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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/x/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1994.
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
___________ to ___________.
COMMISSION FILE NUMBER: 1-11311
LEAR SEATING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3386776
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48034
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (810) 746-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of February 15, 1995, the aggregate market value of the registrant's Common
Stock, par value $.01 per share, held by non-affiliates of the registrant was
$242,185,308. The closing price of the Common Stock on February 15, 1995 as
reported on the New York Stock Exchange was $17.25.
As of February 15, 1995, the number of shares outstanding of the registrant's
Common Stock was 46,078,048 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Notice of Annual Meeting of Stockholders
and Proxy Statement for its Annual Meeting of Stockholders to be held on May 5,
1995, as described in the Cross-Reference Sheet and a Table of Contents
included herewith, are incorporated by reference into Part III of this Report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
PAGE NUMBER
OR REFERENCE (1)
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PART I
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 3. Legal proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 4. Submission of matters to a vote of security holders. . . . . . . . . . . . . . . . . . . . . 15
PART II
ITEM 5. Market for registrant's common equity and related stockholder matters. . . . . . . . . . . . 16
ITEM 6. Selected financial data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 7. Management's discussion and analysis of financial condition and results of operations. . . . 18
ITEM 8. Financial statements and supplementary data. . . . . . . . . . . . . . . . . . . . . . . . . 26
ITEM 9. Changes in and disagreements with accountants on accounting and financial disclosure . . . . 61
PART III
ITEM 10. Directors and executive officers of the registrant (2) (4) . . . . . . . . . . . . . . . . . 62
ITEM 11. Executive compensation (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ITEM 12. Security ownership of certain beneficial owners and management (4) . . . . . . . . . . . . . 62
ITEM 13. Certain relationships and related transactions (5) . . . . . . . . . . . . . . . . . . . . . 62
PART IV
ITEM 14. Exhibits, financial statement schedules, and reports on Form 8-K . . . . . . . . . . . . . . 63
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(1) Certain information is incorporated by reference, as indicated
below, from the registrant's Notice of Annual Meeting of
Stockholders and Proxy Statement for its Annual Meeting of
Stockholders to be held on May 5, 1995 (the "Proxy Statement").
(2) Proxy Statement section entitled "Election of Directors" and
"Management."
(3) Proxy Statement section entitled "Executive Compensation."
(4) Proxy Statement section entitled "Record Date, Outstanding
Shares, Required Vote and Holdings of Certain Stockholders --
Security Ownership of Certain Beneficial Owners and Management."
(5) Proxy Statement section entitled "Certain Transactions."
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PART I
ITEM 1 - BUSINESS
As used in this report, unless the context otherwise requires, the "Company" or
"Lear" refers to Lear Seating Corporation and its consolidated subsidiaries
after giving effect to the Merger (as defined herein).
GENERAL
Lear Seating Corporation is the largest independent supplier of
automotive seat systems in the world. The Company employs approximately 25,000
people in 17 countries and operates 79 manufacturing, research, design,
engineering, testing and administration facilities. The Company's principal
products include finished automobile and light truck seat systems, automobile
and light truck seat frames, seat covers and other seat components. The
Company's seat systems, which are designed, manufactured and assembled at the
Company's manufacturing facilities, are shipped to customer assembly plants on
a just-in-time ("JIT") basis. This JIT process enables the Company to optimize
inventory turnover and deliver products to its customers on as little as 90
minutes notice. The Company has taken the JIT concept to a higher level with
Sequential Parts Delivery ("SPD"). SPD not only delivers the seat systems to
the customers on a JIT basis, but also permits delivery in the precise color and
trim sequence. In the year ended December 31, 1994, approximately 76% of
Lear's net sales were generated from sales in the United States and Canada,
with the balance of sales being primarily in Europe and Mexico. The Company's
present customers include 17 original equipment manufacturers ("OEMs"), the
most significant of which are Ford, General Motors, Fiat, Chrysler, Volvo,
Volkswagen, Saab and Mazda.
The Company's net sales have grown rapidly from approximately
$159.8 million in the fiscal year ended June 30, 1983 to approximately $3.1
billion in the year ended December 31, 1994, an average compound annual growth
rate of approximately 31%. This growth in sales is attributable primarily to
the trend in the automotive industry to "outsource" more of its requirements
for automotive components, particularly high cost components such as seat
systems. The Company has expanded its operations to facilitate such growth
through capital expenditures necessary to construct or acquire new facilities
and to enhance existing facilities, as well as through acquisitions.
Outsourcing has increased in response to competitive pressures on
OEMs to improve quality and reduce capital needs and the costs of labor,
overhead and inventory. The outsourced market for automobile and light truck
seat systems in North America is approximately 70% of the total North American
seat systems market of $6.8 billion. In 1994, the Company held a leading 37%
of the North American outsourced market and 27% of the total market. The 1994
European automotive seating market was an estimated $4.5 billion, of which
approximately 53% was outsourced. As a result of the Company's acquisition in
December 1994 of the Fiat Seat Business (as defined herein), the Company became
the market leader in Europe with a 33% share of the outsourced market and 18%
of the total market. See "Business -- FSB Acquisition."
The Company is also the largest supplier of seat systems and seat
components in Mexico. The Company believes that it is well positioned to take
advantage of the growing activities of United States-based and German-based
OEMs, in this geographic segment as well as take advantage of opportunities
that result from the North American Free Trade Agreement.
In addition to outsourcing the production of seat systems, OEMs
increasingly are transferring the primary responsibility for design,
engineering and quality control of these products to suppliers, such as Lear,
with proven design, engineering and JIT program management and manufacturing
capabilities. Suppliers that design, engineer, manufacture and conduct quality
control testing are generally referred to as "Tier I" suppliers. The Company
believes that early involvement in the design and engineering of new seating
products as a Tier I supplier affords the Company a
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competitive advantage in securing new business and provides its customers with
significant cost reduction opportunities through the coordination of the
design, development and manufacturing processes. See "Business - Business
Strategy."
The Company has enhanced its design and engineering capabilities
with two technical centers and other investments to upgrade its capabilities.
The Company is continuing this process of investing to substantially improve
all aspects of its safety and functional testing and comfort assessment
capabilities. An example of the Company's design and engineering capabilities
is the development of the Company's patented SureBond process, which bonds seat
covers to foam pads, minimizing the need for sewing. "See Business -
Manufacturing." The Company believes its enhanced design and engineering
capabilities have contributed to the increase in the Company's North American
content per vehicle from $12 in 1983 to $169 in 1994. In Europe, the
Company's content per vehicle has grown from $3 in 1983 to $80 in 1994 after
giving effect of the FSB acquisition.
The Company's continued expansion as a Tier I supplier has
resulted in the Company beginning nine new seat programs in 1994 including
programs for Ford, General Motors, Chrysler, Jaguar and BMW. This new
business, combined with the full integration of the November 1993 acquisition
of Ford's North American Seat and Seat Cover Business ("NAB"), contributed
significantly to the Company's overall growth. New programs awarded to the
Company in 1994 for business in Europe, South America, Australia and Indonesia,
combined with existing programs are expected to result in approximately $800
million in incremental annual new business through 1998. As a result of this
new business, the Company expects to construct several new seat systems
facilities, which typically involve an upfront cost of between $6.0 million and
$9.0 million per facility for owned facilities and between $1.0 million and
$6.0 million per facility for leased facilities.
The Company is the successor to a seat frame manufacturing
business founded in 1917 that served as a supplier to General Motors and Ford
from its inception. Lear Holdings Corporation ("Holdings"), the former parent
of the Company, was organized in August 1988 to effect the acquisition (the
"1988 Acquisition") of all of the outstanding common stock of Lear Seating
Corporation (formerly known as Lear Siegler Seating Corp.) and certain other
subsidiaries of Lear Siegler Holdings Corp. comprising its seating group (the
companies acquired being collectively referred to herein as the "Seating
Group"). On December 31, 1993, Holdings merged with and into the Company (the
"Merger"), and the separate corporate existence of Holdings ceased on that
date. Unless the context otherwise indicates, all information contained herein
is presented as if the Merger had occurred as of the date or as of the
beginning of the period indicated.
The Company's principal executive offices are located at 21557
Telegraph Road, Southfield, Michigan 48034. Its telephone number at that
location is (810) 746-1500. The Company was incorporated in Delaware on
January 13, 1987.
BUSINESS STRATEGY
To take advantage of additional business opportunities, the
Company has positioned itself as a global Tier I supplier of entire seat
systems to the OEMs. Tier I status typically means that the supplier is
awarded the seat program for a particular vehicle in the early stages of the
vehicle's design. The Tier I supplier becomes responsible for total seat
program management, including design, development, component sourcing, quality
assurance procedures, manufacture and delivery to the OEM's assembly plant.
The OEM benefits from lower costs, improved quality, timely delivery and the
administrative convenience of being able to treat seating as a single component
instead of as numerous individual components. The Company believes that its
early involvement in the design and engineering of new seat products as a Tier
I supplier affords the Company a competitive advantage in securing new
business. The Company has become a significant Tier I supplier by implementing
a strategy based upon the following elements:
- Strong Relationships with the OEMs. The Company's management
has developed strong relationships with its OEM customers which allow Lear to
identify business opportunities and react to customer needs in the early stages
of
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vehicle design. The Company works closely with OEMs in designing and
engineering seat systems and maintains an excellent reputation with the OEMs
for timely delivery and customer service and for providing world class quality
at a competitive price. Many of the Company's facilities have won awards from
OEMs and others, including the General Motors Mark of Excellence Award, the
General Motors Supplier of the Year Award, the General Motors Top Supplier
Award in Mexico, the Ford Q-1 Award, the General Motors of Europe Supplier of
the Year Award, the Chrysler Quality Excellence Award, the Saab 100% Supplier
Performance Award, the Mazda Most Valuable Supplier Award and Full Service
Supplier certification by Ford Motor Company.
- Product Technology and Product Design Capability. Lear has
made substantial investments in product technology and product design
capability to support its products. The Company maintains two technical
centers (in Southfield, Michigan and Turin, Italy) where it tests current and
future products to determine compliance with safety standards, quality and
durability, response to environmental conditions and user wear and tear.
Benchmarking studies are also conducted to aid in developing innovative seat
design features. The Company has recently made substantial investments to
further upgrade its computer-aided engineering ("CAE") and computer-aided
design/computer-aided manufacturing ("CAD/CAM") capabilities. Such tools as
advanced design modeling software, dynamic crash simulation, linear and
non-linear finite element analysis and solids modeling are among several tools
recently added to electronically create a seat and evaluate its performance.
- Lean Manufacturing Philosophy. Lear has adopted a "lean
manufacturing" philosophy that seeks to eliminate waste and inefficiency in its
own operations and in those of its customers. The Company believes that it
provides superior quality seating products at lower costs than the OEMs. The
Company, whose facilities are linked by computer directly to those of its
suppliers and customers, receives components from its suppliers, and delivers
seat systems and components to its customers on a JIT basis, which minimizes
inventories and fixed costs and enables the Company to deliver products on as
little as 90 minutes notice. In the year ended December 31, 1994, the
Company's overall annual inventory turnover rate was 36 times and the turnover
rate was up to 150 times in the case of certain of the Company's JIT plants.
The Company also minimizes fixed costs by using the existing suppliers to the
OEMs and the OEMs themselves for certain components instead of attempting to
produce such components itself. In cases where one of the Company's
manufacturing facilities is underutilized, the Company is able to redistribute
products to increase facility utilization.
Typically, the upfront cost of constructing a new seat systems
facility is between $6.0 and $9.0 million per facility for owned facilities and
between $1.0 million and $6.0 million per facility for leased facilities. The
principal costs in starting a new seat systems facility arise from the
acquisition of the land, construction of the building and installation of
conveyor systems. Because most seat assembly work is manual and does not
require complex equipment, capital costs are relatively low.
