 | | | | 176.2 | | | | 108.7 | | | | 14.4 | | | | 299.3 | |
| Capital expenditures | | | 114.9 | | | | 80.3 | | | | 1.2 | | | | 5.8 | | | | 202.2 | | | | 106.3 | | | | 60.8 | | | | 0.6 | | | | 167.7 | |
| Total assets | | | 4,292.6 | | | | 2,241.8 | | | | — | | | | 1,266.0 | | | | 7,800.4 | | | | 3,349.5 | | | | 1,385.7 | | | | 2,137.7 | | | | 6,872.9 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 2006 | |
| | | | | | Electrical
| | | | | | | | | | |
| | | Seating | | | and Electronic | | | Interior | | | Other | | | Consolidated | |
| |
| Revenues from external customers | | $ | 11,624.8 | | | $ | 2,996.9 | | | $ | 3,217.2 | | | $ | — | | | $ | 17,838.9 | |
| Segment earnings(1) | | | 604.0 | | | | 102.5 | | | | (183.8 | ) | | | (241.7 | ) | | | 281.0 | |
| Depreciation and amortization | | | 167.3 | | | | 110.1 | | | | 93.8 | | | | 21.0 | | | | 392.2 | |
| Capital expenditures | | | 161.1 | | | | 77.0 | | | | 98.7 | | | | 10.8 | | | | 347.6 | |
| Total assets | | | 4,040.1 | | | | 2,214.4 | | | | 515.3 | | | | 1,080.7 | | | | 7,850.5 | |
105
Lear Corporation and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | |
| | | | | | Electrical
| | | | | | | | | | |
| | | Seating | | | and Electronic | | | Interior | | | Other | | | Consolidated | |
| |
| Revenues from external customers | | $ | 11,035.0 | | | $ | 2,956.6 | | | $ | 3,097.6 | | | $ | — | | | $ | 17,089.2 | |
| Segment earnings(1) | | | 323.3 | | | | 180.0 | | | | (191.1 | ) | | | (206.8 | ) | | | 105.4 | |
| Depreciation and amortization | | | 150.7 | | | | 106.0 | | | | 116.6 | | | | 20.1 | | | | 393.4 | |
| Capital expenditures | | | 229.2 | | | | 102.9 | | | | 190.9 | | | | 45.4 | | | | 568.4 | |
| Total assets | | | 3,985.2 | | | | 2,122.4 | | | | 1,506.8 | | | | 674.0 | | | | 8,288.4 | |
Notes to Consolidated Financial Statements (continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | |
| | | | | | Electrical
| | | | | | | | | | |
| | | Seating | | | and Electronic | | | Interior | | | Other | | | Consolidated | |
| |
| Revenues from external customers | | $ | 12,206.1 | | | $ | 3,100.0 | | | $ | 688.9 | | | $ | — | | | $ | 15,995.0 | |
| Segment earnings(1) | | | 758.7 | | | | 40.8 | | | | 8.2 | | | | (233.9 | ) | | | 573.8 | |
| Depreciation and amortization | | | 169.7 | | | | 110.3 | | | | 2.3 | | | | 14.6 | | | | 296.9 | |
| Capital expenditures | | | 114.9 | | | | 80.3 | | | | 1.2 | | | | 5.8 | | | | 202.2 | |
| Total assets | | | 4,292.6 | | | | 2,241.8 | | | | — | | | | 1,266.0 | | | | 7,800.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 2006 | |
| | | | | | Electrical
| | | | | | | | | | |
| | | Seating | | | and Electronic | | | Interior | | | Other | | | Consolidated | |
| |
| Revenues from external customers | | $ | 11,624.8 | | | $ | 2,996.9 | | | $ | 3,217.2 | | | $ | — | | | $ | 17,838.9 | |
| Segment earnings(1) | | | 604.0 | | | | 102.5 | | | | (183.8 | ) | | | (241.7 | ) | | | 281.0 | |
| Depreciation and amortization | | | 167.3 | | | | 110.1 | | | | 93.8 | | | | 21.0 | | | | 392.2 | |
| Capital expenditures | | | 161.1 | | | | 77.0 | | | | 98.7 | | | | 10.8 | | | | 347.6 | |
| Total assets | | | 4,040.1 | | | | 2,214.4 | | | | 515.3 | | | | 1,080.7 | | | | 7,850.5 | |
The prior years’ reportable operating segment information has been reclassified to reflect the current organizational structure of the Company.
108
Lear CorporationFor the year ended December 31, 2008, segment earnings include restructuring charges of $124.6 million, $23.0 million and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)$23.5 million in the seating and electrical and electronic segments and in the other category, respectively (Note 6, “Restructuring”).
For the year ended December 31, 2007, segment earnings include restructuring charges of $86.4 million, $62.4 million, $5.0 million and $15.0 million in the seating, electrical and electronic and interior segments and in the other category, respectively (Note 6, “Restructuring”).
For the year ended December 31, 2006, segment earnings include restructuring charges of $39.9 million, $42.6 million, $10.1 million and $6.5 million in the seating, electrical and electronic and interior segments and in the other category, respectively (Note 6, “Restructuring”). In addition, 2006 segment earnings include additional fixed asset impairment charges of $10.0 million in the interior segment (Note 2, “Summary of Significant Accounting Policies”).
For the year ended December 31, 2005, segment earnings includes restructuring charges of $30.9 million, $30.0 million, $27.9 million and $2.0 million in the seating, electrical and electronic and interior segments and in the other category, respectively. In addition, 2005 segment earnings include additional fixed asset impairment charges of $82.3 million in the interior segment.
A reconciliation of consolidated income before goodwill impairment charges, divestiture of interiorInterior business, interest expense, other expense, provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principal to income (loss) before provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and effect of a change in accounting principle is shown below (in millions):
| | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | | 2006 | | | 2005 | |
| |
| Segment earnings | | $ | 807.7 | | | $ | 522.7 | | | $ | 312.2 | |
| Corporate and geographic headquarters and elimination of intercompany activity (“Other”) | | | (233.9 | ) | | | (241.7 | ) | | | (206.8 | ) |
| | | | | | | | | | | | | |
| Income before goodwill impairment charges, divestiture of Interior business, interest, other expense, provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle | | | 573.8 | | | | 281.0 | | | | 105.4 | |
| Goodwill impairment charges | | | — | | | | 2.9 | | | | 1,012.8 | |
| Divestiture of Interior business | | | 10.7 | | | | 636.0 | | | | — | |
| Interest expense | | | 199.2 | | | | 209.8 | | | | 183.2 | |
| Other expense, net | | | 40.7 | | | | 85.7 | | | | 38.0 | |
| | | | | | | | | | | | | |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries and equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle | | $ | 323.2 | | | $ | (653.4 | ) | | $ | (1,128.6 | ) |
| | | | | | | | | | | | | |
109106
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle is shown below (in millions):
| | | | | | | | | | | | | |
For the Year Ended December 31, | | 2008 | | | 2007 | | | 2006 | |
| |
| Segment earnings | | $ | 431.4 | | | $ | 807.7 | | | $ | 522.7 | |
| Corporate and geographic headquarters and elimination of intercompany activity (“Other”) | | | (200.6 | ) | | | (233.9 | ) | | | (241.7 | ) |
| | | | | | | | | | | | | |
| Income before goodwill impairment charges, divestiture of Interior business, interest expense, other expense, provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle | | | 230.8 | | | | 573.8 | | | | 281.0 | |
| Goodwill impairment charges | | | 530.0 | | | | — | | | | 2.9 | |
| Divestiture of Interior business | | | — | | | | 10.7 | | | | 636.0 | |
| Interest expense | | | 190.3 | | | | 199.2 | | | | 209.8 | |
| Other expense, net | | | 51.9 | | | | 40.7 | | | | 85.7 | |
| | | | | | | | | | | | | |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries, equity in net (income) loss of affiliates and cumulative effect of a change in accounting principle | | $ | (541.4 | ) | | $ | 323.2 | | | $ | (653.4 | ) |
| | | | | | | | | | | | | |
Revenues from external customers and tangible long-lived assets for each of the geographic areas in which the Company operates is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Revenues from external customers: | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 4,526.8 | | | $ | 6,624.3 | | | $ | 6,252.2 | | | $ | 2,820.0 | | | $ | 4,526.8 | | | $ | 6,624.3 | |
| Canada | | | 1,148.8 | | | | 1,375.3 | | | | 1,374.1 | | | | 716.3 | | | | 1,148.8 | | | | 1,375.3 | |
| Germany | | | 2,336.9 | | | | 2,034.3 | | | | 2,123.4 | | | | 2,516.0 | | | | 2,336.9 | | | | 2,034.3 | |
| Mexico | | | 1,542.8 | | | | 1,789.5 | | | | 1,595.6 | | | | 1,337.4 | | | | 1,542.8 | | | | 1,789.5 | |
| Other countries | | | 6,439.7 | | | | 6,015.5 | | | | 5,743.9 | | | | 6,180.8 | | | | 6,439.7 | | | | 6,015.5 | |
| | | | | | | | | | | | | | | |
| Total | | $ | 15,995.0 | | | $ | 17,838.9 | | | $ | 17,089.2 | | | $ | 13,570.5 | | | $ | 15,995.0 | | | $ | 17,838.9 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| |
| Tangible long-lived assets: | | | | | | | | | | | | | | | | |
| United States | | $ | 406.6 | | | $ | 472.6 | | | $ | 311.7 | | | $ | 406.6 | |
| Canada | | | 42.4 | | | | 51.5 | | | | 26.0 | | | | 42.4 | |
| Germany | | | 175.4 | | | | 161.3 | | | | 158.3 | | | | 175.4 | |
| Mexico | | | 184.1 | | | | 168.2 | | | | 173.6 | | | | 184.1 | |
| Other countries | | | 584.2 | | | | 618.1 | | | | 543.9 | | | | 584.2 | |
| | | | | | | | | | | |
| Total | | $ | 1,392.7 | | | $ | 1,471.7 | | | $ | 1,213.5 | | | $ | 1,392.7 | |
| | | | | | | | | | | |
A substantial majority of the Company’s consolidated and reportable operating segment revenues are from four automotive manufacturing companies, with General Motors and Ford and their respective affiliates accounting for 49%42%, 55%49% and 53%55% of the Company’s net sales in 2008, 2007 2006 and 2005,2006, respectively. Excluding net sales to Saab, Volvo, Jaguar and Land Rover, which either are or were affiliates of General Motors orand Ford, General Motors
107
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
and Ford accounted for approximately 42%37%, 47%42% and 44%47% of the Company’s net sales in 2008, 2007 2006 and 2005,2006, respectively. The following is a summary of the percentage of revenues from major customers:
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| General Motors Corporation | | | 28.8 | % | | | 31.9 | % | | | 28.3 | % | | | 23.1 | % | | | 28.8 | % | | | 31.9 | % |
Ford Motor Company | | | 20.6 | | | | 22.6 | | | | 24.7 | | | | 19.1 | | | | 20.6 | | | | 22.6 | |
DaimlerChrysler(1)(2) | | | N/A | | | | 10.3 | | | | 11.4 | | | | N/A | | | | N/A | | | | 10.3 | |
| BMW | | | 9.9 | | | | 7.4 | | | | 7.6 | | | | 11.5 | | | | 9.9 | | | | 7.4 | |
| | |
| (1) | | In 2007, Excludes sales to Jaguar and Land Rover in 2008. |
|
| (2) | | Chrysler was divested by Daimler.Daimler in 2007. |
In addition, a portion of the Company’s remaining revenues are from the above automotive manufacturing companies through various other automotive suppliers.
| |
| (15) | Financial Instruments |
The carrying values of the Company’s primary credit facility and senior notes vary from their fair values. The fair values were determined by reference to the quoted market prices of these securities. As of December 31, 2007 and 2006,2008, the aggregate carrying value of the Company’s primary credit facility and senior notes was $1.4$3.5 billion, as compared to an estimated fair value of $1.3 billion. As of December 31, 2007, the aggregate carrying value of the Company’s primary credit facility and 2006,senior notes was $2.4 billion, as compared to an estimated fair value of $2.3 billion. As of December 31, 2008 and 2007, the carrying values of the Company’s other senior indebtedness and other financial instruments approximated their fair values, which were determined based on related instruments currently available to the Company for similar borrowings with like maturities.
110
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Certain of the Company’s European and Asian subsidiaries periodically factor their accounts receivable with financial institutions. Such receivables are factored without recourse to the Company and are excluded from accounts receivable in the accompanying consolidated balance sheets. AsIn the second quarter of December 31, 20072008, certain of the Company’s European subsidiaries entered into extended factoring agreements, which provide for aggregate purchases of specified customer accounts receivable of up to €315 million through April 30, 2011. The level of funding utilized under these European factoring facilities is based on the credit ratings of each specified customer. In addition, the facility provider can elect to discontinue the facility in the event that the Company’s corporate credit rating declines below B- by Standard & Poor’s Ratings Services. In January 2009, Standard and December 31, 2006,Poor’s Ratings Services downgraded the amountCompany’s corporate credit rating to CCC+ from B-, and in February 2009, the use of factored receivablesthese facilities was $103.5 million and $256.3 million, respectively.suspended. The Company cannot provide any assurances that these or any other factoring facilities will be available or utilized in the future. As of December 31, 2008 and December 31, 2007, the amount of factored receivables was $143.8 million and $103.5 million, respectively. As of March 31, 2009, no receivables are expected to be factored under the European factoring facilities.