FSB ACQUISITION
On December 15, 1994, the Company, through its wholly-owned
subsidiary Lear Seating Italia S.r.L., purchased from Gilardini S.p.A.
("Gilardini"), a subsidiary of Fiat S.p.A. ("Fiat Auto"), all of the shares of
SEPI S.p.A. ("SEPI"), the primary automotive seat systems supplier to Fiat
Auto. SEPI and its wholly-owned subsidiary, SEPI Sud S.p.A. ("SEPI Sud"),
operate eight facilities in Italy producing automotive seat systems for 85% of
Fiat Auto's Italian vehicle production under the Fiat, Lancia, Alfa Romeo and
Ferrari nameplates as well as seat frames for certain Fiat models for which
SEPI and SEPI Sud do not supply the seat systems. In connection with this
acquisition, Lear also acquired from Gilardini (i) all of the shares of SEPI
Poland Sp. Z o.o., which produces automotive seat systems for Fiat Auto Poland
and supplies seat covers to SEPI and SEPI Sud; (ii) a 35% interest in a Turkish
joint venture which proposes to produce automotive seat systems for Tofas (a
Fiat Auto affiliate) and provides seat covers to SEPI and SEPI Sud; and (iii) a
49% interest in Industrias Cousin Freres S.L., a seat component joint venture
in Spain with Bertrand Faure S.A. Lear also anticipates acquiring interests in
proposed South American joint ventures which plan to supply automotive seat
systems to Fiat Auto or its affiliates in Brazil and Argentina.
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The purchase price for the acquisition (the "FSB acquisition") of
the interests described in the preceding paragraph (collectively, the "Fiat
Seat Business") was 250.0 billion Italian Lire, including the long-term
indebtedness of SEPI as of September 30, 1994 which totaled 80.63 billion
Italian Lire. Of the purchase price, 20.0 billion Italian Lire was deferred
and is payable, without interest thereon, on November 30, 1998. The remaining
149.37 billion Italian Lire of the purchase price was paid in cash at the
closing of the FSB acquisition. As part of the FSB acquisition, Lear also
agreed to replace the outstanding indebtedness of SEPI to Fiat Auto and its
affiliates. Lear replaced such indebtedness on January 20, 1995.
In connection with the FSB acquisition, Lear and Fiat Auto
entered into a long-term supply agreement for the production of substantially
all outsourced automotive seat systems for Fiat Auto and affiliated companies
worldwide. The financing for the FSB acquisition was provided by the Company's
Credit Agreement (as defined herein).
The sale of the Fiat Seat Business was conducted on an auction
basis in which Fiat Auto considered numerous factors submitted by each of
several bidders including price, technical resources, capabilities and
expertise in the automotive and light truck seat market. The Company believes
that its selection highlights the Company's position as a leading independent
supplier of automotive seat systems.
The FSB acquisition not only establishes Lear as the market
leader in automotive seat systems in Europe, but combined with its leading
position in North America, makes Lear the largest independent automotive seat
systems manufacturer in the world.
PRODUCTS
Lear's products have evolved from the Company's many years of
experience in the seat frame market where it has been a major supplier to
General Motors and Ford since its inception in 1917. The seat frame has
structural and safety requirements which make it the basis for overall seat
design and was the logical first step to the Company's emergence as a dominant
supplier of entire seat systems.
All of the Company's products are manufactured using JIT
manufacturing techniques, and most of the Company's products, including all
seat systems, are delivered to the OEMs on a JIT basis. The JIT concept, first
broadly utilized by Japanese automobile manufacturers, is the cornerstone of
the Company's manufacturing and supply strategy. This strategy involves many of
the principles of the Japanese system, but was redeveloped for compatibility
with the greater volume requirements and geographic distances of the North
American market. The Company first developed JIT operations in the early 1980s
at its seat frame manufacturing plants in Morristown, Tennessee and Kitchener,
Ontario. These plants previously operated under traditional manufacturing
practices, resulting in relatively low inventory turnover rates, significant
scrap and rework, a high level of indirect labor costs and long production
set-up times. As a result of JIT manufacturing techniques, the Company has
been able to consolidate plants, increase capacity and significantly increase
inventory turnover, quality and productivity.
The JIT principles first developed at Lear's seat frame plants in
1983 were next applied to the Company's growing seat systems business and has
now evolved to SPD principles. The Company's 39 seating plants are typically
no more than 30 minutes or 20 miles from its customers' assembly plants and
manufacture seats for delivery to the customer's facility in as little as 90
minutes. Orders for the Company's seats are received on a weekly basis,
pursuant to blanket purchase orders for annual requirements. These orders
detail the customers needs for the ensuing week. In addition, on each work
day, constant computer and other communication is maintained between personnel
at the Company's plants and personnel at the customer's plants to keep
production current with the customer's demand.
The following is the approximate composition by product category
of the Company's net sales in the year ended December 31, 1994: seat systems,
78%; seat covers, 12%; seat frames, 8%; and seat components, 2%.
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- Seat Systems. The seat systems business consists of the
manufacture, assembly and supply of entire seating requirements for a vehicle
or assembly plant. The Company produces seat systems for automobiles and light
trucks that are fully finished and ready to be installed in a vehicle.
Included within the Company's seat systems production are high performance
seats for luxury versions of the OEMs' specialty cars, such as the Chevrolet
Corvette, the Ford Taurus SHO, the Mercury Cougar XR7, the Ford Thunderbird
Super Coupe, the Ford Mustang GT and the Dodge Viper. High performance seats
are fully assembled seats, designed to achieve maximum passenger comfort by
adding a wide range of manual and power features such as lumbar supports,
cushion and back bolsters and leg and thigh supports. As OEMs continue to view
seat systems as a distinguishing marketing feature, the advanced features
incorporated initially in high performance seats are more frequently becoming
standard features in a wider variety of later production vehicles.
The market for seat systems developed as a result of North
American automobile manufacturers' need to restructure assembly plant methods
in response to vigorous foreign competition in the early 1980's. The Company
was positioned to take advantage of this growing market through its long
standing relationships with customers. These relationships have been fostered
through the Company's performance in seat frame manufacturing over the years
and its demonstrated ability to supply and manage total seat systems. The
Company believes that its position in the seat systems market will improve as
seats with advanced features become an increasingly important criterion for
distinguishing between competing vehicle models.
The Company's major seat systems customers include Ford, General
Motors, Fiat, Chrysler, Volvo, Volkswagen, Saab and Mazda. In addition,
through its joint ventures with NHK Spring Co., Ltd., the Company supplies seat
systems to SIA (a joint venture between Fuji Heavy Industries (Subaru) and
Isuzu) and to CAMI (a joint venture between Suzuki and General Motors). The
Company and its affiliates serve assembly plants for these customers through 39
different JIT facilities.
The Company's sales for the year ended December 31, 1994 were
comprised of the following vehicle categories: 42% light truck and sport
utility, 18% mid-size, 13% luxury, 11% full size, 9% sport and 7% compact
vehicles. Among the more significant vehicle platforms for which the Company
produces or has been awarded complete seat system responsibility are the GM C/K
pick-up (Chevrolet and GMC light trucks), the Ford Taurus and Mercury Sable,
the Ford Crown Victoria and Mercury Grand Marquis, GM C/K sport utility
vehicles (Chevrolet and GMC Suburban, Chevrolet Tahoe and GMC Yukon), Buick
LeSabre, GM J-body (Chevrolet Cavalier and Pontiac Sunfire) and the Ford
Windstar minivan. For a more complete listing of vehicles with seat systems
sold by the Company and its affiliates, see "Business - Customers."
As a result of its product technology and product design
strengths, the Company can provide ergonomic designs which offer styling
flexibility at low cost. In addition, the Company is able to incorporate many
convenience features and safety improvements into its seat designs, such as
storage armrests, rear seat fold down panels, integrated restraint systems and
child restraint seats.
Lear's position as a market leader in seat systems is largely
attributable to seating programs on new vehicle models launched in the past
five years. The Company believes that supplying seating for these new vehicle
models will provide it with a long-term revenue stream throughout the lives of
these models. The Company is currently working with customers in the
development of a number of seat systems products to be introduced by automobile
manufacturers in the late 1990's, which it expects will lead to an increase in
outsourcing opportunities in the future. For years ending December 31, 1995
through December 31, 1998, the Company anticipates approximately $800 million
in incremental annual new sales from the full ramp-up of new and recently
awarded programs. Such business includes the Ford Taurus/Mercury Sable, the
Ford Explorer, the Ford Contour/Mercury Mystique, the Dodge Ram Pick-up Truck,
the Chevrolet Cavalier/Pontiac Sunfire, the Ford Windstar Minivan, all Jaguar
models, the GM Opel Omega and the Oldsmobile Aurora/Buick Riviera.
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- Seat Covers. Lear produces seat covers at its Fairhaven,
Michigan and Saltillo, Mexico facilities, which deliver seat covers primarily
to other Company plants. In addition, pursuant to the NAB acquisition, the
Company acquired a portion of Ford's North American seat cover business and is
producing approximately 80% of the seat covers for Ford's North American
vehicles. After the NAB acquisition, the Company's major external customers
for seat covers are Ford and other independent suppliers. The expansion of the
Company's seat cover business allows the Company better control over the cost
and quality of one of the critical components of a seat system. Typically,
seat covers comprise approximately 30% of the aggregate cost of a seat system.
- Seat Frames. Lear produces steel and aluminum seat frames
for passenger cars and light trucks and medium trucks. Seat frames are
primarily manufactured using precision stamped, tubular steel and aluminum
components joined together by highly automated, state-of-the-art welding and
assembly techniques. The manufacture of seat frames must meet strict customer
specified safety standards.
The Company's seat frames are either delivered to its own plants
where they become part of a completed seat that is sold to the OEM customer, to
customer-operated assembly plants or to other independent seating suppliers
where they are used in the manufacture of assembled seating systems.
The Company's product development engineers continue to advance
its technological position with such innovative material applications as
aluminum and plastic frames and new seat designs which dramatically reduce seat
weight while increasing usable automotive vehicle interior space or increasing
safety.
- Seat Components. The Company designs and manufactures
plastic storage armrests for inclusion in seat systems at its plant in Mendon,
Michigan. Vehicles in which these components are found are the Dodge Ram
Pick-up Truck, the Ford F-Series Pick-up Truck, the Buick LeSabre and the
Oldsmobile Delta 88. The Company also manufactures painted and assembled
injection molded components at the Mendon facility that are used in automotive
vehicle interiors.
MANUFACTURING
Lear has developed a comprehensive flexible manufacturing
philosophy for seat systems that allows it to make optimal use of its
manufacturing facilities in both high and low volume markets. This concept,
based on JIT manufacturing techniques, was developed in the early 1980's to
meet the requirements of its customers seeking to reduce costs and improve
quality. The Company has over ten years of experience in JIT management and
manufacturing.
Seat and component assembly techniques fall into two major
categories, traditional assembly methods (in which fabric is affixed to a frame
using velcro, wire or other material) and advanced bonding processes. There
are two advanced bonding techniques employed by the Company: the Company's
patented SureBond process, a technique in which fabric is affixed to the
underlying foam padding using adhesives, and the Company's licensed
foam-in-place process, in which foam is injected into a fabric cover. The
SureBond process has several major advantages when compared to traditional
methods, including design flexibility, increased quality and lower cost. The
SureBond process, unlike alternative bonding processes, results in a more
comfortable seat in which air can circulate freely. The SureBond process,
moreover, is reversible, so that seat covers that are improperly installed can
be removed and repositioned properly with minimal materials cost. In addition,
the SureBond process is not capital intensive when compared to competing
technologies.
The seat assembly process begins with pulling the requisite
components from inventory. Inventory at each plant is kept at a minimum, with
each component's requirement monitored on a daily basis. This allows the plant
to devote the maximum space to production, but also requires precise forecasts
of the day's output. Seats are assembled by three or four person teams, then
tested and packaged for shipment. The Company operates its own specially
designed trailer fleet that accommodates the off-loading of vehicle seats at
the assembly plant.
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Lear obtains steel, aluminum and foam chemicals used in its seat
systems from various producers under various supply arrangements. Leather,
fabric and purchased components generally are purchased from various suppliers
under contractual arrangements typically lasting no longer than one year. All
such materials are readily available. Some of the purchased components are
obtained through the Company's own customers.
CUSTOMERS
Lear serves the worldwide automobile and light truck market,
which produces over 30 million vehicles annually. The outsourced market for
automobile and light truck seat systems in North America is approximately 70%
of the total North American seat systems market, which in 1994 was estimated to
have annual revenues of approximately $6.8 billion. The outsourced market for
seat systems in Europe is approximately 53% of the total European seat systems
market, which in 1994 was estimated to have annual revenues of approximately
$4.5 billion. The Company believes that the same competitive pressures that
contributed to the rapid expansion of its business in North America since 1983
will continue to encourage automakers in the North American and the European
markets to outsource more of their seating requirements. Over the past three
years, the Company has aggressively pursued expansion in Europe, both with its
existing and new customers.
The Company's OEM customers currently include Ford, General
Motors, Fiat, Chrysler, Volvo, Volkswagen, Saab, Mazda, BMW, Jaguar, Audi,
Subaru, Isuzu, Suzuki, Daimler-Benz, Renault and Peugeot. For additional
information regarding customers, foreign and domestic operations and sales, see
Note 18, "Geographic Segment Data," to the consolidated financial statements of
the Company included in this Report.
In the past six years, in the course of retooling and
reconfiguring plants for new models and model changeovers, OEMs have eliminated
seating production from certain of their facilities, thereby committing
themselves to purchasing seat systems and components from outside suppliers.
During this period, the Company became a supplier of these products for a
significant number of new models, many on a JIT basis.
The purchase of seat systems on a JIT basis has allowed the
Company's customers to realize a competitive advantage as a result of (i) a
reduction in labor costs since suppliers like the Company generally enjoy lower
direct labor rates, (ii) the elimination of working capital and personnel costs
associated with the production of seat systems by the OEM, (iii) a reduction in
net overhead expenses and capital investment due to the availability of
approximately 60,000 to 80,000 square feet of plant space for expansion of
other manufacturing operations which was previously associated with seat
production at the OEM facilities and (iv) a reduction in transaction costs
because of the customer's ability to deal with a limited number of
sophisticated system suppliers as opposed to numerous individual component
suppliers. In addition, the Company offers improved quality and on-going cost
reductions to its customers through design improvements.
The Company receives blanket purchase orders from its customers
that normally cover annual requirements for seats to be supplied for a
particular vehicle model. Such supply relationships typically extend over the
life of the model, which is generally four to seven years, and do not require
the purchase by the customer of any minimum number of seats. In order to
reduce its reliance on any one model, the Company produces complete seat
systems and components for a broad cross-section of both new and more
established models. Vehicles with seat systems sold by the Company and its
affiliates in the indicated locations include:
7
10
UNITED STATES AND CANADA
------------------------
BMW: FORD: GENERAL MOTORS:
300 Series Ford Crown Victoria Buick LeSabre
Ford Explorer Sports Bucket, Buick Park Avenue
CAMI - GENERAL MOTORS/SUZUKI: Eddie Bauer & Limited Edition Buick Regal
Geo Metro Ford F-Series Pick-up Truck Buick Riviera
Geo Tracker Ford Lightning Pick-up Truck Chevrolet Cavalier
Suzuki Sidekick Ford Mustang GT & LX Chevrolet Corvette
Suzuki Swift Ford Probe Chevrolet Lumina
Ford Ranger Supercab/STX Chevrolet Monte Carlo
CHRYSLER: Ford Taurus SHO Chevrolet Tahoe/GMC Yukon
Dodge Dakota Pick-up Truck Ford Thunderbird SC Chevrolet C/K Pick-up Truck
Dodge Ram Charger Ford Windstar Minivan Chevrolet Kodiak
Dodge Ram Pick-up Truck Mercury Sable Chevrolet Sport Van
Dodge Viper Mercury Cougar XR7 Chevrolet/GMC G-Van
Mercury Grand Marquis GMC Pick-up Truck
Mazda Navajo Chevrolet/GMC Suburban
GMC Rally, Vandura Van
FUJI/ISUZU: GMC Sierra Crew Cab
Isuzu Trucks GMC Sierra Pick-up Truck
Subaru Legacy GMC Top Kick
Oldsmobile Aurora
HONDA: Oldsmobile Delta 88
Passport Pontiac Sunfire
EUROPE
------
ALFA ROMEO: FIAT: JAGUAR:
Alfa 33 Coupe XJS
Alfa 155 Croma XJ6
Alfa 164 Panda
Alfa 936 Ducato LANCIA:
Futura 33 Punto Dedra
Spider Tempra Delta
Tipo Thema
CHRYSLER: Uno Y11
Eurostar Minivan X230 838
FERRARI: GENERAL MOTORS - OPEL: VOLVO:
GT-456 Astra 800 Series
Calibra 900 Series
Corsa
Omega SAAB:
Vectra Saab 900
Saab 9000
MEXICO
------
FORD: CHRYSLER: VOLKSWAGEN:
Ford Contour Club Car Pick-up Truck Beetle
Ford Escort Dodge Ram Pick-up Truck Golf
Ford F-Series Jetta
Ford Thunderbird GENERAL MOTORS: Derby
Mercury Cougar Oldsmobile Cutlass Vanagon Minivan
Mercury Grand Marquis Chevrolet Cavalier
Mercury Mystique Opel Corsa
Mercury Tracer Pontiac Sunfire
AUSTRALIA
---------
GENERAL MOTORS - HOLDEN'S:
VS and VT
8
11
Because of the economic benefits inherent in the JIT manufacturing
process and the costs associated with reversing a decision to purchase
seat systems from an outside supplier, the Company believes that automobile
manufacturers' level of commitment to purchasing seating from outside suppliers,
particularly on a JIT basis, will increase. However, under the contracts
currently in effect in the United States between each of General Motors, Ford
and Chrysler with the United Automobile, Aerospace and Agricultural Implement
Workers of America (the "UAW"), in order for any of such manufacturers to obtain
components that it currently produces itself from external sources, it must
first notify the UAW of such intention. If the UAW objects to the proposed
outsourcing, some agreement will have to be reached between the UAW and the OEM.
Factors that will normally be taken into account by the UAW and the OEM include
whether the proposed new supplier is technologically more advanced than the OEM,
cost and whether the OEM will be able to reassign union members whose jobs are
being displaced to other jobs within the same factories. As part of its
long-term agreement with General Motors, the Company operates its Grand Rapids,
Michigan and Lordstown, Ohio facilities with General Motors employees and
reimburses General Motors for the wages of such employees on the basis of the
Company's employee wage structure. The Company enters into these arrangements
to enhance its relationship with its customers.
The Company's contracts with its major customers generally
provide for an annual productivity price reduction and, in some cases, provide
for the recovery of increases in material and labor costs. Cost reduction
through design changes, increased productivity and similar programs with the
Company's suppliers have generally offset changes in selling prices. The
Company's cost structure is comprised of a high percentage of variable costs.
The Company believes that this structure provides it with additional
flexibility during economic cycles.
Ford and General Motors, the two largest automobile and light
truck manufacturers in the world, are also the Company's two largest customers,
accounting for 39% and 36%, respectively, of the Company's net sales during the
year ended December 31, 1994.
MARKETING AND SALES
Lear markets its products by maintaining strong relationships
with its customers fostered during its 77-year history through strong
technical and product development capabilities, reliable delivery of high
quality products, strong customer service, innovative new products and a
competitive cost structure. Close personal communications with automobile
manufacturers are an integral part of the Company's marketing strategy.
Recognizing this, the Company was reorganized into six independent
divisions, each with the ability to focus on its own customers and programs
and each having complete responsibility for the product, from design to
installation. By moving the decision making process closer to the customer,
and instilling a philosophy of "cooperative autonomy," the Company is more
responsive to, and has strengthened its relationships with, its customers.
Automobile manufacturers have increasingly reduced their number of suppliers as
part of their move to purchase systems rather than purchase individual
components. This process favors suppliers like the Company with established
ties to automobile manufacturers and the demonstrated ability to adapt to the
new competitive environment in the automotive industry.
The Company's sales are originated entirely by its sales staff.
This marketing effort is augmented by design and manufacturing engineers who
work closely with automobile manufacturers from the preliminary design to the
manufacture and supply of a seating system. Manufacturers have increasingly
looked to suppliers like the Company to assume responsibility for the
introduction of product innovation, shorten the development cycle of new
models, decrease tooling investment and labor costs, reduce the number of
costly design changes in the early phases of production and improve seat
comfort and functionality. Once the Company is engaged to develop the design
for the seating of a specific vehicle model, it is also generally engaged to
supply the vehicle with seating when it goes into production. The Company has
responded to this trend by improving its engineering and technical capabilities
and developing technical centers in the United States and in Europe. The
Company has also developed full-scope engineering capabilities, including all
aspects of safety and functional testing and comfort assessment. In addition,
the Company has established various remote engineering sites in close proximity
to several of its OEM customers to enhance customer relationships
9
12
and design activity. During the five-year term of the supply agreement entered
into in connection with the NAB acquisition, the Company is assuming
responsibility for a substantial portion of Ford's seat systems design
capability and, accordingly has built a 75,000 square foot dedicated
engineering facility in Dearborn, Michigan to service Ford products.
TECHNOLOGY
Lear conducts advanced product design development at its
technical centers in Southfield, Michigan and Turin, Italy. After the FSB
acquisition, the Company transferred its European technical facility from
Rietberg, Germany to Turin, Italy. At these centers, the Company tests its
products to determine compliance with applicable safety standards, the
products' quality and durability, response to environmental conditions and user
wear and tear. In the past, the Company has developed a number of designs for
innovative seat features which it has patented, including ergonomic features
such as adjustable lumbar supports and bolster systems and adjustable thigh
supports. In addition, the Company incorporates many convenience, comfort and
safety features into its seat designs, including storage armrests, rear seat
fold down panels, integrated restraint systems and child restraint seats. The
Company has recently invested to further upgrade its CAE and CAD/CAM systems,
including three-dimensional color graphics, customer telecommunications and
direct interface with customer CAD systems. Research and development costs
incurred with the development of new products and manufacturing methods (not
including additional research and development costs paid for by the customer)
amounted to approximately $21.9 million, $16.2 million, $18.2 million and $11.4
million for the years ended December 31, 1994 and 1993 and the fiscal years
ended June 30, 1993 and 1992, respectively.
Lear uses its patented SureBond process (the patent for which has
approximately 9 years remaining) in bonding seat cover materials to the foam
pads used in certain of its seats. The SureBond process is used to bond a
pre-shaped cover to the underlying foam to minimize the need for sewing and
achieve new seating shapes, such as concave shapes, which were previously
difficult to manufacture.
The Company, through its wholly-owned subsidiary, Progress
Pattern Corp. ("Progress Pattern"), produces patterns and tooling for use in
the automotive casting industry. Its capabilities include foundry and vacuum
form tooling, porous mold design and lost foam tooling production. The pattern
operation is also integral to the Company's seating design programs, including
independent product design and development, contract design, engineering
services, manufacturing feasibility and engineering cost studies. Progress
Pattern also manufactures production tooling for the Company's plastic and foam
molding operations. In addition to providing support for the Company's
continuing seat design, Progress Pattern provides services to its own
customers, including Ford and General Motors. It produced the casting tooling
for the General Motors Saturn engine.