Asset-Backed Securitization Facility
ThePrior to April 30, 2008, the Company and several of its U.S. subsidiaries sellsold certain accounts receivable to a wholly owned, consolidated, bankruptcy-remote special purpose corporation (Lear ASC Corporation) under an asset-backed securitization facility (the “ABS facility”). In turn, Lear ASC Corporation transferstransferred undivided interests in up to $150 million of the receivables to bank-sponsored commercial paper conduits. The level of funding utilized under thisABS facility is basedexpired on the credit ratings of the Company’s major customers, the level of aggregate accounts receivable in a specific monthApril 30, 2008, and the Company’s funding requirements. Should the Company’s major customers experience further reductions in their credit ratings, the Company may be unable or choosedid not to utilize the ABS facility in the future. Should this occur, the Company would utilize its primary credit facility to replace the funding provided by the ABS facility. In addition, the ABS facility providers can elect to discontinuerenew the program in the event the Company’s senior secured debt credit rating declines to below B- or B3 by Standard & Poor’s Ratings Services or Moody’s Investors Service, respectively. In October 2007 the ABS facility was amended to extend the termination date from October 2007 to April 2008. No assurances can be given that the ABS facility will be extended upon its maturity.existing facility.
The Company retainsretained a subordinated ownership interest in the pool of receivables sold to Lear ASC Corporation. This retained interest iswas recorded at fair value, which iswas generally based on a discounted cash flow analysis. As of December 31, 2007, and December 31, 2006, accounts receivable totaling $543.7 million and $568.6 million, respectively, had been transferred to Lear ASC Corporation, but no
108
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
undivided interests in the receivables were transferred to the conduits. As such, these retained interests are included in accounts receivable in the accompanying consolidated balance sheets.sheet as of December 31, 2007.
During the years ended December 31, 2008, 2007 2006 and 2005,2006, the Company and its subsidiaries sold to Lear ASC Corporation adjusted accounts receivable totaling $1.2 billion, $3.5 billion $4.4 billion and $4.2$4.4 billion, respectively, under the ABS facility and recognized discounts and other related fees of $0.3 million, $0.7 million $8.0 million and $4.7$8.0 million, respectively. These discounts and other related fees are included in other expense, net in the accompanying consolidated statements of operations for the years ended December 31, 2008, 2007 2006 and 2005.2006. The Company continues to service the transferred receivables and receivesreceived an annual servicing fee of 1.0% of the sold accounts receivable. The conduit investors and Lear ASC Corporation havehad no recourse to the other assets of the Company or its subsidiaries for the failure of the accounts receivable obligors to pay timely on the accounts receivable.
Certain cash flows received from and paid to Lear ASC Corporation are shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the Year Ended December 31, | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| |
| Proceeds from (repayments of) securitizations | | $ | — | | | $ | (150.0 | ) | | $ | 150.0 | | |
| Repayments of securitizations | | | $ | — | | | $ | — | | | $ | (150.0 | ) |
| Proceeds from collections reinvested in securitizations | | | 3,509.8 | | | | 4,476.2 | | | | 4,288.1 | | | | 1,214.4 | | | | 3,509.8 | | | | 4,476.2 | |
| Servicing fees received | | | 4.8 | | | | 6.1 | | | | 5.3 | | | | 1.7 | | | | 4.8 | | | | 6.1 | |
Under the provisions of FASB Interpretation (“FIN”) No.FIN 46R, “Consolidation of Variable Interest Entities,” Lear ASC Corporation iswas deemed to be a variable interest entity. Theentity and the accounts of this entity have historically beenwere included in the consolidated financial statements of the Company, as this entity is a wholly owned subsidiary of Lear.Company. In addition, the bank conduits, which purchasepurchased undivided interests in the Company’s sold accounts receivable, arewere variable interest entities. Under the current ABS facility, theThe provisions of FIN No. 46R dodid not require the Company to consolidate any of the bank conduits’ assets or liabilities.
111
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to manage its exposures to fluctuations in foreign exchange, interest rates and commodity prices. The use of these derivative financial instruments mitigates the Company’s exposure to these risks and the resulting variability of the Company’s operating results. The Company is not a party to leveraged derivatives. On the date a derivative contract is entered into, the Company designates the derivative as either (1) a hedge of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge) or (3) a hedge of a net investment in a foreign operation (a net investment hedge).
For a fair value hedge, both the effective and ineffective portions of the change in the fair value of the derivative are recorded in earnings and reflected in the consolidated statement of operations on the same line as the gain or loss on the hedged item attributable to the hedged risk. For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive income (loss) in the consolidated balance sheet. When the underlying hedged transaction is realized, the gain or loss included in accumulated other comprehensive income (loss) is recorded in earnings and reflected in the consolidated statement of operations on the same line as the gain or loss on the hedged item attributable to the hedged risk. For a net investment hedge of a foreign operation, the effective portion of the change in the fair value of the derivative is recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive income (loss) in the consolidated balance sheet. In addition, for both cash flow and net investment hedges, changes in the fair value excluded from the Company’s effectiveness assessments and the ineffective portion of changes in the fair value are recorded in earnings and reflected in the consolidated statement of operations as other expense, net.
The Company formally documents its hedge relationships, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded at fair value in other current and long-term assets and other current and
109
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
long-term liabilities in the consolidated balance sheet. This process includes linking derivatives that are designated as hedges of specific assets, liabilities, firm commitments or forecasted transactions. The Company also formally assesses, both at inception and at least quarterly thereafter, whether a derivative used in a hedging transaction is highly effective in offsetting changes in either the fair value or the cash flows of the hedged item. When it is determined that a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting.
Forward foreign exchange, futures and option contracts — — The Company uses forward foreign exchange, futures and option contracts to reduce the effect of fluctuations in foreign exchange rates on short-term, foreign currency denominated intercompany transactions and other known foreign currency exposures. Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuations in foreign exchange rates. The principal currencies hedged by the Company include the Mexican peso and various European currencies. Forward foreign exchange, futures and option contracts are accounted for as cash flow hedges when the hedged item is a forecasted transaction or relates to the variability of cash flows to be received or paid relates to a recognized asset or liability.paid. As of December 31, 20072008 and 2006,2007, contracts designated as cash flow hedges with $554.4$483.6 million and $464.9$554.4 million, respectively, of notional amount were outstanding with maturities of less than twelve12 months. As of December 31, 20072008 and 2006,2007, the fair market value of these contracts was approximately $10.5negative $53.5 million and $15.0$10.5 million, respectively. As of December 31, 2008 and 2007, and 2006, other foreign currency derivative contracts that did not qualify for hedge accounting had a totalwith $49.6 million and $107.0 million, respectively, of notional amount outstanding of $107.0 and $346.7 million, respectively.were outstanding. These foreign currency derivative contracts consist principally of cash transactions between three and thirty days, hedges of intercompany loans and hedges of certain other balance sheet exposures. As of December 31, 20072008 and 2006,2007, the fair market value of these contracts was approximately $0.1 million and $0.7 million, and $1.6 million respectively. As of December 31, 2008, the contract, or settlement, value of these contracts was approximately negative $65.3 million.
Interest rate swap and other derivative contracts —The Company uses interest rate swap and other derivative contracts to manage its exposure to fluctuations in interest rates. Interest rate swap and other derivative contracts
112
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
which fix the interest payments of certain variable rate debt instruments or fix the market rate component of anticipated fixed rate debt instruments are accounted for as cash flow hedges. Interest rate swap contracts which hedge the change in fair market value of certain fixed rate debt instruments are accounted for as fair value hedges. As of December 31, 2008 and 2007, contracts with $750.0 million and 2006, the total$600.0 million, respectively, of notional amount of interest rate swap and other derivative contractswere outstanding with maturities prior tothrough September 2011 was $600.0 and $800.0 million, respectively. As of December 31, 2007 and 2006, the fair market value of these contracts was approximately negative $17.8 million and negative $2.7 million, respectively.2011. All of these contracts modify the variable rate characteristics of the Company’s variable rate debt instruments, which are generally set at either one-month or three-month LIBOR rates, such that the interest rates do not exceed a weighted average of 5.323%4.64%. As of December 31, 2008 and 2007, the fair value of these contracts was approximately negative $23.2 million and negative $17.8 million, respectively. The fair market value of all outstanding interest rate swap and other derivative contracts is subject to changes in value due to changes in interest rates. As of December 31, 2008, the contract, or settlement, value of outstanding interest rate contracts was approximately negative $34.6 million. In February 2009, the Company elected to settle certain of its outstanding interest rate contracts representing $435.0 million of notional amount with a payment of $20.7 million.
Commodity swap contracts —The Company uses derivative instruments to manage the volatility associated withreduce its exposure to fluctuations in certain commodity prices. These derivativesderivative instruments are utilized to hedge forecasted inventory purchases and to the extent that they qualify and meet special hedge accounting criteria, they are accounted for as cash flow hedges. All other commodity derivativeswap contracts that are not designated as hedges are marked to market with changes in the fair value recognized immediatelyrecorded in the consolidated statement of operations.earnings immediately. As of December 31, 2008 and December 31, 2007, contracts with $40.9 million and 2006, the total$48.7 million, respectively, of notional amount of commodity swap contractswere outstanding with maturities of less than 12 monthsmonths. As of December 31, 2008 and December 31, 2007, the fair value of these contracts was $48.7negative $18.0 million and $5.8negative $4.3 million, respectively. As of December 31, 2007 and 2006,2008, the fair marketcontract, or settlement, value of theseoutstanding commodity swap contracts was approximately negative $4.3 million$21.6 million.
As described in Note 9, “Long-Term Debt,” a default under the Company’s primary credit facility could result in a cross-default or the acceleration of its payment obligations under other financing agreements. In connection
110
Lear Corporation and negative $0.9 million, respectively.Subsidiaries
Notes to Consolidated Financial Statements (continued)
with the default under the primary credit facility as of December 31, 2008, in February 2009, one such counterparty provided the Company with notice of early termination of certain foreign exchange and interest rate and commodity swap contracts. The aggregate settlement amount claimed by the counterparty is $35.2 million.
As of December 31, 2008 and 2007, and 2006, net gains (losses)losses of approximately $(5.5)$80.8 million and $14.7$5.5 million, respectively, related to derivative instruments andthe Company’s hedging activities were recorded in accumulated other comprehensive income (loss). During the years ended December 31, 2008, 2007 2006 and 2005,2006, net gains (losses) of approximately $8.3 million, $27.1 million $(2.2) million and $33.5$(2.2) million, respectively, related to the Company’s hedging activities were reclassified from accumulated other comprehensive income (loss) into earnings. During the year ending December 31, 2008,2009, the Company expects to reclassify into earnings net gainslosses of approximately $3.2$76.2 million recorded in accumulated other comprehensive loss.loss as of December 31, 2008. Such gainslosses will be reclassified at the time that the underlying hedged transactions are realized. During the years ended December 31, 2008, 2007 2006 and 2005,2006, amounts recognized in the consolidated statements of operations related to changes in the fair value of cash flow and fair value hedges were excluded from the Company’s effectiveness assessments and the ineffective portion of changes in the fair value of cash flow and fair value hedges were not material.
Non-U.S. dollar financing transactions —The Company designated its Euro-denominated senior notes (Note 9, “Long-Term Debt”) as a net investment hedge of long-term investments in its Euro-functional subsidiaries. As of December 31, 2007,2008, the amount recorded in accumulated other comprehensive income (loss) related to the effective portion of the net investment hedge of foreign operations was approximately negative $154.9$160.6 million. SuchAlthough the Euro-denominated senior notes were repaid on April 1, 2008, this amount will be included in accumulated other comprehensive lossincome (loss) until the Company liquidates its related net investment in its designated foreign operations.
| |
(16) | Quarterly Financial Data (Unaudited) |
| | | | | | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | |
| | | March 31,
| | | June 30,
| | | September 29,
| | | December 31,
| |
| | | 2007 | | | 2007 | | | 2007 | | | 2007 | |
| | | (In millions except per share data) | |
| |
| Net sales | | $ | 4,406.1 | | | $ | 4,155.3 | | | $ | 3,574.6 | | | $ | 3,859.0 | |
| Gross profit | | | 310.9 | | | | 337.6 | | | | 267.3 | | | | 232.7 | |
| Divestiture of Interior business | | | 25.6 | | | | (0.7 | ) | | | (17.1 | ) | | | 2.9 | |
| Net income | | | 49.9 | | | | 123.6 | | | | 41.0 | | | | 27.0 | |
| Basic net income per share | | | 0.65 | | | | 1.61 | | | | 0.53 | | | | 0.35 | |
| Diluted net income per share | | | 0.64 | | | | 1.58 | | | | 0.52 | | | | 0.34 | |
113
Lear Corporation and Subsidiaries
Fair Value Measurements
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | |
| | | April 1,
| | | July 1,
| | | September 30,
| | | December 31,
| |
| | | 2006 | | | 2006 | | | 2006 | | | 2006 | |
| |
| Net sales | | $ | 4,678.5 | | | $ | 4,810.2 | | | $ | 4,069.7 | | | $ | 4,280.5 | |
| Gross profit | | | 219.2 | | | | 284.1 | | | | 186.8 | | | | 237.6 | |
| Goodwill impairment charges | | | — | | | | 2.9 | | | | — | | | | — | |
| Divestiture of Interior business | | | — | | | | — | | | | 28.7 | | | | 607.3 | |
| Income (loss) before cumulative effect of a change in accounting principle | | | 15.0 | | | | (6.4 | ) | | | (74.0 | ) | | | (645.0 | ) |
| Net income (loss) | | | 17.9 | | | | (6.4 | ) | | | (74.0 | ) | | | (645.0 | ) |
| Basic net income (loss) per share before cumulative effect of a change in accounting principle | | | 0.22 | | | | (0.10 | ) | | | (1.10 | ) | | | (8.90 | ) |
| Basic net income (loss) per share | | | 0.27 | | | | (0.10 | ) | | | (1.10 | ) | | | (8.90 | ) |
| Diluted net income (loss) per share before cumulative effect of a change in accounting principle | | | 0.22 | | | | (0.10 | ) | | | (1.10 | ) | | | (8.90 | ) |
| Diluted net income (loss) per share | | | 0.26 | | | | (0.10 | ) | | | (1.10 | ) | | | (8.90 | ) |
| |
(17) | Accounting Pronouncements |
Financial Instruments — The FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140.” This statement resolves issues related to the application of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to beneficial interests in securitized assets. The provisions of this statement were to be applied prospectively to all financial instruments acquired or issued during fiscal years beginning after September 15, 2006. The effects of adoption were not significant.
The FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140.” This statement requires that all servicing assets and liabilities be initially measured at fair value. The provisions of this statement were to be applied prospectively to all servicing transactions beginning after September 15, 2006. The effects of adoption were not significant.
The FASBAccounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Company adopted the provisions of this statementSFAS No. 157 for its financial assets and liabilities and certain of its nonfinancial assets and liabilities that are to generally be applied prospectivelymeasuredand/or disclosed at fair value on a recurring basis as of January 1, 2008. The provisions of SFAS No. 157 are effective for nonfinancial assets and liabilities that are measuredand/or disclosed at fair value on a nonrecurring basis in the fiscal year beginning January 1,after November 15, 2008. Other than the newly required disclosures, the Company does not expect the effects of adoption to be significant.
SFAS No. 157 clarifies that fair value is an exit price, defined as a market-based measurement that represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are based on one or more of the following three valuation techniques noted in SFAS No. 157:
Market: This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Income: This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations.
Cost: This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).
SFAS No. 157 prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows:
Level 1: Observable inputs, such as quoted market prices in active markets for the identical asset or liability that are accessible at the measurement date.
111
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Level 2: Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability.
Level 3: Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date.
Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’s assets and liabilities measured or disclosed at fair value as of December 31, 2008, are shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | |
| | | | | Asset
| | | Valuation
| | | | | | | | | |
| | | Frequency | | (Liability) | | | Technique | | Level 1 | | | Level 2 | | | Level 3 | |
| |
| Derivative instruments | | Recurring | | $ | (94.6 | ) | | Market/Income | | $ | — | | | $ | 7.1 | | | $ | (101.7 | ) |
| Equity method investment | | Non-recurring | | | 16.6 | | | Income | | | — | | | | — | | | | 16.6 | |
| Goodwill | | Non-recurring | | | 232.3 | | | Income | | | — | | | | — | | | | 232.3 | |
See Note 2, “Summary of Significant Accounting Policies,” and Note 7, “Investments in Affiliates and Other Related Party Transactions,” for further information on the fair value measurements of goodwill and one of the Company’s equity method investments.
A reconciliation of changes in assets and liabilities related to derivative instruments measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2008, is shown below (in millions):
| | | | | |
| Balance as of January 1, 2008 | | $ | — | |
| Transfers into Level 3 | | | (101.7 | ) |
| | | | | |
| Balance as of December 31, 2008 | | $ | (101.7 | ) |
| | | | | |
| |
| (16) | Quarterly Financial Data (unaudited) |
| | | | | | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | |
| | | March 29,
| | | June 28,
| | | September 27,
| | | December 31,
| |
| | | 2008 | | | 2008 | | | 2008 | | | 2008 | |
| | | (In millions, except per share data) | |
| |
| Net sales | | $ | 3,857.6 | | | $ | 3,979.0 | | | $ | 3,133.5 | | | $ | 2,600.4 | |
| Gross profit | | | 296.1 | | | | 261.1 | | | | 128.7 | | | | 58.1 | |
| Goodwill impairment charges | | | — | | | | — | | | | — | | | | 530.0 | |
| Net income (loss) | | | 78.2 | | | | 18.3 | | | | (98.2 | ) | | | (688.2 | ) |
| Basic net income (loss) per share | | | 1.01 | | | | 0.24 | | | | (1.27 | ) | | | (8.91 | ) |
| Diluted net income (loss) per share | | | 1.00 | | | | 0.23 | | | | (1.27 | ) | | | (8.91 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | |
| | | March 31,
| | | June 30,
| | | September 29,
| | | December 31,
| |
| | | 2007 | | | 2007 | | | 2007 | | | 2007 | |
| | | (In millions, except per share data) | |
| |
| Net sales | | $ | 4,406.1 | | | $ | 4,155.3 | | | $ | 3,574.6 | | | $ | 3,859.0 | |
| Gross profit | | | 310.9 | | | | 337.6 | | | | 267.3 | | | | 232.7 | |
| Divestiture of Interior business | | | 25.6 | | | | (0.7 | ) | | | (17.1 | ) | | | 2.9 | |
| Net income | | | 49.9 | | | | 123.6 | | | | 41.0 | | | | 27.0 | |
| Basic net income per share | | | 0.65 | | | | 1.61 | | | | 0.53 | | | | 0.35 | |
| Diluted net income per share | | | 0.64 | | | | 1.58 | | | | 0.52 | | | | 0.34 | |
112
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| |
| (17) | Accounting Pronouncements |
Fair Value Measurements — The FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115.” This statement provides entities with the option to measure eligible financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The provisions of this statement are effective as of the beginning of an entity’sthe first fiscal year beginning after November 15, 2007. Currently, theThe Company doesdid not intend to apply the provisions of SFAS No. 159 to any of its existing financial assets or liabilities.
Pension and Other Postretirement Benefits —The FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” The Company adopted the funded status recognition provisions of SFAS No. 158 as of December 31, 2006. For a discussion of the effects of adopting the recognition provisions of SFAS No. 158, see Note 11, “Pension and Other Postretirement Benefit Plans.”
114
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
This statement also requires the measurement of defined benefit plan asset and liabilities as of the annual balance sheet date. Currently, the Company measures its plan assets and liabilities using an early measurement date of September 30, as allowed by the original provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The measurement date provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2008. The Company will adopt the measurement date provisions of SFAS No. 158 in 2008 using the fifteen month measurement approach, under which the Company will record an adjustment to beginning retained deficit as of January 1, 2008 to recognize the net periodic benefit cost for the period October 1, 2007 through December 31, 2007. This adjustment will represent a pro rata portion of the net periodic benefit cost determined for the period beginning October 1, 2007 and ending December 31, 2008. The Company expects to record a pretax transition adjustment of $8.7 million as an increase to beginning retained deficit, $1.5 million as an increase to other comprehensive income (loss) and $7.2 as an increase to other long-term liabilities.
The Emerging Issues Task Force (“EITF”) issued EITF IssueNo. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.”EITF 06-4 requires the recognition of a liability, in accordance with SFAS No. 106, for endorsement split-dollar life insurance arrangements that provide postretirement benefits. This EITF is effective for fiscal periods beginning after December 15, 2007. In accordance with the EITF’s transition provisions, the Company expects to record approximately $3.5 million as a cumulative effect of a change in accounting principle as of January 1, 2008. The cumulative effect adjustment will be recorded as a reduction to beginning stockholders’ equity and an increase to other long-term liabilities. In addition, the Company expects to record additional postretirement benefit expenses of $0.2 million in 2008 associated with the adoption of this EITF.
Business Combinations and Noncontrolling Interests — The FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” This statement significantly changes the financial accounting for and reporting of business combination transactions. The provisions of this statement are to be applied prospectively to business combination transactions in the first annual reporting period beginning on or after December 15, 2008. The Company will evaluate the impact of this statement on future business combinations.
The FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests in subsidiaries. This statement requires the reporting of all noncontrolling interests as a separate component of stockholders’ equity, the reporting of consolidated net income (loss) as the amount attributable to both the parent and the noncontrolling interests and the separate disclosure of net income (loss) attributable to the parent and net income attributable to the noncontrolling interests. In addition, this statement provides accounting and reporting guidance related to changes in noncontrolling ownership interests. Other thanWith the exception of the reporting requirements described above which require retrospective application, the provisions of SFAS No. 160 are to be applied prospectively in the first annual reporting period beginning on or after December 15, 2008. As of December 31, 20072008 and 2006,2007, noncontrolling interests of $26.8$48.9 million and $38.0$26.8 million, respectively, were recorded in other long-term liabilities onin the Company’saccompanying consolidated balance sheets. The Company’s consolidated statements of operations for the years ended December 31, 2008, 2007 2006 and 20052006, reflect expense of $25.5 million, $25.6 million $18.3 million and $7.2$18.3 million, respectively, related to net income attributable to noncontrolling interests.
Derivative Instruments and Hedging Activities — The FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures regarding (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, performance and cash flows. The provisions of this statement are effective for the fiscal year and interim periods beginning after November 15, 2008. The Company is currently evaluating the provisions of this statement.
Hierarchy of Generally Accepted Accounting Principles — The FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the accounting principles to be used in the preparation of financial statements presented in conformity with generally accepted accounting principles in the United States. This statement was effective sixty days after approval by the Securities and Exchange Commission in September 2008. The effects of adoption were not significant.
113
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| |
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements |
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2008 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | (In millions) | |
| |
ASSETS |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,310.6 | | | $ | 3.9 | | | $ | 277.6 | | | $ | — | | | $ | 1,592.1 | |
| Accounts receivable | | | 0.9 | | | | 155.4 | | | | 1,054.4 | | | | — | | | | 1,210.7 | |
| Inventories | | | 5.6 | | | | 111.5 | | | | 415.1 | | | | — | | | | 532.2 | |
| Other | | | 30.3 | | | | 23.3 | | | | 285.6 | | | | — | | | | 339.2 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 1,347.4 | | | | 294.1 | | | | 2,032.7 | | | | — | | | | 3,674.2 | |
| | | | | | | | | | | | | | | | | | | | | |
LONG-TERM ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Property, plant and equipment, net | | | 131.3 | | | | 165.3 | | | | 916.9 | | | | — | | | | 1,213.5 | |
| Goodwill, net | | | 454.5 | | | | 290.1 | | | | 736.0 | | | | — | | | | 1,480.6 | |
| Investments in subsidiaries | | | 3,607.6 | | | | 3,940.6 | | | | — | | | | (7,548.2 | ) | | | — | |
| Other | | | 218.8 | | | | 23.1 | | | | 262.7 | | | | — | | | | 504.6 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total long-term assets | | | 4,412.2 | | | | 4,419.1 | | | | 1,915.6 | | | | (7,548.2 | ) | | | 3,198.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 5,759.6 | | | $ | 4,713.2 | | | $ | 3,948.3 | | | $ | (7,548.2 | ) | | $ | 6,872.9 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | $ | — | | | $ | 2.1 | | | $ | 40.4 | | | $ | — | | | $ | 42.5 | |
| Primary credit facility | | | 2,177.0 | | | | — | | | | — | | | | — | | | | 2,177.0 | |
| Accounts payable and drafts | | | 68.7 | | | | 163.9 | | | | 1,221.3 | | | | — | | | | 1,453.9 | |
| Accrued liabilities | | | 129.7 | | | | 188.7 | | | | 613.7 | | | | — | | | | 932.1 | |
| Current portion of long-term debt | | | — | | | | — | | | | 4.3 | | | | — | | | | 4.3 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 2,375.4 | | | | 354.7 | | | | 1,879.7 | | | | — | | | | 4,609.8 | |
| | | | | | | | | | | | | | | | | | | | | |
LONG-TERM LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 1,291.8 | | | | — | | | | 11.2 | | | | — | | | | 1,303.0 | |
| Intercompany accounts, net | | | 1,728.5 | | | | 933.1 | | | | (2,661.6 | ) | | | — | | | | — | |