The Company holds a number of mechanical and design patents
covering its automotive seating products and has numerous applications for
patents currently pending. In addition, the Company holds several trademarks
relating to various manufacturing processes. The Company also licenses its
technology to a number of seating manufacturers.
The Company has and will continue to dedicate resources to
research and development to maintain its position as a leading developer of
technology in the automotive seating industry.
JOINT VENTURES AND MINORITY INTERESTS
Lear conducts a portion of its business through joint ventures in
order to facilitate the exchange of technical information and the establishment
of business relationships with foreign automakers. The joint ventures in which
the Company participates include: (i) General Seating of America, a joint
venture with NHK Spring Co., Ltd. of
10
13
Japan in which the Company has a 35% interest, which supplies trimmed seating
to SIA (a joint venture between Fuji Heavy Industries (Subaru) and Isuzu) and
(ii) General Seating of Canada Limited, a joint venture with NHK Spring Co.,
Ltd. of Japan in which the Company has a 35% interest, which supplies trimmed
seating from a plant in Woodstock, Ontario to CAMI (a joint venture between
Suzuki and General Motors). In addition, the Company has a 31% interest in
Probel, S.A., a Brazilian automotive seat component and furniture manufacturer,
and a 20% interest in Pacific Trim Corp. Ltd., a Thai manufacturer of
automotive vehicle seat systems and seat covers. In conjunction with the
purchase of the Fiat Seat Business, the Company obtained a 49% interest in
Industrias Cousin Freres, S.L., a Spanish joint venture with Bertrand Faure
S.A. which produces seat components, and a 35% interest in Markol Otomotiv Yan
Sanayi Ve Ticart, a Turkish joint venture which proposes to produce seat
systems for Tofas, a Fiat Auto affiliate, and seat covers for SEPI and SEPI
Sud. As part of the Company's effort to procure business in the Far East, the
Company also holds a 49% interest in Lear Seating Thailand Corporation. See
Note 9, "Investments in Affiliates," to the consolidated financial statements
of the Company included in this Report.
COMPETITION
Lear is one of the two primary suppliers in the outsourced North
American seat systems market. The Company's main independent competitor is
Johnson Controls, Inc., and it competes, to a lesser extent, with Douglas &
Lomason Company and Magna International, Inc. The Company's major independent
competitors in Europe, besides Johnson Controls, Inc., are Bertrand Faure
(headquartered in France) and Keiper Recaro (headquartered in Germany). The
Company also competes with the OEM's in-house seat system suppliers. The
Company competes on the basis of technical expertise, reliability, quality and
price. The Company believes its technical resources, product design
capabilities and customer responsiveness are the key factors that allow it to
compete successfully in the seat systems market.
SEASONALITY
Lear's principal operations are directly related to the
automotive industry. Consequently the Company may experience seasonal
fluctuation to the extent automotive vehicle production slows, such as in the
summer months when plants close for model year changeovers and vacation.
Historically, the Company's sales and operating profit have been the strongest
in the second and fourth calendar quarters. Net sales for the year ended
December 31, 1994 by calendar quarter broke down as follows: first quarter,
22%; second quarter, 26%; third quarter, 22%; and fourth quarter, 30%. See
Note 19, "Quarterly Financial Data," of the notes to the consolidated financial
statements included in this Report.
EMPLOYEES
After giving effect to the FSB acquisition, the Company employs
approximately 6,200 persons in the United States, 10,600 in Mexico, 2,400 in
Canada, 2,000 in Italy, 1,300 in Germany, 1,000 in Sweden, 400 in the United
Kingdom, 80 in Austria and 60 in France. Of these, about 3,700 are salaried
employees and the balance are paid on an hourly basis. Approximately 19,200 of
the Company's employees are members of unions. The Company has collective
bargaining agreements with several unions including the UAW; National
Automobile, Aerospace and Agricultural Implement Workers Union of Canada; the
Textile Workers of Canada; the Confederation of Mexican Workers; the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers
of America; the International Association of Machinists and Aerospace Workers,
the AFL-CIO, and its Local PM 2811 of Detroit and vicinity. Each of the
Company's facilities has a separate contract with the union which represents
the workers employed there, with each such contract having an expiration date
independent of the Company's other labor contracts. The Company has
experienced some labor disputes at its plants, none of which has significantly
disrupted production or had a materially adverse effect on its operations. The
Company has been able to resolve all such labor disputes and believes its
relations with its employees are good.
11
14
ENVIRONMENTAL
The Company is subject to various laws, regulations and
ordinances which govern activities such as discharges to the air and water, as
well as handling and disposal practices for solid and hazardous wastes and
which impose costs and damages associated with spills, disposal or other
releases of hazardous substances. The Company believes that it is in
substantial compliance with such requirements. Management does not believe
that it will incur compliance costs pursuant to such requirements that would
have a material adverse effect on the Company's consolidated financial position
or future results of operations. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company -
Environmental Matters."
12
15
ITEM 2 -- PROPERTIES
The Company's operations are conducted through 79 facilities in
17 countries employing approximately 25,000 people worldwide. The Company's
management is headquartered in Southfield, Michigan. The headquarters
building, which accommodates both the main office and a technical center, was
completed in June 1988. Thirty-nine facilities are dedicated to providing seat
systems to nearby assembly plants. The others focus on the production of a
combination of seat systems and other seating products. Substantially all
owned facilities secure borrowings under the Company's various debt agreements.
The Company's facilities are located in appropriately designed
buildings which are kept in good repair with sufficient capacity to handle
present volumes. The Company has designed its facilities to provide for
efficient JIT manufacturing of its products. No facility is materially
underutilized. Management believes substantially all of the Company's property
and equipment is in good condition and that it has sufficient capacity to meet
its current and expected manufacturing and distribution needs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Capital Expenditures."
The following table provides certain information regarding the
Company's 79 operating facilities:
OWNED/ BUILDING LEASE
FACILITY LEASED SQ. FEET FUNCTION EXPIRATION
-------- ------ -------- -------- ----------
UNITED STATES:
--------------
Southfield, MI L 27,000 engineering offices June 1996
Southfield, MI O 70,000 administrative offices and technical center ---
Detroit, MI O 156,800 manufacture of seat systems ---
Romulus I, MI O 89,600 manufacture of seat systems ---
Romulus II, MI O 96,000 manufacture of seat systems ---
Fenton, MI O 75,800 manufacture of seat systems ---
Morristown, TN O 235,900 manufacture of seat components ---
Lorain, OH L 42,100 manufacture of seat systems July 1998
Mendon, MI O 168,500 manufacture of seat components
and other plastic products ---
Southfield, MI O 65,000 manufacture of seat tooling ---
Grand Rapids, MI (1) 66,560 manufacture of seat frames ---
Southfield, MI O 19,000 product testing facility ---
Louisville, KY L 72,000 manufacture of seat systems January 2000
Janesville, WI O 152,000 manufacture of seat systems ---
Fair Haven, MI L 68,603 manufacture of seat covers July 1995
Flint, MI L 10,083 engineering offices August 1996
Warren, MI L 17,500 engineering offices March 1997
Dearborn, MI L 75,000 engineering offices April 2004
Duncan, SC L 38,926 manufacture of seat systems May 2004
Lordstown, OH O 96,000 manufacture of seat systems ---
Rochester Hills, MI L 101,600 manufacture of seat systems August 1997
Hammond, IN O (2) 111,000 manufacture of seat systems ---
Atlanta, GA O 102,000 manufacture of seat systems ---
Bridgeton, MO L (2) 127,000 manufacture of seat systems July 1998
Wentzville, MO O (2) 42,100 manufacture of seat systems ---
El Paso, TX L 86,000 warehouse May 1997
El Paso, TX L 25,000 warehouse September 1995
CANADA:
-------
Kitchener, Ontario O 343,044 manufacture of seat frames ---
Ajax, Ontario O 120,000 manufacture of seat systems ---
Whitby, Ontario O 187,400 manufacture of seat systems ---
Oakville, Ontario O 90,000 manufacture of seat systems ---
St. Thomas, Ontario L 100,000 manufacture of seat systems January 2005
13
16
OWNED/ BUILDING LEASE
FACILITY LEASED SQ. FEET FUNCTION EXPIRATION
-------- ------ -------- -------- ----------
EUROPE:
-------
Meaux, France O 48,300 manufacture of seat components ---
Paris, France L 2,500 administrative offices January 1995
Blere, France O 14,300 manufacture of wire components ---
Rietberg, Germany O 193,143 manufacture of seat components ---
Rietberg, Germany O 17,625 technical center ---
Quakenbruck, Germany O 139,500 manufacture of seat components ---
Gustavsburg, Germany L 177,000 manufacture of seat systems June 2002
Eisenach, Germany O 77,500 manufacture of seat systems ---
Munich, Germany L 6,456 engineering offices October 2000
Koflach, Austria L 63,307 manufacture of seat systems January 1995
Trollhattan, Sweden L 135,102 manufacture of seat systems December 1996
Bengtsfors, Sweden L 246,726 manufacture of seat systems September 2007
Coventry, England O 22,000 manufacture of seat systems ---
Orbassano, Italy L (5) 200,209 manufacture of seat systems April 1998
Grugliasco, Italy O (5) 139,931 manufacture of seat frames ---
Bruino, Italy L (5) 102,257 manufacture of seat covers July 1998
Novara, Italy O (5) 129,167 manufacture of seat systems and seat frames ---
Pozzilli, Italy O (5) 161,459 manufacture of seat frames and seat covers ---
Frosinone, Italy O (5) 107,639 manufacture of seat systems ---
Caivano, Italy L (5) 118,404 manufacture of seat systems March 1997
Melfi, Italy O (5) 204,912 manufacture of seat systems ---
Myslowice, Poland L (5) 13,988 manufacture of seat frames May 1995
Myslowice, Poland L (5) 6,994 administrative offices May 1995
Tychy, Poland (in Fiat Plant) L (5) 81,776 manufacture of seat systems November 1999
MEXICO:
-------
Saltillo I L 91,025 manufacture of seat covers January 1998
Saltillo II L (2) 43,000 manufacture of seat systems April 2000
Tlahuac O 339,000 manufacture of seat components ---
Tlahuac L 8,900 warehouse June 1997
Naucalpan L 66,000 manufacture of seat systems July 1996
Cuautitlan L 75,000 manufacture of seat systems (3)
Puebla L 81,000 manufacture of seat systems (3)
Hermosillo O 121,000 manufacture of seat systems ---
Rio Bravo O 202,700 manufacture of seat covers ---
San Lorenzo O 287,000 manufacture of seat covers ---
La Cuesta O 392,500 manufacture of seat covers ---
AUSTRALIA:
----------
Adelaide 42,000 manufacture of seat systems June 2005
Melbourne L 2,500 administrative offices April 1998
AFFILIATES OR MINORITY INTERESTS:
---------------------------------
Woodstock, Ontario, Canada O (4) 120,000 manufacture of seat systems ---
Frankfort, Indiana O (4) 82,000 manufacture of seat systems ---
Khorat, Thailand L (4) 30,000 manufacture of seat covers and seat systems ---
Jakarta, Indonesia L (4) 45,000 manufacture of seat systems ---
Pamploma, Spain O (4) 87,000 manufacture of seat components ---
Bursa, Turkey L (4) 2,500 administrative offices ---
Buenos Aires, Argentina L (4) 124,700 manufacture of seat systems ---
Suzano, Sao Paulo, Brazil O (4) 344,448 manufacture of seat components ---
Ipiranga, Sao Paulo, Brazil L (4) 355,212 manufacture of seat components ---
Jaguare, Sao Paulo, Brazil L (4) 96,876 manufacture of seat components ---
--------------------
(1) This facility is operated for General Motors
(2) Facility currently under construction.
(3) Currently leased on a month-to-month basis pending agreement on a
longer lease term.
(4) Owned or leased by affiliates or minority interests of the
Company.