| Other | | | 165.0 | | | | 155.7 | | | | 440.5 | | | | — | | | | 761.2 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total long-term liabilities | | | 3,185.3 | | | | 1,088.8 | | | | (2,209.9 | ) | | | — | | | | 2,064.2 | |
| | | | | | | | | | | | | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | 198.9 | | | | 3,269.7 | | | | 4,278.5 | | | | (7,548.2 | ) | | | 198.9 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 5,759.6 | | | $ | 4,713.2 | | | $ | 3,948.3 | | | $ | (7,548.2 | ) | | $ | 6,872.9 | |
| | | | | | | | | | | | | | | | | | | | | |
114
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2007 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | (In millions) | |
| |
ASSETS |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 189.9 | | | $ | 6.1 | | | $ | 405.3 | | | $ | — | | | $ | 601.3 | |
| Accounts receivable | | | 10.0 | | | | 229.8 | | | | 1,907.8 | | | | — | | | | 2,147.6 | |
| Inventories | | | 11.7 | | | | 104.8 | | | | 489.0 | | | | — | | | | 605.5 | |
| Other | | | 67.4 | | | | 36.3 | | | | 259.9 | | | | — | | | | 363.6 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 279.0 | | | | 377.0 | | | | 3,062.0 | | | | — | | | | 3,718.0 | |
| | | | | | | | | | | | | | | | | | | | | |
LONG-TERM ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Property, plant and equipment, net | | | 170.5 | | | | 220.5 | | | | 1,001.7 | | | | — | | | | 1,392.7 | |
| Goodwill, net | | | 454.5 | | | | 551.2 | | | | 1,048.3 | | | | — | | | | 2,054.0 | |
| Investments in subsidiaries | | | 4,558.7 | | | | 3,703.2 | | | | — | | | | (8,261.9 | ) | | | — | |
| Other | | | 240.1 | | | | 17.3 | | | | 378.3 | | | | — | | | | 635.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total long-term assets | | | 5,423.8 | | | | 4,492.2 | | | | 2,428.3 | | | | (8,261.9 | ) | | | 4,082.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 5,702.8 | | | $ | 4,869.2 | | | $ | 5,490.3 | | | $ | (8,261.9 | ) | | $ | 7,800.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | $ | — | | | $ | 2.1 | | | $ | 11.8 | | | $ | — | | | $ | 13.9 | |
| Accounts payable and drafts | | | 117.3 | | | | 291.7 | | | | 1,854.8 | | | | — | | | | 2,263.8 | |
| Accrued liabilities | | | 202.3 | | | | 219.1 | | | | 808.7 | | | | — | | | | 1,230.1 | |
| Current portion of long-term debt | | | 87.0 | | | | — | | | | 9.1 | | | | — | | | | 96.1 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 406.6 | | | | 512.9 | | | | 2,684.4 | | | | — | | | | 3,603.9 | |
| | | | | | | | | | | | | | | | | | | | | |
LONG-TERM LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 2,331.0 | | | | — | | | | 13.6 | | | | — | | | | 2,344.6 | |
| Intercompany accounts, net | | | 1,751.8 | | | | (7.1 | ) | | | (1,744.7 | ) | | | — | | | | — | |
| Other | | | 122.7 | | | | 124.7 | | | | 513.8 | | | | — | | | | 761.2 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total long-term liabilities | | | 4,205.5 | | | | 117.6 | | | | (1,217.3 | ) | | | — | | | | 3,105.8 | |
| | | | | | | | | | | | | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | 1,090.7 | | | | 4,238.7 | | | | 4,023.2 | | | | (8,261.9 | ) | | | 1,090.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 5,702.8 | | | $ | 4,869.2 | | | $ | 5,490.3 | | | $ | (8,261.9 | ) | | $ | 7,800.4 | |
| | | | | | | | | | | | | | | | | | | | | |
115
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
| |
(18) | Supplemental Guarantor Condensed Consolidating Financial Statements |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2008 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | (In millions) | |
| |
| Net sales | | $ | 479.7 | | | $ | 3,392.1 | | | $ | 13,317.3 | | | $ | (3,618.6 | ) | | $ | 13,570.5 | |
| Cost of sales | | | 565.1 | | | | 3,331.9 | | | | 12,548.1 | | | | (3,618.6 | ) | | | 12,826.5 | |
| Selling, general and administrative expenses | | | 153.3 | | | | 22.5 | | | | 337.4 | | | | — | | | | 513.2 | |
| Goodwill impairment charges | | | — | | | | 261.0 | | | | 269.0 | | | | — | | | | 530.0 | |
| Interest (income) expense | | | 157.7 | | | | 69.3 | | | | (36.7 | ) | | | — | | | | 190.3 | |
| Intercompany (income) expense, net | | | (193.7 | ) | | | 16.6 | | | | 177.1 | | | | — | | | | — | |
| Other (income) expense, net | | | (5.4 | ) | | | 6.7 | | | | 50.6 | | | | — | | | | 51.9 | |
| | | | | | | | | | | | | | | | | | | | | |
| Loss before provision for income taxes, minority interests in consolidated subsidiaries and equity in net (income) loss of affiliates and subsidiaries | | | (197.3 | ) | | | (315.9 | ) | | | (28.2 | ) | | | — | | | | (541.4 | ) |
| Provision for income taxes | | | 11.5 | | | | 11.0 | | | | 63.3 | | | | — | | | | 85.8 | |
| Minority interests in consolidated subsidiaries | | | — | | | | — | | | | 25.5 | | | | — | | | | 25.5 | |
| Equity in net (income) loss of affiliates | | | 4.4 | | | | (4.1 | ) | | | 36.9 | | | | — | | | | 37.2 | |
| Equity in net (income) loss of subsidiaries | | | 476.7 | | | | (76.7 | ) | | | — | | | | (400.0 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (689.9 | ) | | $ | (246.1 | ) | | $ | (153.9 | ) | | $ | 400.0 | | | $ | (689.9 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2007 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | | | | | | | (In millions) | | | | | | | |
| |
ASSETS | | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 189.9 | | | $ | 6.1 | | | $ | 405.3 | | | $ | — | | | $ | 601.3 | |
| Accounts receivable | | | 10.0 | | | | 229.8 | | | | 1,907.8 | | | | — | | | | 2,147.6 | |
| Inventories | | | 11.7 | | | | 104.8 | | | | 489.0 | | | | — | | | | 605.5 | |
| Other | | | 67.4 | | | | 36.3 | | | | 259.9 | | | | — | | | | 363.6 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 279.0 | | | | 377.0 | | | | 3,062.0 | | | | — | | | | 3,718.0 | |
| | | | | | | | | | | | | | | | | | | | | |
LONG-TERM ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Property, plant and equipment, net | | | 170.5 | | | | 220.5 | | | | 1,001.7 | | | | — | | | | 1,392.7 | |
| Goodwill, net | | | 454.5 | | | | 551.2 | | | | 1,048.3 | | | | — | | | | 2,054.0 | |
| Investments in subsidiaries | | | 4,558.7 | | | | 3,599.2 | | | | — | | | | (8,157.9 | ) | | | — | |
| Other | | | 240.1 | | | | 17.3 | | | | 378.3 | | | | — | | | | 635.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total long-term assets | | | 5,423.8 | | | | 4,388.2 | | | | 2,428.3 | | | | (8,157.9 | ) | | | 4,082.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 5,702.8 | | | $ | 4,765.2 | | | $ | 5,490.3 | | | $ | (8,157.9 | ) | | $ | 7,800.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | $ | — | | | $ | 2.1 | | | $ | 11.8 | | | $ | — | | | $ | 13.9 | |
| Accounts payable and drafts | | | 117.3 | | | | 291.7 | | | | 1,854.8 | | | | — | | | | 2,263.8 | |
| Other accrued liabilities | | | 202.3 | | | | 219.1 | | | | 808.7 | | | | — | | | | 1,230.1 | |
| Current portion of long-term debt | | | 87.0 | | | | — | | | | 9.1 | | | | — | | | | 96.1 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 406.6 | | | | 512.9 | | | | 2,684.4 | | | | — | | | | 3,603.9 | |
| | | | | | | | | | | | | | | | | | | | | |
LONG-TERM LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 2,331.0 | | | | — | | | | 13.6 | | | | — | | | | 2,344.6 | |
| Intercompany accounts, net | | | 1,751.8 | | | | (7.1 | ) | | | (1,744.7 | ) | | | — | | | | — | |
| Other | | | 122.7 | | | | 124.7 | | | | 513.8 | | | | — | | | | 761.2 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total long-term liabilities | | | 4,205.5 | | | | 117.6 | | | | (1,217.3 | ) | | | — | | | | 3,105.8 | |
| | | | | | | | | | | | | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | 1,090.7 | | | | 4,134.7 | | | | 4,023.2 | | | | (8,157.9 | ) | | | 1,090.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 5,702.8 | | | $ | 4,765.2 | | | $ | 5,490.3 | | | $ | (8,157.9 | ) | | $ | 7,800.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2007 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | (In millions) | |
| |
| Net sales | | $ | 963.2 | | | $ | 5,004.7 | | | $ | 14,150.3 | | | $ | (4,123.2 | ) | | $ | 15,995.0 | |
| Cost of sales | | | 970.1 | | | | 4,819.3 | | | | 13,180.3 | | | | (4,123.2 | ) | | | 14,846.5 | |
| Selling, general and administrative expenses | | | 195.4 | | | | 29.7 | | | | 349.6 | | | | — | | | | 574.7 | |
| Divestiture of Interior business | | | (31.8 | ) | | | 28.1 | | | | 14.4 | | | | — | | | | 10.7 | |
| Interest (income) expense | | | 99.1 | | | | 112.3 | | | | (12.2 | ) | | | — | | | | 199.2 | |
| Intercompany (income) expense, net | | | (160.8 | ) | | | 30.0 | | | | 130.8 | | | | — | | | | — | |
| Other (income) expense, net | | | 10.0 | | | | 39.3 | | | | (8.6 | ) | | | — | | | | 40.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries and equity in net income of affiliates and subsidiaries | | | (118.8 | ) | | | (54.0 | ) | | | 496.0 | | | | — | | | | 323.2 | |
| Provision for income taxes | | | 20.7 | | | | 1.5 | | | | 67.7 | | | | — | | | | 89.9 | |
| Minority interests in consolidated subsidiaries | | | — | | | | 0.8 | | | | 24.8 | | | | — | | | | 25.6 | |
| Equity in net income of affiliates | | | (7.2 | ) | | | (1.5 | ) | | | (25.1 | ) | | | — | | | | (33.8 | ) |
| Equity in net income of subsidiaries | | | (373.8 | ) | | | (176.4 | ) | | | — | | | | 550.2 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 241.5 | | | $ | 121.6 | | | $ | 428.6 | | | $ | (550.2 | ) | | $ | 241.5 | |
| | | | | | | | | | | | | | | | | | | | | |
116
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2006 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | | | | | | | (In millions) | | | | | | | |
| |
ASSETS | | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 195.8 | | | $ | 4.0 | | | $ | 302.9 | | | $ | — | | | $ | 502.7 | |
| Accounts receivable | | | 12.7 | | | | 243.5 | | | | 1,750.7 | | | | — | | | | 2,006.9 | |
| Inventories | | | 15.2 | | | | 136.9 | | | | 429.4 | | | | — | | | | 581.5 | |
| Current assets of business held for sale | | | 77.1 | | | | 217.1 | | | | 133.6 | | | | — | | | | 427.8 | |
| Other | | | 45.9 | | | | 29.9 | | | | 295.6 | | | | — | | | | 371.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 346.7 | | | | 631.4 | | | | 2,912.2 | | | | — | | | | 3,890.3 | |
| | | | | | | | | | | | | | | | | | | | | |
LONG-TERM ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Property, plant and equipment, net | | | 230.9 | | | | 284.1 | | | | 956.7 | | | | — | | | | 1,471.7 | |
| Goodwill, net | | | 454.5 | | | | 551.1 | | | | 991.1 | | | | — | | | | 1,996.7 | |
| Investments in subsidiaries | | | 3,691.2 | | | | 3,258.7 | | | | — | | | | (6,949.9 | ) | | | — | |
| Other | | | 233.7 | | | | 24.1 | | | | 234.0 | | | | — | | | | 491.8 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total long-term assets | | | 4,610.3 | | | | 4,118.0 | | | | 2,181.8 | | | | (6,949.9 | ) | | | 3,960.2 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 4,957.0 | | | $ | 4,749.4 | | | $ | 5,094.0 | | | $ | (6,949.9 | ) | | $ | 7,850.5 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | $ | — | | | $ | — | | | $ | 39.3 | | | $ | — | | | $ | 39.3 | |
| Accounts payable and drafts | | | 157.0 | | | | 395.7 | | | | 1,764.7 | | | | — | | | | 2,317.4 | |
| Other accrued liabilities | | | 322.3 | | | | 145.8 | | | | 631.2 | | | | — | | | | 1,099.3 | |
| Current liabilities of business held for sale | | | 60.4 | | | | 226.1 | | | | 119.2 | | | | — | | | | 405.7 | |
| Current portion of long-term debt | | | 6.0 | | | | — | | | | 19.6 | | | | — | | | | 25.6 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 545.7 | | | | 767.6 | | | | 2,574.0 | | | | — | | | | 3,887.3 | |
| | | | | | | | | | | | | | | | | | | | | |
LONG-TERM LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 2,413.2 | | | | — | | | | 21.3 | | | | — | | | | 2,434.5 | |
| Long-term liabilities of business held for sale | | | — | | | | 0.1 | | | | 48.4 | | | | — | | | | 48.5 | |
| Intercompany accounts, net | | | 1,193.7 | | | | 503.1 | | | | (1,696.8 | ) | | | — | | | | — | |
| Other | | | 202.4 | | | | 176.5 | | | | 499.3 | | | | — | | | | 878.2 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total long-term liabilities | | | 3,809.3 | | | | 679.7 | | | | (1,127.8 | ) | | | — | | | | 3,361.2 | |
| | | | | | | | | | | | | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | 602.0 | | | | 3,302.1 | | | | 3,647.8 | | | | (6,949.9 | ) | | | 602.0 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 4,957.0 | | | $ | 4,749.4 | | | $ | 5,094.0 | | | $ | (6,949.9 | ) | | $ | 7,850.5 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2006 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | (In millions) | |
| |
| Net sales | | $ | 1,580.3 | | | $ | 6,889.8 | | | $ | 12,729.4 | | | $ | (3,360.6 | ) | | $ | 17,838.9 | |
| Cost of sales | | | 1,691.5 | | | | 6,755.6 | | | | 11,824.7 | | | | (3,360.6 | ) | | | 16,911.2 | |
| Selling, general and administrative expenses | | | 240.5 | | | | 75.0 | | | | 331.2 | | | | — | | | | 646.7 | |
| Goodwill impairment charges | | | — | | | | 2.9 | | | | — | | | | — | | | | 2.9 | |
| Divestiture of Interior business | | | 240.4 | | | | 259.6 | | | | 136.0 | | | | — | | | | 636.0 | |
| Interest (income) expense | | | (114.4 | ) | | | 126.1 | | | | 198.1 | | | | — | | | | 209.8 | |
| Intercompany (income) expense, net | | | (281.2 | ) | | | 77.4 | | | | 203.8 | | | | — | | | | — | |
| Other expense, net | | | 27.6 | | | | 48.8 | | | | 9.3 | | | | — | | | | 85.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before provision (benefit) for income taxes, minority interests in consolidated subsidiaries and equity in net (income) loss of affiliates and subsidiaries | | | (224.1 | ) | | | (455.6 | ) | | | 26.3 | | | | — | | | | (653.4 | ) |
| Provision (benefit) for income taxes | | | 5.4 | | | | (67.4 | ) | | | 116.9 | | | | — | | | | 54.9 | |
| Minority interests in consolidated subsidiaries | | | — | | | | — | | | | 18.3 | | | | — | | | | 18.3 | |
| Equity in net (income) loss of affiliates | | | (12.7 | ) | | | (5.2 | ) | | | 1.7 | | | | — | | | | (16.2 | ) |
| Equity in net (income) loss of subsidiaries | | | 493.6 | | | | (21.8 | ) | | | — | | | | (471.8 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Loss before cumulative effect of a change in accounting principle | | | (710.4 | ) | | | (361.2 | ) | | | (110.6 | ) | | | 471.8 | | | | (710.4 | ) |
| Cumulative effect of a change in accounting principle | | | 2.9 | | | | — | | | | — | | | | — | | | | 2.9 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (707.5 | ) | | $ | (361.2 | ) | | $ | (110.6 | ) | | $ | 471.8 | | | $ | (707.5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
117
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2007 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | | | | | | | (In millions) | | | | | | | |
| |
| Net sales | | $ | 963.2 | | | $ | 5,004.7 | | | $ | 14,150.3 | | | $ | (4,123.2 | ) | | $ | 15,995.0 | |
| Cost of sales | | | 970.1 | | | | 4,819.3 | | | | 13,180.3 | | | | (4,123.2 | ) | | | 14,846.5 | |
| Selling, general and administrative expenses | | | 195.4 | | | | 29.7 | | | | 349.6 | | | | — | | | | 574.7 | |
| Divestiture of Interior business | | | (31.8 | ) | | | 28.1 | | | | 14.4 | | | | — | | | | 10.7 | |
| Interest (income) expense | | | 99.1 | | | | 112.3 | | | | (12.2 | ) | | | — | | | | 199.2 | |
| Intercompany (income) expense, net | | | (160.8 | ) | | | 30.0 | | | | 130.8 | | | | — | | | | — | |
| Other (income) expense, net | | | 10.0 | | | | 39.3 | | | | (8.6 | ) | | | — | | | | 40.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes, minority interests in consolidated subsidiaries and equity in net income of affiliates and subsidiaries | | | (118.8 | ) | | | (54.0 | ) | | | 496.0 | | | | — | | | | 323.2 | |
| Provision for income taxes | | | 20.7 | | | | 1.5 | | | | 67.7 | | | | — | | | | 89.9 | |
| Minority interests in consolidated subsidiaries | | | — | | | | 0.8 | | | | 24.8 | | | | — | | | | 25.6 | |
| Equity in net income of affiliates | | | (7.2 | ) | | | (1.5 | ) | | | (25.1 | ) | | | — | | | | (33.8 | ) |
| Equity in net income of subsidiaries | | | (373.8 | ) | | | (158.0 | ) | | | — | | | | 531.8 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 241.5 | | | $ | 103.2 | | | $ | 428.6 | | | $ | (531.8 | ) | | $ | 241.5 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2006 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | | | | | | | (In millions) | | | | | | | |
| |
| Net sales | | $ | 1,580.3 | | | $ | 6,889.8 | | | $ | 12,729.4 | | | $ | (3,360.6 | ) | | $ | 17,838.9 | |
| Cost of sales | | | 1,691.5 | | | | 6,755.6 | | | | 11,824.7 | | | | (3,360.6 | ) | | | 16,911.2 | |
| Selling, general and administrative expenses | | | 240.5 | | | | 75.0 | | | | 331.2 | | | | — | | | | 646.7 | |
| Goodwill impairment charges | | | — | | | | 2.9 | | | | — | | | | — | | | | 2.9 | |
| Divestiture of Interior business | | | 240.4 | | | | 259.6 | | | | 136.0 | | | | — | | | | 636.0 | |
| Interest (income) expense | | | (114.4 | ) | | | 126.1 | | | | 198.1 | | | | — | | | | 209.8 | |
| Intercompany (income) expense, net | | | (281.2 | ) | | | 77.4 | | | | 203.8 | | | | — | | | | — | |
| Other expense, net | | | 27.6 | | | | 48.8 | | | | 9.3 | | | | — | | | | 85.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before provision (benefit) for income taxes, minority interests in consolidated subsidiaries and equity in net (income) loss of affiliates and subsidiaries | | | (224.1 | ) | | | (455.6 | ) | | | 26.3 | | | | — | | | | (653.4 | ) |
| Provision (benefit) for income taxes | | | 5.4 | | | | (67.4 | ) | | | 116.9 | | | | — | | | | 54.9 | |
| Minority interests in consolidated subsidiaries | | | — | | | | — | | | | 18.3 | | | | — | | | | 18.3 | |
| Equity in net (income) loss of affiliates | | | (12.7 | ) | | | (5.2 | ) | | | 1.7 | | | | — | | | | (16.2 | ) |
| Equity in net (income) loss of subsidiaries | | | 493.6 | | | | (80.9 | ) | | | — | | | | (412.7 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Loss before cumulative effect of a change in accounting principle | | | (710.4 | ) | | | (302.1 | ) | | | (110.6 | ) | | | 412.7 | | | | (710.4 | ) |
| Cumulative effect of a change in accounting principle | | | 2.9 | | | | — | | | | — | | | | — | | | | 2.9 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (707.5 | ) | | $ | (302.1 | ) | | $ | (110.6 | ) | | $ | 412.7 | | | $ | (707.5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2008 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | (In millions) | |
| |
Net Cash Provided by (Used in) Operating Activities | | $ | (182.7 | ) | | $ | (154.6 | ) | | $ | 481.5 | | | $ | — | | | $ | 144.2 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (5.9 | ) | | | (12.4 | ) | | | (149.4 | ) | | | — | | | | (167.7 | ) |
| Cost of acquisitions, net of cash acquired | | | — | | | | (4.8 | ) | | | (23.1 | ) | | | — | | | | (27.9 | ) |
| Net proceeds from disposition of businesses and other assets | | | 3.7 | | | | 41.3 | | | | 6.9 | | | | — | | | | 51.9 | |
| Other, net | | | (10.2 | ) | | | (14.1 | ) | | | 23.6 | | | | — | | | | (0.7 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) investing activities | | | (12.4 | ) | | | 10.0 | | | | (142.0 | ) | | | — | | | | (144.4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | | | | | |
| Repayment/repurchase of senior notes | | | (133.5 | ) | | | — | | | | — | | | | — | | | | (133.5 | ) |
| Primary credit facility borrowings, net | | | 1,186.0 | | | | — | | | | — | | | | — | | | | 1,186.0 | |
| Other long-term debt repayments, net | | | (17.8 | ) | | | — | | | | (5.1 | ) | | | — | | | | (22.9 | ) |
| Short-term debt borrowings, net | | | — | | | | — | | | | 12.6 | | | | — | | | | 12.6 | |
| Change in intercompany accounts | | | 313.4 | | | | 127.4 | | | | (440.8 | ) | | | — | | | | — | |
| Other, net | | | (32.3 | ) | | | (1.1 | ) | | | (2.1 | ) | | | — | | | | (35.5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 1,315.8 | | | | 126.3 | | | | (435.4 | ) | | | — | | | | 1,006.7 | |
| | | | | | | | | | | | | | | | | | | | | |
| Effect of foreign currency translation | | | — | | | | 16.1 | | | | (31.8 | ) | | | — | | | | (15.7 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | | 1,120.7 | | | | (2.2 | ) | | | (127.7 | ) | | | — | | | | 990.8 | |
Cash and Cash Equivalents at Beginning of Year | | | 189.9 | | | | 6.1 | | | | 405.3 | | | | — | | | | 601.3 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year | | $ | 1,310.6 | | | $ | 3.9 | | | $ | 277.6 | | | $ | — | | | $ | 1,592.1 | |
| | | | | | | | | | | | | | | | | | | | | |
118
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2005 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | | | | | | | (In millions) | | | | | | | |
| |
| Net sales | | $ | 1,657.2 | | | $ | 6,599.0 | | | $ | 11,350.1 | | | $ | (2,517.1 | ) | | $ | 17,089.2 | |
| Cost of sales | | | 1,727.4 | | | | 6,568.4 | | | | 10,574.5 | | | | (2,517.1 | ) | | | 16,353.2 | |
| Selling, general and administrative expenses | | | 309.6 | | | | 2.8 | | | | 318.2 | | | | — | | | | 630.6 | |
| Goodwill impairment charges | | | — | | | | 1,012.8 | | | | — | | | | — | | | | 1,012.8 | |
| Interest expense | | | 45.9 | | | | 94.2 | | | | 43.1 | | | | — | | | | 183.2 | |
| Intercompany (income) expense, net | | | (373.7 | ) | | | 308.2 | | | | 65.5 | | | | — | | | | — | |
| Other expense, net | | | 6.4 | | | | 19.4 | | | | 12.2 | | | | — | | | | 38.0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before provision (benefit) for income taxes, minority interests in consolidated subsidiaries and equity in net (income) loss of affiliates and subsidiaries | | | (58.4 | ) | | | (1,406.8 | ) | | | 336.6 | | | | — | | | | (1,128.6 | ) |
| Provision (benefit) for income taxes | | | 270.2 | | | | (140.6 | ) | | | 64.7 | | | | — | | | | 194.3 | |
| Minority interests in consolidated subsidiaries | | | — | | | | — | | | | 7.2 | | | | — | | | | 7.2 | |
| Equity in net (income) loss of affiliates | | | 40.6 | | | | (3.5 | ) | | | 14.3 | | | | — | | | | 51.4 | |
| Equity in net (income) loss of subsidiaries | | | 1,012.3 | | | | (190.8 | ) | | | — | | | | (821.5 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (1,381.5 | ) | | $ | (1,071.9 | ) | | $ | 250.4 | | | $ | 821.5 | | | $ | (1,381.5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2007 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | (In millions) | |
| |
Net Cash Provided by (Used in) Operating Activities | | $ | (202.0 | ) | | $ | 27.3 | | | $ | 641.6 | | | $ | — | | | $ | 466.9 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (12.8 | ) | | | (32.0 | ) | | | (157.4 | ) | | | — | | | | (202.2 | ) |
| Cost of acquisitions, net of cash acquired | | | — | | | | (9.3 | ) | | | (24.1 | ) | | | — | | | | (33.4 | ) |
| Divestiture of Interior business | | | (34.4 | ) | | | (12.9 | ) | | | (53.6 | ) | | | — | | | | (100.9 | ) |
| Net proceeds from disposition of businesses and other assets | | | 2.4 | | | | 2.0 | | | | 5.6 | | | | — | | | | 10.0 | |
| Other, net | | | — | | | | — | | | | (13.5 | ) | | | — | | | | (13.5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (44.8 | ) | | | (52.2 | ) | | | (243.0 | ) | | | — | | | | (340.0 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | | | | | |
| Repurchase of senior notes | | | (2.9 | ) | | | — | | | | — | | | | — | | | | (2.9 | ) |
| Primary credit facility repayments, net | | | (6.0 | ) | | | — | | | | — | | | | — | | | | (6.0 | ) |
| Other long-term debt borrowings (repayments), net | | | 1.3 | | | | — | | | | (22.8 | ) | | | — | | | | (21.5 | ) |
| Short-term debt borrowings (repayments), net | | | — | | | | 2.1 | | | | (12.3 | ) | | | — | | | | (10.2 | ) |
| Proceeds from the exercise of stock options | | | 7.6 | | | | — | | | | — | | | | — | | | | 7.6 | |
| Change in intercompany accounts | | | 244.0 | | | | 27.9 | | | | (271.9 | ) | | | — | | | | — | |
| Other, net | | | (3.1 | ) | | | (1.6 | ) | | | (12.1 | ) | | | — | | | | (16.8 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 240.9 | | | | 28.4 | | | | (319.1 | ) | | | — | | | | (49.8 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Effect of foreign currency translation | | | — | | | | (1.4 | ) | | | 22.9 | | | | — | | | | 21.5 | |
| | | | | | | | | | | | | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | | (5.9 | ) | | | 2.1 | | | | 102.4 | | | | — | | | | 98.6 | |
Cash and Cash Equivalents at Beginning of Year | | | 195.8 | | | | 4.0 | | | | 302.9 | | | | — | | | | 502.7 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year | | $ | 189.9 | | | $ | 6.1 | | | $ | 405.3 | | | $ | — | | | $ | 601.3 | |
| | | | | | | | | | | | | | | | | | | | | |
119
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)(continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2007 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | | | | | | | (In millions) | | | | | | | |
| |
Net Cash Provided by Operating Activities | | $ | (202.0 | ) | | $ | 27.3 | | | $ | 641.6 | | | $ | — | | | $ | 466.9 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (12.8 | ) | | | (32.0 | ) | | | (157.4 | ) | | | — | | | | (202.2 | ) |
| Cost of acquisitions, net of cash acquired | | | — | | | | (9.3 | ) | | | (24.1 | ) | | | — | | | | (33.4 | ) |
| Divestiture of Interior business | | | (34.4 | ) | | | (12.9 | ) | | | (53.6 | ) | | | — | | | | (100.9 | ) |
| Net proceeds from disposition of businesses and other assets | | | 2.4 | | | | 2.0 | | | | 5.6 | | | | — | | | | 10.0 | |
| Other, net | | | — | | | | — | | | | (13.5 | ) | | | — | | | | (13.5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (44.8 | ) | | | (52.2 | ) | | | (243.0 | ) | | | — | | | | (340.0 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | | | | | |
| Repayment of senior notes | | | (2.9 | ) | | | — | | | | — | | | | — | | | | (2.9 | ) |