(5) Acquired as part of FSB acquisition.
14
17
ITEM 3 - LEGAL PROCEEDINGS
Management of the Company does not believe that any of the
litigation in which the Company is currently engaged, either individually or in
the aggregate, will have a material effect on the Company's consolidated
financial position or future results of operations.
The Company has been identified as a potentially responsible
party ("PRP") under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of
contamination from hazardous substances at three Superfund sites where
liability has not been determined. The Company has also been identified as a
PRP at two additional sites. Management believes that the Company is, or may
be, responsible for less than one percent, if any, of total costs at the three
Superfund sites. Expected liability at the two additional sites is not
material. The Company has set aside reserves which management believes are
adequate to cover any such liabilities. Management believes that such matters
will not result in liabilities that will have a material adverse effect on the
Company's consolidated financial position or future results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 1994.
15
18
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock
Exchange under the symbol "LEA." The Transfer Agent and Registrar for the
Company's Common Stock is The Bank of New York, located in New York, New York.
On February 28, 1995, there were 252 holders of record of the Company's Common
Stock.
To date, the Company has never paid a cash dividend on its Common
Stock. Any payment of dividends in the future is dependent upon the financial
condition, capital requirements, earnings of the Company and other factors.
However, the Company currently intends to retain all future earnings, if any,
to fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Also, the
Company is subject to certain contractual restrictions on the payment of
dividends. See Note 11, "Long-Term Debt," of the notes to the consolidated
financial statements included in this Report for information concerning such
restrictions.
The following table sets forth the high and low sales prices per
share of Common Stock, as reported by the New York Stock Exchange, for the
periods indicated:
Price Range of
Year Ended December 31, 1994: Common Stock
---------------------------- ------------
High Low
------ ------
1st Quarter N/A N/A
2nd Quarter 20 16 3/4
3rd Quarter 19 1/4 16 1/2
4th Quarter 21 5/8 17 1/2
16
19
ITEM 6 -- SELECTED FINANCIAL DATA
The following income statement and balance sheet data were
derived from the consolidated financial statements of the Company. The
consolidated financial statements of the Company for the years ended December
31, 1994 and 1993, for the six months ended December 31, 1993 and for the years
ended June 30, 1993, 1992, 1991 and 1990 have been audited by Arthur Andersen
LLP. In February 1994 the Company changed its fiscal year end from June 30 to
December 31 effective December 31, 1994. The selected financial data below
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company" included in this
Report.
YEAR YEAR SIX MONTHS YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1994 (1) 1993 (1) 1993 (1) 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS (2))
OPERATING DATA:
Net sales $ 3,147.5 $ 1,950.3 $ 1,005.2 $ 1,756.5 $ 1,422.7 $ 1,085.3 $ 1,067.9
Gross profit 263.6 170.2 72.2 152.5 115.6 101.4 104.7
Selling, general and
administrative
expenses 82.6 62.7 27.7 61.9 50.1 41.6 28.2
Incentive stock and other
compensation expenses (3) -- 18.0 18.0 -- -- 1.3 1.4
Amortization 11.4 9.9 4.7 9.5 8.7 13.8 13.8
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income 169.6 79.6 21.8 81.1 56.8 44.7 61.3
Interest expense, net 46.7 45.6 24.8 47.8 55.2 61.7 61.2
Other expense, net (4) 8.1 9.2 6.6 5.4 5.8 2.2 4.1
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes and extraordinary
items 114.8 24.8 (9.6) 27.9 (4.2) (19.2) (4.0)
Income taxes 55.0 26.9 13.4 17.8 12.9 14.0 16.6
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) before
extraordinary items 59.8 (2.1) (23.0) 10.1 (17.1) (33.2) (20.6)
Extraordinary items (5) -- (11.7) (11.7) -- (5.1) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 59.8 $ (13.8) $ (34.7) $ 10.1 $ (22.2) $ (33.2) $ (20.6)
=========== =========== =========== =========== =========== =========== ===========
Net income (loss) per share
before extraordinary items $ 1.26 $ (.06) $ (.65) $ .25 $ (.62) $ (2.01) $ (1.25)
Net income (loss) per share $ 1.26 $ (.39) $ (.98) $ .25 $ (.80) $ (2.01) $ (1.25)
Weighted average shares
outstanding 47,438,477 35,500,014 35,500,014 40,049,064 27,768,312 16,493,499 16,500,000
BALANCE SHEET DATA:
Current assets $ 818.3 $ 433.6 $ 325.2 $ 282.9 $ 213.8 $ 223.2
Total assets 1,715.1 1,114.3 820.2 799.9 729.7 747.6
Current liabilities 981.2 505.8 375.0 344.2 287.1 254.5
Long-term debt 418.7 498.3 321.1 348.3 386.7 402.8
Common stock subject to
limited redemption rights,
net -- 12.4 3.9 3.5 1.8 1.8
Stockholders' equity 213.6 43.2 75.1 49.4 4.4 35.3
OTHER DATA:
EBITDA (6) $ 225.7 $ 122.2 $ 121.8 $ 91.8 $ 81.4 $ 94.3
Capital expenditures $ 103.1 $ 45.9 $ 31.6 $ 27.9 $ 20.9 $ 14.9
Number of facilities (7) 79 61 48 45 40 33
North American Content per
Vehicle (8) $ 169 $ 112 $ 98 $ 94 $ 84 $ 77
North American vehicle
production
(in millions) (9) 15.2 13.7 13.6 12.2 11.2 12.4
------------------
(1) On July 1, 1993, the Company adopted SFAS 106 (as defined herein). As
a result, the year and six months ended December 31, 1993 represent the
first periods during which the Company began to incur additional expense
associated with the adoption of SFAS 106. The additional expense for
each of these periods was $3.3 million. The additional expense in 1994
was $7.3 million.
(2) Except per share data and North American Content per Vehicle.
(3) Includes a one-time charge of $18.0 million, of which $14.5 million is
non-cash, for the year and six months ended December 31, 1993 for
incentive stock and other compensation expense (see Note 16 "Stock
Options, Warrants and Common Stock Subject to Redemption" in the
consolidated financial statements included elsewhere in this Report).
(4) Consists of foreign currency exchange gain or loss, minority interest in
net income of subsidiaries, equity (income) loss of affiliates, state
and local taxes and other expense.
(5) The extraordinary items resulted from the prepayment of debt.
(6) "EBITDA" is operating income plus depreciation and amortization. EBITDA
does not represent and should not be considered as an alternative to net
income or cash flows from operations as determined by generally accepted
accounting principles.
(7) Includes facilities operated by the Company's less than majority-owned
affiliates and facilities under construction.
(8) "North American Content per Vehicle" is the Company's net sales in North
America divided by total North American vehicle production.
(9) "North American vehicle production" includes car and light truck
production in the United States, Canada and Mexico estimated from
industry sources.
17
20
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
Year Ended December 31, 1994 Compared With Year Ended December 31, 1993.
Net sales of $3,147.5 million in the year ended December 31, 1994
represents the thirteenth consecutive year of record sales and surpassed sales
of $1,950.3 million in the year ended December 31, 1993 by $1,197.2 million or
61.4%. Sales in 1994 benefited from internal growth from new programs and
increased seat content per vehicle, higher automotive production in the United
States and Europe and the acquisition of the North American seat and seat cover
business (NAB) from Ford Motor Company on November 1, 1993 which accounted for
$421 million of the increase.
Gross profit (net sales less cost of sales) and gross margin
(gross profit as a percentage of net sales) were $263.6 million and 8.4% in the
year ended December 31, 1994 as compared to $170.2 million and 8.7% in the year
ended December 31, 1993. Gross profit in fiscal 1994 surpassed prior year due
to the benefit of higher sales volume including the effect of the NAB
acquisition and the Company's cost reduction programs. Partially offsetting
the increase in gross profit was $23.1 million of expense for engineering and
preproduction costs for new facilities in the United States, Canada and Europe,
lower margin contribution in Mexico and the $3.9 million increase in
postretirement health care expenses (SFAS 106).
Selling, general and administrative expenses as a percentage of
net sales declined to 2.6% for the year ended December 31, 1994 as compared to
3.2% in the prior year. The increase in actual expenditures was largely the
result of administration support expenses and research and development costs
associated with the expansion of domestic and foreign business and expenses
related to new business opportunities.
Operating income and operating margin (operating income as a
percentage of net sales) were $169.6 million and 5.4% in the fiscal year ended
December 31, 1994 and $79.6 million and 4.1% in the year ended December 31,
1993. The 113% increase in operating income was attributable to the benefits
of higher sales volume, including the effect of the NAB acquisition,
non-recurring incentive stock and other compensation expense of $18 million in
1993 and the Company's cost reduction programs. Partially offsetting the
increase in operating income were new facility and engineering costs for future
seat programs, reduced margins in Mexico and SFAS 106. Non-cash depreciation
and amortization charges were $56.1 million and $42.6 million for the years
ended December 31, 1994 and 1993.
Other expense for the year ended December 31, 1994, including
state and local taxes, foreign exchange gains and losses, minority interests
and equity in income of affiliates, decreased in comparison to the prior year
as the non-recurring write-off of equipment associated with a discontinued
program in Germany and non-seating related assets in the United States, along
with a foreign exchange gain, offset state and local tax expense associated
with the NAB acquisition.
Interest expense in fiscal 1994 increased in relation to the year
ended December 31, 1993 as additional debt incurred to finance the NAB
acquisition and higher short-term interest expense in Europe offset the
benefits derived from the refinancing of subordinated debt at a lower interest
rate and the Company's equity offering in April, 1994.
Net income for the year ended December 31, 1994 was $59.8
million, or $1.26 per share, as compared to a net loss of $13.8 million, or
$.39 per share, realized in the year ended December 31, 1993. The net income
of $59.8 million in fiscal 1994 reflects a $55.0 million provision for national
income taxes of which $26.0 million relates to foreign operations. Further
contributing to the improvement in 1994 net income was the extraordinary
expense in 1993 of $11.7 million for the early extinguishment of debt.
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21
The following chart shows operating results of the Company by principal
geographic area:
GEOGRAPHIC OPERATING RESULTS
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
------------------------------- --------------------------- -------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 2, JUNE 30, JUNE 30,
1994 1993 1993 1993 1993 1992
---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
NET SALES:
United States $ 1,805.3 $ 981.2 $ 551.2 $ 335.7 $ 765.7 $ 597.1
Canada 573.4 375.8 168.6 164.8 372.0 403.3
Europe 572.5 403.8 189.3 218.0 432.5 268.2
Mexico 196.3 189.5 96.1 92.9 186.3 154.1
--------- --------- --------- -------- --------- ---------
Net Sales $ 3,147.5 $ 1,950.3 $ 1,005.2 $ 811.4 $ 1,756.5 $ 1,422.7
========= ========= ========= ======== ========= =========
OPERATING INCOME:
United States $ 109.3 $ 61.3 $ 27.1 $ 17.6 $ 51.8 $ 32.0
Canada 46.3 25.6 12.1 1.8 15.3 14.7
Europe 4.4 (9.6) (7.6) (1.9) (3.9) 3.0
Mexico 10.2 20.3 8.2 5.8 17.9 7.1
Unallocated
and other (.6) (18.0) (18.0) - - -
--------- --------- --------- -------- --------- ---------
Operating Income $ 169.6 $ 79.6 $ 21.8 $ 23.3 $ 81.1 $ 56.8
========= ========= ========= ======== ========= =========
United States Operations
Net sales in the United States increased by 84.0% from $981.2
million in the year ended December 31, 1993 to $1,805.3 million for the current
fiscal year. Sales for the year ended December 31, 1994 benefited from the
full year contribution of the NAB acquisition, vehicle production increases on
mature seating programs, incremental volume on new Chrysler truck and Ford
passenger car programs and sales generated by a lead vendor program under which
the Company assumed management of components for a seat program with Ford.