| Primary credit facility repayments, net | | | (6.0 | ) | | | — | | | | — | | | | — | | | | (6.0 | ) |
| Other long-term debt borrowings (repayments), net | | | 1.3 | | | | — | | | | (22.8 | ) | | | — | | | | (21.5 | ) |
| Short-term debt borrowings (repayments), net | | | — | | | | 2.1 | | | | (12.3 | ) | | | — | | | | (10.2 | ) |
| Change in intercompany accounts | | | 244.0 | | | | 27.9 | | | | (271.9 | ) | | | — | | | | — | |
| Proceeds from exercise of stock options | | | 7.6 | | | | — | | | | — | | | | — | | | | 7.6 | |
| Repurchase of common stock | | | (4.4 | ) | | | — | | | | — | | | | — | | | | (4.4 | ) |
| Increase (decrease) in drafts | | | 1.3 | | | | (1.6 | ) | | | (12.1 | ) | | | — | | | | (12.4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 240.9 | | | | 28.4 | | | | (319.1 | ) | | | — | | | | (49.8 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Effect of foreign currency translation | | | — | | | | (1.4 | ) | | | 22.9 | | | | — | | | | 21.5 | |
| | | | | | | | | | | | | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | | (5.9 | ) | | | 2.1 | | | | 102.4 | | | | — | | | | 98.6 | |
Cash and Cash Equivalents at Beginning of Year | | | 195.8 | | | | 4.0 | | | | 302.9 | | | | — | | | | 502.7 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year | | $ | 189.9 | | | $ | 6.1 | | | $ | 405.3 | | | $ | — | | | $ | 601.3 | |
| | | | | | | | | | | | | | | | | | | | | |
120
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2006 | |
| | | | | | | | | Non-
| | | | | | | |
| | | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
| | | | | | | | | (In millions) | | | | | | | |
| |
Net Cash Provided by Operating Activities | | $ | 28.9 | | | $ | (102.0 | ) | | $ | 358.4 | | | $ | — | | | $ | 285.3 | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (47.8 | ) | | | (94.8 | ) | | | (205.0 | ) | | | — | | | | (347.6 | ) |
| Cost of acquisitions, net of cash acquired | | | — | | | | (24.9 | ) | | | (5.6 | ) | | | — | | | | (30.5 | ) |
| Divestiture of Interior business | | | (3.7 | ) | | | (4.7 | ) | | | (7.8 | ) | | | — | | | | (16.2 | ) |
| Net proceeds from disposition of businesses and other assets | | | 2.3 | | | | 27.2 | | | | 52.6 | | | | — | | | | 82.1 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (49.2 | ) | | | (97.2 | ) | | | (165.8 | ) | | | — | | | | (312.2 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | | | | | |
| Issuance of senior notes | | | 900.0 | | | | — | | | | — | | | | — | | | | 900.0 | |
| Repayment of senior notes | | | (1,356.9 | ) | | | — | | | | — | | | | — | | | | (1,356.9 | ) |
| Primary credit facility borrowings, net | | | 597.0 | | | | — | | | | — | | | | — | | | | 597.0 | |
| Other long-term debt repayments, net | | | (44.8 | ) | | | (10.5 | ) | | | 18.8 | | | | — | | | | (36.5 | ) |
| Short-term debt repayments, net | | | — | | | | — | | | | (11.8 | ) | | | — | | | | (11.8 | ) |
| Change in intercompany accounts | | | (102.0 | ) | | | 192.6 | | | | (90.6 | ) | | | — | | | | — | |
| Net proceeds from the sale of common stock | | | 199.2 | | | | — | | | | — | | | | — | | | | 199.2 | |
| Dividends paid | | | (16.8 | ) | | | — | | | | — | | | | — | | | | (16.8 | ) |
| Proceeds from exercise of stock options | | | 0.2 | | | | — | | | | — | | | | — | | | | 0.2 | |
| Increase (decrease) in drafts | | | 1.6 | | | | (2.3 | ) | | | 3.7 | | | | — | | | | 3.0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 177.5 | | | | 179.8 | | | | (79.9 | ) | | | — | | | | 277.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| Effect of foreign currency translation | | | — | | | | 18.6 | | | | 36.3 | | | | — | | | | 54.9 | |
| | | | | | | | | | | | | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | | 157.2 | | | | (0.8 | ) | | | 149.0 | | | | — | | | | 305.4 | |
Cash and Cash Equivalents at Beginning of Year | | | 38.6 | | | | 4.8 | | | | 153.9 | | | | — | | | | 197.3 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year | | $ | 195.8 | | | $ | 4.0 | | | $ | 302.9 | | | $ | — | | | $ | 502.7 | |
| | | | | | | | | | | | | | | | | | | | | |
121
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2005 | | | For the Year Ended December 31, 2006 | |
| | | | | | | Non-
| | | | | | | | | | | Non-
| | | | | |
| | | Parent | | Guarantors | | Guarantors | | Eliminations | | Consolidated | | | Parent | | Guarantors | | Guarantors | | Eliminations | | Consolidated | |
| | | | | | | (In millions) | | | | | | | (In millions) | |
| |
Net Cash Provided by Operating Activities | | $ | (260.7 | ) | | $ | (15.8 | ) | | $ | 837.3 | | | $ | — | | | $ | 560.8 | | |
Net Cash Provided by (Used in) Operating Activities | | | $ | 28.9 | | | $ | (102.0 | ) | | $ | 358.4 | | | $ | — | | | $ | 285.3 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (123.0 | ) | | | (235.9 | ) | | | (209.5 | ) | | | — | | | | (568.4 | ) | | | (47.8 | ) | | | (94.8 | ) | | | (205.0 | ) | | | — | | | | (347.6 | ) |
| Cost of acquisitions, net of cash acquired | | | — | | | | — | | | | (11.8 | ) | | | — | | | | (11.8 | ) | | | — | | | | (24.9 | ) | | | (5.6 | ) | | | — | | | | (30.5 | ) |
| Divestiture of Interior business | | | | (3.7 | ) | | | (4.7 | ) | | | (7.8 | ) | | | — | | | | (16.2 | ) |
| Net proceeds from disposition of businesses and other assets | | | 7.8 | | | | 16.1 | | | | 9.4 | | | | — | | | | 33.3 | | | | 2.3 | | | | 27.2 | | | | 52.6 | | | | — | | | | 82.1 | |
| Other, net | | | 1.9 | | | | 0.6 | | | | 2.8 | | | | — | | | | 5.3 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (113.3 | ) | | | (219.2 | ) | | | (209.1 | ) | | | — | | | | (541.6 | ) | | | (49.2 | ) | | | (97.2 | ) | | | (165.8 | ) | | | — | | | | (312.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Repayment of senior notes | | | (600.0 | ) | | | — | | | | — | | | | — | | | | (600.0 | ) | |
| Issuance of senior notes | | | | 900.0 | | | | — | | | | — | | | | — | | | | 900.0 | |
| Repurchase of senior notes | | | | (1,356.9 | ) | | | — | | | | — | | | | — | | | | (1,356.9 | ) |
| Primary credit facility borrowings, net | | | 400.0 | | | | — | | | | — | | | | — | | | | 400.0 | | | | 597.0 | | | | — | | | | — | | | | — | | | | 597.0 | |
| Other long-term debt repayments, net | | | (17.7 | ) | | | (2.2 | ) | | | (12.8 | ) | | | — | | | | (32.7 | ) | |
| Other long-term debt borrowings (repayments), net | | | | (44.8 | ) | | | (10.5 | ) | | | 18.8 | | | | — | | | | (36.5 | ) |
| Short-term debt repayments, net | | | — | | | | — | | | | (23.8 | ) | | | — | | | | (23.8 | ) | | | — | | | | — | | | | (11.8 | ) | | | — | | | | (11.8 | ) |
| Net proceeds from the issuance of common stock | | | | 199.2 | | | | — | | | | — | | | | — | | | | 199.2 | |
| Proceeds from the exercise of stock options | | | | 0.2 | | | | — | | | | — | | | | — | | | | 0.2 | |
| Change in intercompany accounts | | | 601.1 | | | | 234.5 | | | | (835.6 | ) | | | — | | | | — | | | | (102.0 | ) | | | 192.6 | | | | (90.6 | ) | | | — | | | | — | |
| Dividends paid | | | (67.2 | ) | | | — | | | | — | | | | — | | | | (67.2 | ) | |
| Proceeds from exercise of stock options | | | 4.7 | | | | — | | | | — | | | | — | | | | 4.7 | | |
| Repurchase of common stock | | | (25.4 | ) | | | — | | | | — | | | | — | | | | (25.4 | ) | |
| Increase (decrease) in drafts | | | (7.1 | ) | | | 1.5 | | | | 2.3 | | | | — | | | | (3.3 | ) | |
| Other, net | | | 0.7 | | | | — | | | | — | | | | — | | | | 0.7 | | | | (15.2 | ) | | | (2.3 | ) | | | 3.7 | | | | — | | | | (13.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 289.1 | | | | 233.8 | | | | (869.9 | ) | | | — | | | | (347.0 | ) | | | 177.5 | | | | 179.8 | | | | (79.9 | ) | | | — | | | | 277.4 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Effect of foreign currency translation | | | — | | | | 2.2 | | | | (62.0 | ) | | | — | | | | (59.8 | ) | | | — | | | | 18.6 | | | | 36.3 | | | | — | | | | 54.9 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | | (84.9 | ) | | | 1.0 | | | | (303.7 | ) | | | — | | | | (387.6 | ) | | | 157.2 | | | | (0.8 | ) | | | 149.0 | | | | — | | | | 305.4 | |
Cash and Cash Equivalents at Beginning of Year | | | 123.5 | | | | 3.8 | | | | 457.6 | | | | — | | | | 584.9 | | | | 38.6 | | | | 4.8 | | | | 153.9 | | | | — | | | | 197.3 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year | | $ | 38.6 | | | $ | 4.8 | | | $ | 153.9 | | | $ | — | | | $ | 197.3 | | | $ | 195.8 | | | $ | 4.0 | | | $ | 302.9 | | | $ | — | | | $ | 502.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Basis of Presentation —Certain of the Company’s wholly-owned100% owned subsidiaries (the “Guarantors”) have unconditionally fully guaranteed, on a joint and several basis, the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all of the Company’s obligations under the primary credit facility and the indentures governing the Company’s senior notes, including the Company’s obligations to pay principal, premium, if any, and interest with respect to the senior notes. The senior notes consist of $300$298.0 million aggregate principal amount of 8.50% senior notes due 2013, $600$598.3 million aggregate principal amount of 8.75% senior notes due 2016, $399.4$399.5 million aggregate principal amount of 5.75% senior notes due 2014 Euro 55.6 million aggregate principal amount of 8.125% senior notes due 2008, $41.4 million aggregate principal amount of 8.11% senior notes due 2009 and $0.8 million aggregate principal amount of zero-coupon convertible senior notes due 2022. The Company repaid its previously outstanding €55.6 million aggregate principal amount of senior notes on April 1, 2008, the maturity date. Additionally, the Company repurchased its previously outstanding $41.4 million aggregate principal amount of 8.11% senior notes due 2009 on August 4, 2008. The Guarantors under the indentures are currently Lear Automotive Dearborn, Inc., Lear Automotive (EEDS) Spain S.L., Lear Corporation EEDS and Interiors, Lear Corporation (Germany) Ltd., Lear
120
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Corporation Mexico, S. de R.L. de C.V., Lear Operations Corporation and Lear Seating Holdings Corp. #50. In lieu of providing separate financial statements for the Guarantors, the Company has included the audited supplemental guarantor condensed consolidating financial statements above. These financial statements reflect the guarantors listed above for all periods
122
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
presented. Management does not believe that separate financial statements of the Guarantors are material to investors. Therefore, separate financial statements and other disclosures concerning the Guarantors are not presented.
As of and for the years ended December 31, 20062007 and 2005,2006, the supplemental guarantor condensed consolidating financial statements have been restated to reflect certain changes to the equity investments of the guarantor subsidiaries.
Distributions —There are no significant restrictions on the ability of the Guarantors to make distributions to the Company.
Selling, General and Administrative Expenses —During 2008, 2007 2006 and 2005,2006, the Parent allocated $13.1 million, $5.7 million $50.0 million and $62.3$50.0 million, respectively, of corporate selling, general and administrative expenses to its operating subsidiaries. The allocations were based on various factors, which estimate usage of particular corporate functions, and in certain instances, other relevant factors, such as the revenues or the number of employees of the Company’s subsidiaries.
Long-Term Debt of the Parent and the Guarantors —A summary of long-term debt of the Parent and the Guarantors on a combined basis is shown below (in millions):
| | | | | | | | | | | | | | | | | |
December 31, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| |
| Primary credit facility | | $ | 991.0 | | | $ | 997.0 | | |
| Primary credit facility — revolver | | | $ | 1,192.0 | | | $ | — | |
| Primary credit facility — term loan | | | | 985.0 | | | | 991.0 | |
| Senior notes | | | 1,422.6 | | | | 1,417.6 | | | | 1,287.6 | | | | 1,422.6 | |
| Other long-term debt | | | 4.4 | | | | 4.6 | | | | 4.2 | | | | 4.4 | |
| | | | | | | | | | | |
| | | | 2,418.0 | | | | 2,419.2 | | | | 3,468.8 | | | | 2,418.0 | |
| Less — current portion | | | (87.0 | ) | | | (6.0 | ) | |
| Less — Current portion | | | | — | | | | (87.0 | ) |
| Primary credit facility | | | | 2,177.0 | | | | N/A | |
| | | | | | | | | | | |
| | | $ | 2,331.0 | | | $ | 2,413.2 | | | $ | 1,291.8 | | | $ | 2,331.0 | |
| | | | | | | | | | | |
The obligationsAs of foreign subsidiary borrowersDecember 31, 2008, the Parent had $2.2 billion in borrowings outstanding under the primary credit facility, which are guaranteed byclassified as current liabilities in the Parent.
2008 guarantor condensed consolidating balance sheet. For a more detailed description of the above indebtedness,further information, see Note 9, “Long-Term Debt.”
The aggregate minimum principal payment requirements on long-term debt of the Parent and the Guarantors, including capital lease obligations, in each of the five years subsequent to December 31, 2007,2008, are shown below (in millions):
| | | | | |
Year | | Maturities | |
| |
| 2008 | | $ | 87.0 | |
| 2009 | | | 47.4 | |
| 2010 | | | 6.0 | |
| 2011 | | | 6.0 | |
| 2012 | | | 967.0 | |
| | | | | |
Year | | Maturities | |
| |
| 2009 | | $ | — | |
| 2010 | | | 0.3 | |
| 2011 | | | 0.3 | |
| 2012 | | | 0.3 | |
| 2013 | | | 301.4 | |
123121
LEAR CORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Balance
| | | | | | | | Balance
| | | Balance
| | | | | | | | Balance
| |
| | | as of Beginning
| | | | | | Other
| | as of End
| | | as of Beginning
| | | | | | Other
| | as of End
| |
| | | | of Year | | Additions | | Retirements | | Changes | | of Year | |
| | | | (In millions) | |
| | |
| FOR THE YEAR ENDED DECEMBER 31, 2008: | | | | | | | | | | | | | | | | | | | | | |
| Valuation of accounts deducted from related assets: | | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | | $ | 16.9 | | | $ | 6.8 | | | $ | (6.0 | ) | | $ | (1.7 | ) | | $ | 16.0 | |
| Reserve for unmerchantable inventories | | | | 83.4 | | | | 28.3 | | | | (16.6 | ) | | | (1.4 | ) | | | 93.7 | |
| Restructuring reserves | | | | 74.6 | | | | 152.4 | | | | (146.4 | ) | | | — | | | | 80.6 | |
| Allowance for deferred tax assets | | | | 769.4 | | | | 221.6 | | | | (28.7 | ) | | | (34.0 | ) | | | 928.3 | |
| | | of Year | | Additions | | Retirements | | Changes | | of Year | | | | | | | | | | | | |
| | | (In millions) | | | $ | 944.3 | | | $ | 409.1 | | | $ | (197.7 | ) | | $ | (37.1 | ) | | $ | 1,118.6 | |
| | | | | | | | | | | | |
| FOR THE YEAR ENDED DECEMBER 31, 2007: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Valuation of accounts deducted from related assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 14.9 | | | $ | 8.7 | | | $ | (6.1 | ) | | $ | (0.6 | ) | | $ | 16.9 | | | $ | 14.9 | | | $ | 8.7 | | | $ | (6.1 | ) | | $ | (0.6 | ) | | $ | 16.9 | |
| Reserve for unmerchantable inventories | | | 87.1 | | | | 18.9 | | | | (27.2 | ) | | | 4.6 | | | | 83.4 | | | | 87.1 | | | | 18.9 | | | | (27.2 | ) | | | 4.6 | | | | 83.4 | |
| Restructuring reserves | | | 41.9 | | | | 150.0 | | | | (117.3 | ) | | | — | | | | 74.6 | | | | 41.9 | | | | 150.0 | | | | (117.3 | ) | | | — | | | | 74.6 | |
| Allowance for deferred tax assets | | | 843.9 | | | | 65.2 | | | | (165.3 | ) | | | 25.6 | | | | 769.4 | | | | 843.9 | | | | 65.2 | | | | (165.3 | ) | | | 25.6 | | | | 769.4 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 987.8 | | | $ | 242.8 | | | $ | (315.9 | ) | | $ | 29.6 | | | $ | 944.3 | | | $ | 987.8 | | | $ | 242.8 | | | $ | (315.9 | ) | | $ | 29.6 | | | $ | 944.3 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DECEMBER 31, 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Valuation of accounts deducted from related assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 20.4 | | | $ | 7.7 | | | $ | (12.2 | ) | | $ | (1.0 | ) | | $ | 14.9 | | | $ | 20.4 | | | $ | 7.7 | | | $ | (12.2 | ) | | $ | (1.0 | ) | | $ | 14.9 | |
| Reserve for unmerchantable inventories | | | 85.7 | | | | 28.4 | | | | (23.3 | ) | | | (3.7 | ) | | | 87.1 | | | | 85.7 | | | | 28.4 | | | | (23.3 | ) | | | (3.7 | ) | | | 87.1 | |
| Restructuring reserves | | | 25.5 | | | | 92.3 | | | | (75.9 | ) | | | — | | | | 41.9 | | | | 25.5 | | | | 92.3 | | | | (75.9 | ) | | | — | | | | 41.9 | |
| Allowance for deferred tax assets | | | 478.3 | | | | 364.6 | | | | (28.4 | ) | | | 29.4 | | | | 843.9 | | | | 478.3 | | | | 364.6 | | | | (28.4 | ) | | | 29.4 | | | | 843.9 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 609.9 | | | $ | 493.0 | | | $ | (139.8 | ) | | $ | 24.7 | | | $ | 987.8 | | | $ | 609.9 | | | $ | 493.0 | | | $ | (139.8 | ) | | $ | 24.7 | | | $ | 987.8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DECEMBER 31, 2005: | | | | | | | | | | | | | | | | | | | | | |
| Valuation of accounts deducted from related assets: | | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 26.7 | | | $ | 12.5 | | | $ | (15.8 | ) | | $ | (3.0 | ) | | $ | 20.4 | | |
| Reserve for unmerchantable inventories | | | 86.4 | | | | 33.8 | | | | (23.3 | ) | | | (11.2 | ) | | | 85.7 | | |
| Restructuring reserves | | | 20.9 | | | | 86.8 | | | | (80.3 | ) | | | (1.9 | ) | | | 25.5 | | |
| Allowance for deferred tax assets | | | 277.7 | | | | 276.3 | | | | (44.5 | ) | | | (31.2 | ) | | | 478.3 | | |
| | | | | | | | | | | | | |
| | | $ | 411.7 | | | $ | 409.4 | | | $ | (163.9 | ) | | $ | (47.3 | ) | | $ | 609.9 | | |
| | | | | | | | | | | | | |
124122
| |
| ITEM 9 — | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| |
| ITEM 9A — | CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures
| |
| (a) | Disclosure Controls and Procedures |
The Company has evaluated, under the supervision and with the participation of the Company’s management, including the Company’s Chairman, Chief Executive Officer and President along with the Company’s Senior Vice President and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. However, basedBased on thatthe evaluation described above, the Company’s Chairman, Chief Executive Officer and President along with the Company’s Senior Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the desired control objectives were achieved as of the end of the period covered by this Report.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
| |
| (b) | Management’s Annual Report on Internal Control Over Financial Reporting |
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRule 13a-15(f). Under the supervision and with the participation of the Company’s management, including the Company’s Chairman, Chief Executive Officer and President along with the Company’s Senior Vice President and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under the framework in Internal Control — Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2007.2008.
(c) Attestation Report of the Registered Public Accounting Firm
| |
| (c) | Attestation Report of the Registered Public Accounting Firm |
The attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting is set forth in Item 8, “Consolidated Financial Statements and Supplementary Data,” under the caption “Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting” and incorporated herein by reference.
(d) Changes in Internal Control over Financial Reporting
| |
| (d) | Changes in Internal Control over Financial Reporting |
There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2007,2008, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| |
| ITEM 9B — | OTHER INFORMATION |
None.Effective as of the date of filing of this annual report onForm 10-K, the Board of Directors has determined that James M. Brackenbury is no longer an executive officer of the Company, as defined under applicable Securities and Exchange Commission rules. Mr. Brackenbury will remain with the Company as Senior Vice President, Seating - Technology and Operations.
123
PART III
| |
| ITEM 10 — | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by Item 10 regarding our directors and other corporate governance matters is incorporated by reference herein to the Proxy Statement sections entitled “Election of Directors” and “Directors and Beneficial Ownership.” The information required by Item 10 regarding our executive officers appears as a supplementary item following Item 4 under Part I of this report.Report. The information required by Item 10 regarding compliance with section 16(a) of the Securities and Exchange Act of 1934, as amended, is incorporated by reference
125
to the Proxy Statement section entitled “Directors and Beneficial Ownership — Section 16(a) Beneficial Ownership Reporting Compliance.”
Code of Ethics
We have adopted a code of ethics that applies to our executive officers, including our Principal Executive Officer, our Principal Financial Officer and our Principal Accounting Officer. This code of ethics is entitled “Specific Provisions for Executive Officers” within our Code of Business Conduct and Ethics, which can be found on our website athttp://www.lear.com. We will post any amendment to or waiver from the provisions of the Code of Business Conduct and Ethics that applies to the executive officers above on the same website and will provide it to shareholders free of charge upon written request.
| |
| ITEM 11 — | EXECUTIVE COMPENSATION |
SeeThe information required by Item 11 is incorporated by reference herein to the information under theProxy Statement sections entitled “Directors and Beneficial Ownership — Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” contained in the Proxy Statement, which information is incorporated herein by reference.Report.” Notwithstanding anything indicating the contrary set forth in this Report, the “Compensation Committee Report” section of the Proxy Statement shall be deemed to be “furnished” not “filed” for purposes of the Securities Exchange Act of 1934, as amended.
| |
| ITEM 12 — | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Except as set forth herein, the information required by Item 12 is incorporated by reference herein to the Proxy Statement section entitled “Directors and Beneficial Ownership — Security Ownership of Certain Beneficial Owners and Management.”
Equity Compensation Plan Information
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Number of Securities
| | | | | | | Number of Securities
| |
| | | | | | | Available for Future
| | | | | | | Available for Future
| |
| | | Number of Securities to be
| | Weighted Average
| | Issuance Under Equity
| | | Number of Securities to be
| | Weighted Average
| | Issuance Under Equity
| |
| | | Issued Upon Exercise of
| | Exercise Price of
| | Compensation Plans
| | | Issued Upon Exercise of
| | Exercise Price of
| | Compensation Plans
| |
| | | Outstanding Options,
| | Outstanding Options,
| | (Excluding Securities
| | | Outstanding Options,
| | Outstanding Options,
| | (Excluding Securities
| |
| | | warrants and Rights
| | Warrants and Rights
| | Reflected in Column (a))
| | | warrants and Rights
| | Warrants and Rights
| | Reflected in Column (a))
| |
As of December 31, 2007 | | (a) | | (b) | | (c) | | |
As of December 31, 2008 | | | (a) | | (b) | | (c) | |
| |
| Equity compensation plans approved by security holders(1) | | | 5,940,917 | (2) | | $ | 27.23 | (3) | | | 2,640,910 | | | | 4,910,361 | (2) | | $ | 24.30 | (3) | | | 2,477,442 | |
| Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | |
| Total | | | 5,940,917 | | | $ | 27.23 | | | | 2,640,910 | | | | 4,910,361 | | | $ | 24.30 | | | | 2,477,442 | |
| | | | | | | | | | | | | | | |
| | |
| (1) | | Includes the 1996 Stock Option Plan and the Long-Term Stock Incentive Plan. |
| |
| (2) | | Includes 1,871,2301,268,180 of outstanding options, 2,179,6752,432,745 of outstanding stock-settled stock appreciation rights, 1,631,9871,040,740 of outstanding restricted stock units and 258,025168,696 of outstanding performance shares. Does not include 470,153610,791 of outstanding cash-settled stock appreciation rights. |
124
| | |
| (3) | | Reflects outstanding options at a weighted average exercise price of $41.62,$39.55, outstanding stock-settled stock appreciation rights at a weighted average exercise price of $30.61,$24.84, outstanding restricted stock units at a weighted average price of $10.51$8.41 and outstanding performance shares at a weighted average price of zero. |
126
| |
| ITEM 13 — | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by Item 13 is incorporated herein by reference herein to the Proxy Statement sections entitled “Certain Relationships and Related-Party Transactions” and “Directors and Beneficial Ownership — Independence of Directors.”
| |
| ITEM 14 — | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by Item 14 is incorporated herein by reference herein to the Proxy Statement section entitled “Fees of Independent Accountants.”
PART IV
| |
| ITEM 15 — | EXHIBITS AND FINANCIAL STATEMENT SCHEDULE |
(a) The following documents are filed as part of thisForm 10-K.
1. Consolidated Financial Statements:
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 20072008 and 20062007
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 2006 and 20052006
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008, 2007 2006 and 20052006
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 2006 and 20052006
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts
All other financial statement schedules are omitted because such schedules are not required or the information required has been presented in the aforementioned financial statements.
3. The exhibits listed on the “Index to Exhibits” on pages 129 through 136 are filed with thisForm 10-K or incorporated by reference as set forth below.
| | |
| 3. | The exhibits listed on the “Index to Exhibits” on pages 127 through 133 are filed with thisForm 10-K or incorporated by reference as set forth below. |
(b) The exhibits listed on the “Index to Exhibits” on pages 129 through 136 are filed with thisForm 10-K or incorporated by reference as set forth below.
| |
| (b) | The exhibits listed on the “Index to Exhibits” on pages 127 through 133 are filed with thisForm 10-K or incorporated by reference as set forth below. |
(c) Additional Financial Statement Schedules
None.
127125
SignaturesSIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 15, 2008.March 17, 2009.