Operating income and operating margin were $109.3 million and
6.0% in the fiscal year ended December 31, 1994 and $61.3 million and 6.2% in
the year ended December 31, 1993. Operating income and operating margin in
fiscal 1994 as compared to the prior year benefited from the NAB acquisition,
the overall increase in vehicle production and cost reduction programs which
offset new program costs for new facilities, administrative expenses associated
with the expansion of business and increased research and development expenses.
Canadian Operations
Net sales in Canada increased by 52.6% to $573.4 million in the
year ended December 31, 1994 compared to $375.8 million in the year ended
December 31, 1993. Sales in 1994 reflect the benefit of a new Ford truck
program introduced in February 1994, the relocation of a NAB passenger car
program from Mexico and slightly higher volumes on mature seat programs which
offset downtime associated with a General Motors plant conversion for a
replacement mid-size passenger car. Initial production of the replacement
program began in February 1994 with attainment of targeted production levels in
the second quarter of 1994.
Operating income and operating margin in Canada were $46.3
million and 8.1% in the year ended December 31, 1994 and $25.6 million and 6.8%
in the year ended December 31, 1993. The growth in operating income and
operating margin was due to the benefits derived from higher sales volume on
mature seating programs, cost reduction programs, and improved operating
performance at start-up seat facilities.
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European Operations
Net sales in Europe increased by 41.8% to $572.5 million for the
fiscal year ended December 31, 1994 compared to $403.8 million for 1993. The
sales increase was due primarily to the addition of new seat programs in
Germany and England and vehicle production increases on established programs in
Germany, Sweden and Austria.
Operating income in Europe was $4.4 million in the fiscal year
ended December 31, 1994 as compared to an operating loss of $9.6 million
sustained in the year ended December 31, 1993. Operating income in fiscal year
1994 as compared to the prior year benefited from the higher sales levels and
cost reduction programs at existing seat and seat component facilities.
Partially offsetting the increase in operating income were incremental costs
associated with the start-up of a new seat facility in England and the
introduction of a replacement component program within an established facility
in Germany.
Mexican Operations
Net sales in Mexico were $196.3 million in the year ended
December 31, 1994 and $189.5 million in the year ended December 31, 1993.
Sales for the year ended December 31, 1994 surpassed the comparable period in
the prior year due to new Chrysler truck and Ford passenger car seat programs
and incremental volume on mature Ford programs. Partially offsetting the
increase in net sales was the product phase out of a mature truck program and
participation in customer cost reduction programs.
Operating income and operating margin in Mexico were $10.2
million and 5.2% in the fiscal year ended December 31, 1994 and $20.3 million
and 10.7% in the prior year. Operating income and operating margin in 1994
declined in relation to the prior year as a result of the Company's
participation in customer cost reduction programs and costs associated with the
introduction of replacement products at new and established facilities.
Six Months Ended December 31, 1993 Compared With Six Months Ended January 2,
1993.
Net sales of $1,005.2 million in the six months ended December
31, 1993 surpassed the six months ended January 2, 1993 by $193.8 million or
23.9% despite the effect of depressed automotive vehicle sales on existing
seating programs in Europe. Net sales benefited from the purchase of NAB on
November 1, 1993, new business in the United States and Europe and incremental
volume on established domestic seating programs.
Net sales in the United States of $551.2 million in the six
months ended December 31, 1993 increased by $215.5 million or 64.2% from the
comparable period in the prior year, reflecting $86.0 million in sales from the
NAB acquisition, improved domestic car and truck production on established
seating programs, incremental sales from new seat programs and sales generated
by a new lead vendor program under which the Company assumed management of
components for a seat program with Ford.
Net sales in Canada for the six months ended December 31, 1993 of
$168.6 million exceeded sales during the comparable period in the prior year by
$3.8 million or 2.3%, reflecting modest vehicle production increases on
established General Motors seat programs. Net sales were adversely impacted by
downtime associated with a General Motors plant conversion necessary for a
replacement mid-size passenger car model introduction. Production for that
replacement program began in the first quarter of 1994.
Net sales in Europe of $189.3 million in the six months ended
December 31, 1993 declined in relation to the six months ended January 2, 1993
by $28.7 million or 13.2% due to reduced vehicle production requirements for
carryover seating programs in Sweden and Finland and unfavorable exchange rate
fluctuations. Partially offsetting the decrease in sales was additional volume
on established seating programs in Germany and Austria.
Net sales in Mexico increased $3.2 million to $96.1 million in
the six month period ended December 31, 1993 compared to the six month period
ended January 2, 1993 due to increased production activity on existing
Volkswagen and Chrysler programs.
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23
Gross profit and gross margin were $72.2 million and 7.2% for the
six month period ended December 31, 1993 as compared to $54.5 million and 6.7%
for the prior comparable period. Gross profit and gross margin in the six
month period ended December 31, 1993 benefited from the overall increase in
North American automotive production, productivity improvement programs,
favorable Canadian exchange rate fluctuations and the NAB acquisition.
Partially offsetting the increase in gross profit were reduced utilization in
Europe, facility pre-production costs for seating programs in Canada, England
and Germany, the devaluation of the Swedish krona and severance costs
associated with the downsizing of German component operations. The adoption of
SFAS 106 had an unfavorable impact on gross profit in the six month period
ended December 31, 1993 of $2.9 million.
Selling, general and administrative expenses decreased to 2.8% of
net sales for the six months ended December 31, 1993 as compared to 3.3% for
the comparable period in the prior year. While expenditures for the more
recent period increased 3.1%, or $0.8 million, over the earlier period, an
increase in sales led to an overall decrease in these expenses as a percentage
of sales. Primarily contributing to the increase in selling, general and
administrative expenses in the six month period ended December 31, 1993 were
design, development and pre-production costs relating to a BMW seating program.
Operating income and operating margin, before the one-time charge
of $18.0 million for incentive stock and other compensation expense, were $39.8
million and 4.0% for the six months ended December 31, 1993 compared to $23.3
million and 2.9% during the comparable period in the prior year. The increase
in operating income was due largely to an overall increase in net sales in
North America, including an increase in net sales as a result of the NAB
acquisition and productivity improvements, which offset lower margin
contribution in Europe and the adoption of SFAS 106. Non-cash depreciation and
amortization charges were $21.9 million and $19.9 million for the six months
ended December 31, 1993 and January 2, 1993, respectively.
Interest expense for the six month period ended December 31, 1993
decreased by $2.2 million from the comparable period in the prior year
primarily due to the refinancing of certain subordinated and senior debt at
lower interest rates, lower European interest rates, reduced borrowings in
Canada and Europe and reduced amortization of financing fees due to the early
extinguishment of debt. See Note 4, "1994 Refinancing" to the Company's
consolidated financial statements.
Other expense for the six months ended December 31, 1993,
including state and local taxes, foreign exchange loss, minority interest in
income of subsidiaries and equity in income of affiliates, increased in
comparison to the prior year due to the $4.0 million write-off of equipment
associated with a discontinued Volkswagen program in Germany and non-seating
related assets in the United States.
A loss of $5.0 million, before extraordinary items and the
one-time charge of $18.0 million for incentive stock and other compensation
expense, was recognized for the six months ended December 31, 1993 as compared
to a net loss of $10.8 million in the prior comparable period. The net loss in
the six months ended December 31, 1993 reflects a $13.5 million provision for
national income taxes of which approximately $8.7 million relates to foreign
operations. For the six month period ended December 31, 1993, the Company
recognized a net loss of $34.7 million after giving effect to an extraordinary
item for the early extinguishment of debt of $11.7 million and one-time charge
of $18.0 million for incentive stock and other compensation expense. The
extraordinary item was comprised of unamortized deferred financing fees expense
and a call premium resulting from the redemption of the 14% Subordinated
Debentures, net of related tax effects.
Fiscal Year Ended June 30, 1993 Compared With Fiscal Year Ended June 30, 1992
Net sales of $1,756.5 million in the fiscal year ended June 30,
1993 increased $333.8 million or 23.5% over the fiscal year ended June 30,
1992. The increase was due to new business in the United States and Europe,
full year production of a second facility in Sweden for Volvo, of which the
Company assumed control in January 1992, and incremental volume on domestic and
Mexican programs.
Gross profit and gross margin were $152.5 million and 8.7% in the
fiscal year ended June 30, 1993 and $115.6 million and 8.1% in the fiscal year
ended June 30, 1992. Gross profit increased due to the benefit of incremental
volume, including production of new business programs, productivity improvement
programs and improved operating performance at new
21
24
facilities in North America, Europe and Mexico. Partially offsetting
the increase in gross profit were participation in customer cost reduction
programs, plant shutdown costs at a dedicated facility in Finland, nonrecurring
favorable foreign exchange effect on sales and a retroactive price increase
recognized in the first and second quarters of the fiscal year ended June 30,
1992.
Selling, general and administrative expenses as a percentage of
net sales remained unchanged at 3.5% in the fiscal year ended June 30, 1993 as
compared to the prior fiscal year. The increase in actual expenses was largely
the result of increased research and development cost for future seating
programs in the United States, Canada and Europe. Further contributing to the
increase in expenses were administrative support expenses for Mexican
operations and costs associated with the establishment of customer business
units in North America.
Operating income and operating margin were $81.1 million and 4.6%
in the fiscal year ended June 30, 1993, $56.8 million and 4.0% in the fiscal
year ended June 30, 1992. The growth in operating income was due to
incremental volume on established seating programs and improved performance at
new seat and seat cover facilities. Partially offsetting the increase in
operating income were pre-production and facility costs for programs to be
introduced after June 30, 1993, plant shutdown costs and nonrecurring prior
fiscal year adjustments noted above. Non-cash depreciation and amortization
charges were $40.7 million in the fiscal year ended June 30, 1993 and $35.0
million in the fiscal year ended June 30, 1992.
Interest expense in the fiscal year ended June 30, 1993 declined
in relation to the fiscal year ended June 30, 1992 due to lower interest rates
on bank debt, refinancing of certain subordinated debt at a lower interest rate
and the application of funds received from the capital infusions initiated on
September 27, 1991 and July 30, 1992.
Other expense, including state and local taxes, foreign exchange
gain or loss, minority interests and equity in income of affiliates, decreased
in the fiscal year ended June 30, 1993 in comparison to the fiscal year ended
June 30, 1992 as reduced income derived from joint ventures accounted for under
the equity method coupled with the Company's write-off of its $1.7 million
investment in Probel S.A., a Brazilian company, were more than offset by the
expense portion of nonrecurring capitalization and related costs of $3.2
million associated with the capital infusion of September 27, 1991.
Net income of $10.1 million was realized in the fiscal year ended
June 30, 1993 as compared to a net loss of $22.2 million in the fiscal year
ended June 30, 1992. The net income of $10.1 million in the fiscal year ended
June 30, 1993 reflects an $11.9 million provision for foreign national income
taxes as compared to an $8.2 million provision in the fiscal year ended June
30, 1992.
United States Operations
Net sales in the United States were $765.7 million and $597.1
million in the fiscal years ended June 30, 1993 and 1992, respectively. Net
sales surpassed the prior year due to improved domestic car and truck
production on established seating programs in the second half of the fiscal
year ended June 30, 1993 coupled with a new Ford passenger car program and the
attainment of targeted production levels for a General Motors truck program
introduced in the fall of 1991.
Operating income and operating margin were $51.8 million and 6.8%
in the fiscal year ended June 30, 1993 and $32.0 million and 5.4% in the fiscal
year ended June 30, 1992. The growth in operating income and operating margin
was due to the benefits derived from incremental volume on established and new
seating programs, productivity improvements and improved operating performance
at new seat cover facilities. Partially offsetting the increase in operating
income were participation in customer cost reduction programs and preproduction
costs associated with a new seating program.
Canadian Operations
Net sales from Canadian operations were $372.0 million in the
fiscal year ended June 30, 1993 and $403.4 million in the fiscal year ended
June 30, 1992. Net sales in the fiscal year ended June 30, 1993 were adversely
impacted by market demand and vehicle inventories as General Motors announced
temporary plant shutdowns and production adjustments on existing passenger car
and light truck programs.
Operating income and operating margin were $15.3 million and 4.1%
in the fiscal year ended June 30, 1993 and $14.7 million and 3.6% in the fiscal
year ended June 30, 1992. Operating income in the fiscal year ended June 30,
1993 benefited
22
25
from productivity improvement programs, favorable exchange rate
fluctuations and improved operating performance at a new seat facility.
Partially offsetting the increase in operating income were reduced vehicle
production schedules on existing programs and engineering costs associated with
a future Ford seating program.
European Operations
Net sales in Europe were $432.5 million in the fiscal year ended
June 30, 1993 and $268.2 million in the fiscal year ended June 30, 1992. Net
sales exceeded the prior year due to the addition of new operations in Germany
and Austria, the full year impact resulting from the acquisition of facilities
in Sweden and Finland and incremental volume on carryover programs in Germany.
Partially offsetting the increase in net sales were reduced vehicle production
schedules for established seating programs in Sweden and unfavorable exchange
rate fluctuations.
The Company's European operations sustained an operating loss of
$3.9 million in the fiscal year ended June 30, 1993 as compared to operating
income of $3.0 million in the fiscal year ended June 30, 1992. The $6.9
million unfavorable variance in the fiscal year ended June 30, 1993 was the
result of lower margin products introduced at an established facility in
Germany, technical and administration costs required to support European
manufacturing facilities, a retroactive price increase recognized in the first
half of the fiscal year ended June 30, 1992 and the devaluation of the Swedish
krona, which was partially offset by the favorable impact of foreign exchange
rates. Also contributing to the decrease in operating income were reserves
established by the Company for the anticipated plant shutdown costs at a
dedicated facility in Finland due to the customer transfer of production to
alternative locations in Europe. Partially offsetting the decrease in
operating income was the overall growth in sales activity, including production
from new programs in Germany and Austria and to the full year contribution of
facilities in Sweden and Finland of which the Company assumed control in the
fiscal year ended June 30, 1992.
Mexican Operations
Net sales in Mexico were $186.3 million in the fiscal year ended
June 30, 1993 and $154.1 million in the fiscal year ended June 30, 1992. Net
sales increased due to increased production activity on established General
Motors, Ford, Volkswagen and Chrysler programs.
Operating income and operating margin in Mexico were $17.9
million and 9.6% in the fiscal year ended June 30, 1993 and $7.1 million and
4.7% in the fiscal year ended June 30, 1992. The increase in operating income
and operating margin in the fiscal year ended June 30, 1993 as compared to the
prior fiscal year was due to the benefit of additional sales, productivity
improvement programs and improved manufacturing performance at a seat cover
facility.
LIQUIDITY AND FINANCIAL CONDITION
On November 29, 1994, the Company amended and restated its
Amended and Restated Credit Agreement (as amended and restated, the "Credit
Agreement"), which increased the Company's total availability to $500.0 million
from $425.0 million, reduced the Company's bank borrowing costs by
approximately 25 basis points and enabled the Company to finance a portion of
the FSB acquisition. As of December 31, 1994 the Company had $183.4 million
outstanding under the Credit Agreement ($61.5 million of which was outstanding
under letters of credit), resulting in $316.6 million unused and available. In
addition, the Company had $28.7 million of long-term debt outstanding with
various governmental authorities and banks. As of December 31, 1994, the
Company had $32.0 million in net cash and cash equivalents.
Amounts available under the Credit Agreement will be reduced by
$58.75 million every six months beginning November 30, 1997, and the Credit
Agreement will expire on November 30, 1999. Excluding amounts outstanding
under the Credit Agreement which will be due upon the expiration of the Credit
Agreement, the Company's scheduled principal payments on long-term debt are
$1.8 million in 1995, $1.9 million for each of the next three calendar years
and $1.4 million in 1999.
Net cash provided by operating activities increased to $155.7
million in the year ended December 31, 1994, compared to $113.3 million for the
same period in 1993 primarily as a result of higher operating earnings. The
net change in working capital, while slightly less favorable than in 1993,
contributed $30.4 million to net cash.
23
26
The net change in working capital declined from a source of $58.4
million in 1993 to a source of $30.4 million as a result of higher reimbursable
pre-production development and production tooling attributable to 1994 and 1995
new programs. Increases in receivable, inventory and payable levels were
consistent with the 61.4% increase in net sales. As a result of improved asset
management, receivable and inventory levels actually decreased as a percent of
net sales in the year ended December 31, 1994.
Net cash used by investing activities was $195.6 and $214.8
million for years ended December 31, 1994 and 1993, respectively. As discussed
in Notes 7 and 8 of the Notes to Consolidated Financial Statements, the Company
acquired the Fiat Seat Business in December 1994 for $88.0 million cash plus
assumed liabilities and the NAB acquisition in November 1993 for $172.1 million
(including fees and expenses).
The Company's total debt as a percentage of total capitalization
decreased to 70% at December 31, 1994 from 91% at December 31, 1993. On April
13, 1994, the Company received net proceeds of $103.6 million from the initial
public offering of its common stock. These proceeds were used to reduce the
amount outstanding under the Credit Agreement. As a result, net cash provided
by financing activities decreased to $17.6 million in calendar 1994 from $127.5
million in 1993. The NAB acquisition in November 1993 and the FSB acquisition
in December 1994 were both financed with borrowings under the Credit Agreement.
In February 1994, the Company took advantage of the favorable
interest rate environment by refinancing $135.0 million in aggregate principal
amount of its 14% Subordinated Debentures due 2000 by issuing $145.0 million
aggregate principal amount of 8 1/4% Subordinated Notes due 2002. The
additional proceeds were used to pay a 5.4% call premium and a portion of the
accrued interest due on the redemption of the 14% Subordinated Debentures.
CAPITAL EXPENDITURES
During the fiscal year ending December 31, 1994, capital
expenditures aggregated approximately $103.1 million, of which approximately
$61.8 million related to the addition of new facilities and other expenditures
for new programs, with the remainder spent for increased capacity at existing
facilities and ongoing maintenance requirements. For the fiscal year ended
June 30, 1993 and 1992, capital expenditures of the Company were $31.6 million
and $27.9 million, respectively. The Company estimates that it spent, in the
aggregate, $15.0 million and $10.0 million in the fiscal years ended June 30,
1993 and 1992, respectively, for equipment replacement and refurbishment. For
the six months ended December 31, 1993, capital expenditures of the Company
were $29.0 million. For 1995, the Company anticipates capital expenditures of
approximately $95.0 million. Approximately $50.0 million is designated for new
programs and facilities, replacement programs and investment in the Company's
worldwide engineering and product testing capabilities.
During the years ended December 31, 1994 and 1993 and the years
ended June 30, 1993 and 1992, cash generated from operations and funds
available under the Credit Agreement were sufficient to meet the Company's debt
service and capital expenditure requirements. The Company believes that cash
flows from operations and funds available from existing credit facilities
(principally the Credit Agreement) will be sufficient to meet its future debt
service obligations, projected capital expenditures and working capital
requirements.
ENVIRONMENTAL MATTERS
The Company is subject to local, state, federal and foreign laws,
regulations and ordinances (i) which govern activities or operations that may
have adverse environmental effects and (ii) that impose liability for the costs
of cleaning up certain damages resulting from sites of past spills, disposal or
other releases of hazardous substances. The Company currently is engaged in
the cleanup of hazardous substances at certain sites owned, leased or operated
by the Company, including soil and groundwater cleanup at its facility in
Mendon, Michigan. Management believes that the Company will not incur
compliance costs or cleanup cost at its facilities with known contamination
that would have a material adverse effect on the Company's consolidated
financial position or future results of operations.
The Company has been identified as a potentially responsible
party ("PRP") under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of
contamination from hazardous substances at three Superfund sites where
liability has not been completely determined. The
24
27
Company has also been identified as a PRP at two additional sites. Management
believes that the Company is, or may be, responsible for less than one percent,
if any, of the total costs at the three Superfund sites. Expected liability at
the two additional sites is not material.
INFLATION AND ACCOUNTING POLICIES
Lear's contracts with its major customers generally provide for
an annual productivity price reduction and provide for the recovery of
increases in material and labor costs in some contracts. Cost reduction
through design changes, increased productivity and similar programs with the
Company's suppliers generally have offset changes in selling prices. The
Company's cost structure is comprised of a high percentage of variable costs.
The Company believes that this structure provides it with additional
flexibility during economic cycles.
During December 1994, the Mexican peso experienced a devaluation
of approximately 35%. Because the Company consolidates its Mexican subsidiary
as of the end of November, the effects of this devaluation are not included in
the Company's consolidated financial statements. The devaluation is expected
to result in a decrease in stockholders' equity of approximately $10.4 million
based on exchange rates at December 31, 1994. The effect on the results of
operations is not expected to be material.
In November 1992, the Financial Accounting Standards Board issued
SFAS 112, "Employers Accounting for Post-Employment Benefits." This statement
requires that employers accrue the cost of post-employment benefits during the
employees' active service. The Company adopted this statement effective
January 1, 1994. The adoption of this statement did not have a material effect
on the Company's financial position or results of operations.
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28
ITEM 8 -- FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants 27
Consolidated Balance Sheets as of December 31, 1994 and 1993 28
Consolidated Statements of Operations for the years ended December 31,
1994 and 1993, for the six months ended December 31, 1993, and for
the years ended June 30, 1993 and 1992 30
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994 and 1993, for the six months ended December 31, 1993,
and for the years ended June 30, 1993 and 1992 31
Consolidated Statements of Cash Flows for the years ended December 31,
1994 and 1993, for the six months ended December 31, 1993 and for
the years ended June 30, 1993 and 1992 32
Notes to Consolidated Financial Statements 33
26
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Seating Corporation:
We have audited the accompanying consolidated balance sheets of
LEAR SEATING CORPORATION AND SUBSIDIARIES ("the Company") as of December 31,
1994 and 1993 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1994 and
1993, for the six months ended December 31, 1993, and for the years ended June
30, 1993 and 1992. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as
of December 31, 1994 and 1993 and the results of its operations and its cash
flows for the years ended December 31, 1994 and 1993, for the six months ended
December 31, 1993, and for the years ended June 30, 1993 and 1992, in
conformity with generally accepted accounting principles.
As discussed in Note 14 to the consolidated financial statements, as of
July 1, 1993, the Company changed its method of accounting for post-retirement
benefits other than pensions.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 15, 1995.
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30
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
December 31, December 31,
ASSETS 1994 1993
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 32.0 $ 55.0
Accounts receivable, less allowance for
doubtful accounts of $1.2 million at December 31,
1994 and $.6 million at December 31, 1993 579.8 272.4
Inventories 126.6 71.7
Unbilled customer tooling 53.5 19.4
Other 26.4 15.1
---------- ----------
818.3 433.6
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land 36.6 31.3
Buildings and improvements 141.1 114.5
Machinery and equipment 310.6 210.7
Construction in progress 16.2 5.0
---------- ----------
504.5 361.5
Less- Accumulated depreciation (150.3) (110.5)
---------- ----------
354.2 251.0
---------- ----------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$62.3 million at December 31, 1994 and $50.9 million
at December 31, 1993 499.5 403.7
Deferred financing fees, net 12.8 14.3
Investments in affiliates and other 30.3 11.7
---------- ----------
542.6 429.7
---------- ----------
$ 1,715.1 $ 1,114.3
========== ==========
The accompanying notes are an integral part of these statements.