Lear CorporationLEAR CORPORATION
| | |
| | By: | /s/ Robert E. Rossiter |
Robert E. Rossiter
Chairman, Chief Executive Officer and PresidentandPresident
and a Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Lear Corporation and in the capacities indicated on February 15, 2008.March 17, 2009.
| | | | | |
/s/ Robert E. Rossiter
| | /s/ Roy E. Parrott |
| | |
Robert E. RossiterChairmanRossiter | | Roy E. Parrott |
Chairman of the Board of Directors,
Chief Executive Officer and President and a Director
(Principal Executive Officer) | | /s/ Larry W. McCurdy
Larry W. McCurdya Director |
| | | | |
| | | | |
| | | |
/s/ James H. Vandenberghe
James H. Vandenberghe
Vice Chairman
| | /s/ Roy E. Parrott
Roy E. Parrotta Director |
/s/ Matthew J. Simoncini
| | /s/ David P. Spalding |
| | |
Matthew J. Simoncini
| | David P. Spalding |
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
| | /s/ David P. Spalding
David P. Spaldinga Director |
| | | | | |
/s/ Dr. David E. Fry
| | /s/ James A. Stern |
| | |
Dr. David E. Fry
a Director
| | /s/ James A. Stern
James A. Stern a Director |
/s/ Vincent J. Intrieri
Vincent J. Intrieri
a Director
| | |
| /s/ Conrad L. Mallett | | /s/ Henry D.G. Wallace |
| | |
Conrad L. Mallett
a Director | | Henry D.G. Wallace
a Director
|
/s/ Justice Conrad L. Mallett
Justice Conrad L. Mallett
a Director
| | |
| /s/ Larry W. McCurdy | | /s/ Richard F. Wallman |
| | |
Larry W. McCurdy
a Director | | Richard F. Wallman
a Director
|
128126
Index to Exhibits
| | | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Exhibit | Number | | Exhibit |
| |
| | 2 | .1 | | Agreement and Plan of Merger, dated February 9, 2007, by and among AREP Car Holdings Corp., AREP Car Acquisition Corp. and Lear Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report onForm 8-K/A dated February 9, 2007). | 3 | .1 | | Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended March 30, 1996). |
| | 2 | .2 | | Voting Agreement, dated February 9, 2007, by an among Lear Corporation, Icahn Partners LP, Icahn Partners Master Fund LP, Koala Holding LLC and High River Limited Partnership (incorporated by reference to Exhibit 2.2 to the Company’s Current Report onForm 8-K/A dated February 9, 2007). | 3 | .2 | | Certificate of Amendment to Amended and Restated Certificate of Incorporation of Lear Corporation, dated July 17, 2007 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated July 16, 2007). |
| | 2 | .3 | | Guaranty of Payment, dated February 9, 2007, by American Real Estate Partners, L.P. in favor of Lear Corporation (incorporated by reference to Exhibit 2.3 to the Company’s Current Report onForm 8-K/A dated February 9, 2007). | 3 | .3 | | By-laws of Lear Corporation, amended as of February 12, 2009 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated February 12, 2009). |
| | 2 | .4 | | Amendment No. 1 to Employment Agreement, dated February 9, 2007, between Lear Corporation and Douglas G. DelGrosso (incorporated by reference to Exhibit 2.4 to the Company’s Current Report onForm 8-K/A dated February 9, 2007). | 3 | .4 | | Certificate of Incorporation of Lear Operations Corporation (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement onForm S-4 filed on June 22, 1999). |
| | 2 | .5 | | Amendment No. 1 to Employment Agreement, dated February 9, 2007, between Lear Corporation and Robert E. Rossiter (incorporated by reference to Exhibit 2.5 to the Company’s Current Report onForm 8-K/A dated February 9, 2007). | 3 | .5 | | By-laws of Lear Operations Corporation (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement onForm S-4 filed on June 22, 1999). |
| | 2 | .6 | | Amendment No. 1 to Employment Agreement, dated February 9, 2007, between Lear Corporation and James H. Vandenberghe (incorporated by reference to Exhibit 2.6 to the Company’s Current Report onForm 8-K/A dated February 9, 2007). | 3 | .6 | | Certificate of Incorporation of Lear Corporation EEDS and Interiors (incorporated by reference to Exhibit 3.7 to the Company’s Registration Statement onForm S-4/A filed on June 6, 2001). |
| | 2 | .7 | | Amendment No. 1, dated July 9, 2007, to the Agreement and Plan of Merger, dated February 9, 2007, by and among AREP Car Holdings Corp., AREP Car Acquisition Corp. and Lear Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report onForm 8-K dated July 9, 2007). | 3 | .7 | | By-laws of Lear Corporation EEDS and Interiors (incorporated by reference to Exhibit 3.8 to the Company’s Registration Statement onForm S-4/A filed on June 6, 2001). |
| | 3 | .1 | | Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended March 30, 1996). | 3 | .8 | | Certificate of Incorporation of Lear Seating Holdings Corp. #50 (incorporated by reference to Exhibit 3.9 to the Company’s Registration Statement onForm S-4/A filed on June 6, 2001). |
| | 3 | .2 | | Certificate of Amendment to Amended and Restated Certificate of Incorporation of Lear Corporation, dated July 17, 2007 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated July 16, 2007). | 3 | .9 | | By-laws of Lear Seating Holdings Corp. #50 (incorporated by reference to Exhibit 3.10 to the Company’s Registration Statement onForm S-4/A filed on June 6, 2001). |
| | 3 | .3 | | By-laws of Lear Corporation, amended as of November 14, 2007 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated November 14, 2007). | 3 | .10 | | Certificate of Incorporation of Lear Automotive Dearborn, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended April 1, 2006). |
| | 3 | .4 | | Certificate of Incorporation of Lear Operations Corporation (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement onForm S-4 filed on June 22, 1999). | 3 | .11 | | By-laws of Lear Automotive Dearborn, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended April 1, 2006). |
| | 3 | .5 | | By-laws of Lear Operations Corporation (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement onForm S-4 filed on June 22, 1999). | 3 | .12 | | Certificate of Incorporation of Lear Corporation (Germany) Ltd. (incorporated by reference to Exhibit 3.13 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005). |
| | 3 | .6 | | Certificate of Incorporation of Lear Corporation EEDS and Interiors (incorporated by reference to Exhibit 3.7 to the Company’s Registration Statement onForm S-4/A filed on June 6, 2001). | 3 | .13 | | Certificate of Amendment of Certificate of Incorporation of Lear Corporation (Germany) Ltd. (incorporated by reference to Exhibit 3.14 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005). |
| | 3 | .7 | | By-laws of Lear Corporation EEDS and Interiors (incorporated by reference to Exhibit 3.8 to the Company’s Registration Statement onForm S-4/A filed on June 6, 2001). | 3 | .14 | | Amended and Restated By-laws of Lear Corporation (Germany) Ltd. (incorporated by reference to Exhibit 3.15 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005). |
| | 3 | .8 | | Certificate of Incorporation of Lear Seating Holdings Corp. #50 (incorporated by reference to Exhibit 3.9 to the Company’s Registration Statement onForm S-4/A filed on June 6, 2001). | 3 | .15 | | Deed of Transformation of Lear Automotive (EEDS) Spain S.L. (Unofficial English Translation) (incorporated by reference to Exhibit 3.17 to the Company’s Registration Statement onForm S-3 filed on May 8, 2002). |
| | 3 | .9 | | By-laws of Lear Seating Holdings Corp. #50 (incorporated by reference to Exhibit 3.10 to the Company’s Registration Statement onForm S-4/A filed on June 6, 2001). | 3 | .16 | | By-laws of Lear Automotive (EEDS) Spain S.L. (Unofficial English Translation) (incorporated by reference to Exhibit 3.18 to the Company’s Registration Statement onForm S-3 filed on May 8, 2002). |
| | 3 | .10 | | Certificate of Incorporation of Lear Automotive Dearborn, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended April 1, 2006). | 3 | .17 | | Articles of Incorporation of Lear Corporation Mexico, S.A. de C.V. (Unofficial English Translation) (incorporated by reference to Exhibit 3.19 to the Company’s Registration Statement onForm S-3 filed on March 28, 2002). |
| | 3 | .11 | | Bylaws of Lear Automotive Dearborn, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended April 1, 2006). | 3 | .18 | | By-laws of Lear Corporation Mexico, S.A. de C.V. (Unofficial English Translation) (incorporated by reference to Exhibit 3.20 to the Company’s Registration Statement onForm S-3 filed on March 28, 2002). |
| | 3 | .12 | | Certificate of Incorporation of Lear Corporation (Germany) Ltd. (incorporated by reference to Exhibit 3.13 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005). | 3 | .19 | | By-laws of Lear Corporation Mexico, S. de R.L. de C.V., showing the change of Lear Corporation Mexico, S.A. de C.V. from a corporation to a limited liability, variable capital partnership (Unofficial English Translation) (incorporated by reference to Exhibit 3.18 to the Company’s Registration Statement onForm S-4 filed on December 8, 2006). |
| | | 3 | .20 | | Certificate of Designation of Series A Junior Participating Preferred Stock, as filed with the Secretary of State of the State of Delaware on December 23, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated December 23, 2008). |
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Exhibit
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Number | Number | | Exhibit | Number | | Exhibit |
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| | 3 | .13 | | Certificate of Amendment of Certificate of Incorporation of Lear Corporation (Germany) Ltd. (incorporated by reference to Exhibit 3.14 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005). | 4 | .1 | | Indenture dated as of February 20, 2002, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.8 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2001). |
| | 3 | .14 | | Amended and Restated By-laws of Lear Corporation (Germany) Ltd. (incorporated by reference to Exhibit 3.15 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005). | 4 | .2 | | Supplemental Indenture No. 1 to Indenture dated as of February 20, 2002, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K dated August 26, 2004). |
| | 3 | .15 | | Deed of Transformation of Lear Automotive (EEDS) Spain S.L. (Unofficial English Translation) (incorporated by reference to Exhibit 3.17 to the Company’s Registration Statement onForm S-3 filed on May 8, 2002). | 4 | .3 | | Supplemental Indenture No. 2 to Indenture dated as of February 20, 2002, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and The Bank of New York Trust Company, N.A. (as successor to The Bank of New York), as Trustee (incorporated by reference to Exhibit 10.3 to the Company’s Current Report onForm 8-K dated December 15, 2005). |
| | 3 | .16 | | By-laws of Lear Automotive (EEDS) Spain S.L. (Unofficial English Translation) (incorporated by reference to Exhibit 3.18 to the Company’s Registration Statement onForm S-3 filed on May 8, 2002). | 4 | .4 | | Supplemental Indenture No. 3 to Indenture dated as of February 20, 2002, among Lear Corporation, the Guarantors set forth therein and The Bank of New York Trust Company, N.A. (as successor to The Bank of New York), as trustee (incorporated by reference to Exhibit 10.4 to the Company’s Current Report onForm 8-K dated April 25, 2006). |
| | 3 | .17 | | Articles of Incorporation of Lear Corporation Mexico, S.A. de C.V. (Unofficial English Translation) (incorporated by reference to Exhibit 3.19 to the Company’s Registration Statement onForm S-3 filed on March 28, 2002). | 4 | .5 | | Supplemental Indenture No. 4 to Indenture dated as of February 20, 2002, among Lear Corporation, the Guarantors set forth therein and The Bank of New York Trust Company, N.A. (as successor to The Bank of New York), as trustee (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K dated June 14, 2006). |
| | 3 | .18 | | By-laws of Lear Corporation Mexico, S.A. de C.V. (Unofficial English Translation) (incorporated by reference to Exhibit 3.20 to the Company’s Registration Statement onForm S-3 filed on March 28, 2002). | 4 | .6 | | Indenture dated as of August 3, 2004, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and BNY Midwest Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K dated August 3, 2004). |
| | 3 | .19 | | By-laws of Lear Corporation Mexico, S. de R.L. de C.V., showing the change of Lear Corporation Mexico, S.A. de C.V. from a corporation to a limited liability, variable capital partnership (Unofficial English Translation) (incorporated by reference to Exhibit 3.18 to the Company’s Registration Statement onForm S-4 filed on December 8, 2006). | 4 | .7 | | Supplemental Indenture No. 1 to Indenture dated as of August 3, 2004, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and The Bank of New York Trust Company, N.A. (as successor to BNY Midwest Trust Company, N.A.), as Trustee (incorporated by reference to Exhibit 10.4 to the Company’s Current Report onForm 8-K dated December 15, 2005). |
| | 4 | .1 | | Indenture dated as of May 15, 1999, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and the Bank of New York as Trustee (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report onForm 10-Q for the quarter ended April 3, 1999). | 4 | .8 | | Supplemental Indenture No. 2 to Indenture dated as of August 3, 2004, among Lear Corporation, the Guarantors set forth therein and The Bank of New York Trust Company, N.A. (as successor to BNY Midwest Trust Company, N.A.), as Trustee (incorporated by reference to Exhibit 10.5 to the Company’s Current Report onForm 8-K dated April 25, 2006). |
| | 4 | .2 | | Supplemental Indenture No. 1 to Indenture dated as of May 15, 1999, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and the Bank of New York as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended July 1, 2000). | 4 | .9 | | Indenture dated as of November 24, 2006, by and among Lear Corporation, certain Subsidiary Guarantors (as defined therein) and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K dated November 24, 2006). |
| | 4 | .3 | | Supplemental Indenture No. 2 to Indenture dated as of May 15, 1999, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and the Bank of New York as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2001). | 4 | .10 | | Rights Agreement dated as of December 23, 2008, by and between the Company and Mellon Investor Services LLC, which includes as Exhibit A, the Form of Certificate of Designation of Series A Junior Participating Preferred Stock, as Exhibit B, the Form of Rights Certificate, and as Exhibit C, the Summary of Rights to Purchase Shares of Preferred Stock of Lear Corporation (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K dated December 23, 2008). |
| | 4 | .4 | | Supplemental Indenture No. 3 to Indenture dated as of May 15, 1999, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and the Bank of New York as Trustee (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2001). | 10 | .1 | | Amended and Restated Credit and Guarantee Agreement, dated as of April 25, 2006, among the Company, Lear Canada, each Foreign Subsidiary Borrower (as defined therein), the Lenders party thereto, Bank of America, N.A., as syndication agent, Citibank, N.A. and Deutsche Bank Securities Inc., as documentation agents, The Bank of Nova Scotia, as documentation agent and Canadian administrative agent, the other Agents named therein and JPMorgan Chase Bank, N.A., as general administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K dated April 25, 2006). |
| | 4 | .5 | | Supplemental Indenture No. 4 to Indenture dated as of May 15, 1999, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and the Bank of New York Trust Company, N.A. (as successor to The Bank of New York), as Trustee (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K dated December 15, 2005). | 10 | .2 | | First Amendment, dated as of June 27, 2008, to the Amended and Restated Credit and Guarantee Agreement, dated as of April 25, 2006, among Lear, certain subsidiaries of Lear, the several lenders from time to time parties thereto, the several agents parties thereto and JPMorgan Chase Bank, N.A., as general administrative agent (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 28, 2008). |
| | 4 | .6 | | Indenture dated as of March 20, 2001, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and the Bank of New York as Trustee, relating to the 81/8% Senior Notes due 2008, including the form of exchange note attached thereto (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement onForm S-4 filed on April 23, 2001). | |
| | 4 | .7 | | Supplemental Indenture No. 1 to Indenture dated as of March 20, 2001, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and the Bank of New York as Trustee (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2001). | |
| | 4 | .8 | | Supplemental Indenture No. 2 to Indenture dated as of March 20, 2001, by and among Lear Corporation as Issuer, the Guarantors party thereto from time to time and the Bank of New York as Trustee (incorporated by reference to Exhibit 4.7 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2001). | |
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