28
31
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
December 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
------------------------------------ ----------- ------------
CURRENT LIABILITIES:
Short-term borrowings $ 84.1 $ 48.2
Cash overdrafts 27.6 19.8
Accounts payable 656.7 298.3
Accrued liabilities 210.9 138.3
Current portion of long-term debt 1.9 1.2
-------- --------
981.2 505.8
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes 25.3 15.9
Long-term debt 418.7 498.3
Other 76.3 38.7
-------- --------
520.3 552.9
-------- --------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock subject to limited rights of
redemption, $.01 par value, 990,033
shares at December 31, 1993
at the maximum redemption price
of $13.64 per share - 13.5
Notes receivable from sale of common stock - (1.1)
-------- --------
- 12.4
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000
shares authorized at December 31, 1994 and
1993, 46,088,278 shares issued at
December 31, 1994 and 37,809,981 shares
issued at December 31, 1993, net of
shares subject to redemption .5 .4
Additional paid-in capital 274.3 156.5
Notes receivable from sale of common stock (1.0) -
Warrants exercisable for common stock - 10.0
Less - Common stock held in treasury, 10,230
shares at December 31, 1994 and 3,300,000
shares at December 31, 1993, at cost (.1) (10.0)
Retained deficit (49.4) (109.2)
Minimum pension liability adjustment (5.8) (4.2)
Cumulative translation adjustment (4.9) (.3)
-------- --------
213.6 43.2
-------- --------
$1,715.1 $1,114.3
======== ========
The accompanying notes are an integral part of these statements.
29
32
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Six
Year Ended Months Year Ended
December 31, Ended June 30,
---------------------- December 31, -------------------
1994 1993 1993 1993 1992
-------- -------- -------- -------- --------
Net sales $3,147.5 $1,950.3 $1,005.2 $1,756.5 $1,422.7
Cost of sales 2,883.9 1,780.1 933.0 1,604.0 1,307.1
Selling, general and
administrative expenses 82.6 62.7 27.7 61.9 50.1
Incentive stock and other
compensation expense - 18.0 18.0 - -
Amortization of goodwill 11.4 9.9 4.7 9.5 8.7
-------- -------- -------- -------- --------
Operating income 169.6 79.6 21.8 81.1 56.8
Interest expense 46.7 45.6 24.8 47.8 55.2
Foreign currency exchange
(gain) loss (.3) .1 (.2) .5 .3
Other expense, net 8.6 7.8 6.5 4.4 7.8
-------- -------- -------- -------- --------
Income (loss) before
provision for national
income taxes, minority
interests in net income of
subsidiaries, equity (income)
loss of affiliates and
extraordinary item 114.6 26.1 (9.3) 28.4 (6.5)
Provision for national
income taxes 55.0 26.9 13.4 17.8 12.9
Minority interests in net
income of subsidiaries .5 .3 .1 .5 .7
Equity (income) loss of
affiliates (.7) 1.0 .2 - (3.0)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item 59.8 (2.1) (23.0) 10.1 (17.1)
Extraordinary loss on
early extinguishment of
debt - 11.7 11.7 - 5.1
-------- -------- -------- -------- --------
Net income (loss) $ 59.8 $ (13.8) $ (34.7) $ 10.1 $ (22.2)
======== ======== ======== ======== ========
Net income (loss) per
common share, as adjusted
(Note 1): Income (loss) before
extraordinary item $ 1.26 $ (.06) $ (.65) $ .25 $ (.62)
Extraordinary loss - (.33) (.33) - (.18)
-------- -------- -------- -------- --------
Net income (loss) per
common share $ 1.26 $ (.39) $ (.98) $ .25 $ (.80)
======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements.
30
33
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT SHARE DATA)
Warrants Note
Exercisable Receivable
Additional for from sale
Common Paid-in Common Treasury of Common
Stock Capital Stock Stock Stock
------ --------- ---------- -------- -----------
BALANCE, JUNE 30, 1991 $ - $ 60.9 $ 10.0 $ (10.1) $ -
Net loss - - - - -
Re-acquisition of 62,700 shares of
common stock subject
to redemption from management
investors, at cost - .2 - (.2) -
Sale of additional 14,999,985 shares
of common stock, net of
transaction costs - 72.4 - - -
Recognize minimum pension
liability adjustment - - - - -
Foreign currency translation - - - - -
Restate common stock subject to
redemption to
maximum redemption value - (1.8) - - -
------ -------- ------- -------- ----------
BALANCE, JUNE 30, 1992 - 131.7 10.0 (10.3) -
Net loss - - - - -
Sale of additional 3,999,996
shares of common stock,
net of transaction costs - 19.6 - - -
Sale of 84,183 shares of
treasury stock to management
investors - (.3) - .3 -
Foreign currency translation - - - - -
------ -------- ------- -------- ----------
BALANCE, JANUARY 2, 1993 - 151.0 10.0 (10.0) -
Net income - - - - -
Minimum pension liability adjustment - - - - -
Foreign currency translation - - - - -
------ -------- ------- -------- ----------
BALANCE, JUNE 30, 1993 - 151.0 10.0 (10.0) -
Net loss - - - - -
Incentive stock option compensation - 14.5 - - -
Minimum pension liability adjustment - - - - -
Foreign currency translation - - - - -
Restate common stock subject to
redemption to
maximum redemption value - (8.6) - - -
Thirty-three-for-one stock split .4 (.4) - - -
------ -------- ------- -------- ----------
BALANCE, DECEMBER 31, 1993 .4 156.5 10.0 (10.0) -
Net income - - - - -
Sale of additional 7,187,500
shares of common stock,
net of transaction costs .1 103.5 - - -
Exercise of stock options - .7 - - -
Exercise of warrants - - (10.0) 10.0 -
Elimination of common stock
subject to redemption - 13.5 - - (1.1)
Repayment of stockholders'
note receivable - - - - .1
Purchase of 21,450 shares
of treasury stock - - - (.1) -
Sale of 11,220 shares of
treasury stock - .1 - - -
Minimum pension liability
adjustment - - - - -
Foreign currency translation - - - - -
------ -------- ------- -------- ----------
BALANCE, DECEMBER 31, 1994 $ .5 $ 274.3 $ - $ (.1) $ (1.0)
====== ======== ======= ======== ==========
Minimum
Pension Cumulative
Retained Liability Translation
Deficit Adjustment Adjustment Total
--------- ---------- ----------- ------
BALANCE, JUNE 30, 1991 $ (62.4) $ - $ 6.0 $ 4.4
Net loss (22.2) - - (22.2)
Re-acquisition of 62,700 shares of
common stock subject
to redemption from management
investors, at cost - - - -
Sale of additional 14,999,985 shares
of common stock, net of
transaction costs - - - 72.4
Recognize minimum pension
liability adjustment - (2.8) - (2.8)
Foreign currency translation - - (.6) (.6)
Restate common stock subject to
redemption to
maximum redemption value - - - (1.8)
-------- --------- ------ ----------
BALANCE, JUNE 30, 1992 (84.6) (2.8) 5.4 49.4
Net loss (10.8) - - (10.8)
Sale of additional 3,999,996
shares of common stock,
net of transaction costs - - - 19.6
Sale of 84,183 shares of
treasury stock to management
investors - - - -
Foreign currency translation - - (4.7) (4.7)
-------- --------- ------ ----------
BALANCE, JANUARY 2, 1993 (95.4) (2.8) .7 53.5
Net income 20.9 - - 20.9
Minimum pension liability adjustment - (.4) - (.4)
Foreign currency translation - - 1.1 1.1
-------- --------- ------ ----------
BALANCE, JUNE 30, 1993 (74.5) (3.2) 1.8 75.1
Net loss (34.7) - - (34.7)
Incentive stock option compensation - - - 14.5
Minimum pension liability adjustment - (1.0) - (1.0)
Foreign currency translation - - (2.1) (2.1)
Restate common stock subject to
redemption to
maximum redemption value - - - (8.6)
Thirty-three-for-one stock split - - - -
-------- --------- ------ ----------
BALANCE, DECEMBER 31, 1993 (109.2) (4.2) (.3) 43.2
Net income 59.8 - - 59.8
Sale of additional 7,187,500
shares of common stock,
net of transaction costs - - - 103.6
Exercise of stock options - - - .7
Exercise of warrants - - - -
Elimination of common stock
subject to redemption - - - 12.4
Repayment of stockholders'
note receivable - - - .1
Purchase of 21,450 shares
of treasury stock - - - (.1)
Sale of 11,220 shares of
treasury stock - - - .1
Minimum pension liability
adjustment - (1.6) - (1.6)
Foreign currency translation - - (4.6) (4.6)
-------- --------- ------ ----------
BALANCE, DECEMBER 31, 1994 $ (49.4) $ (5.8) $(4.9) $ 213.6
======== ========= ====== ==========
The accompanying notes are an integral part of these statements.
31
34
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
Six
Months
Year Ended December 31, Ended Year Ended June 30,
----------------------- December 31, -------------------
1994 1993 1993 1993 1992
---- ---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 59.8 $ (13.8) $ (34.7) $ 10.1 $ (22.2)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Depreciation and amortization of goodwill 56.1 42.6 21.9 40.7 35.0
Incentive stock option compensation - 14.5 14.5 - -
Accreted interest on Senior Subordinated Discount
Notes - - - - 4.7
Amortization of deferred financing fees 2.4 2.6 1.1 3.0 3.2
Deferred national income taxes (.3) (12.3) (.1) (10.9) (1.7)
Post-retirement benefits accrued 7.3 3.3 3.3 - -
Loss on retirement of property, plant and
equipment - 6.8 6.4 .4 .1
Extraordinary loss - 11.7 11.7 - 5.1
Other, net - (.5) .4 .4 (3.0)
Net change in working capital items 30.4 58.4 (7.4) 50.8 26.8
----------- ---------- ---------- ---------- ----------
Net cash provided by operating activities 155.7 113.3 17.1 94.5 48.0
----------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (103.1) (45.9) (29.0) (31.6) (27.9)
Acquisitions (88.0) (172.1) (172.1) - (.7)
Proceeds from sale of property, plant and equipment .5 1.0 .1 1.0 1.0
Other, net (5.0) 2.2 2.3 (.1) 1.6
----------- ---------- ---------- ---------- ----------
Net cash used by investing activities (195.6) (214.8) (198.7) (30.7) (26.0)
----------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings, net (Note 11) (108.8) 225.5 230.7 (24.1) (10.3)
Additions to other long-term debt 164.0 - - 125.0 20.0
Reductions in other long-term debt (137.4) (103.6) (54.2) (154.1) (69.2)
Short-term borrowings, net (10.7) 12.8 17.7 (10.8) (15.3)
Proceeds from sale of common stock, net 103.7 - - 20.0 72.4
Deferred financing fees (.7) (10.5) (10.5) (5.0) (1.8)
Increase (decrease) in cash overdrafts 7.5 3.3 2.5 9.0 (10.9)
Other, net - - - - (.1)
----------- ---------- ---------- ---------- ----------
Net cash provided (used) by financing
activities 17.6 127.5 186.2 (40.0) (15.2)
----------- ---------- ---------- ---------- ----------
Effect of foreign currency translation (.7) (2.5) (3.4) (3.2) .5
----------- ---------- ---------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (23.0) 23.5 1.2 20.6 7.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 55.0 31.5 53.8 33.2 25.9
----------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32.0 $ 55.0 $ 55.0 $ 53.8 $ 33.2
=========== ========== ========== ========== ==========
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF
ACQUISITIONS:
Accounts receivable, net $ (120.4) $ (83.5) $ (60.3) $ (42.5) $ (42.3)
Inventories (31.5) 2.9 (4.2) 4.2 (6.1)
Accounts payable 183.3 94.0 56.4 49.6 62.1
Accrued liabilities and other (1.0) 45.0 .7 39.5 13.1
----------- ---------- ---------- ---------- ----------
$ 30.4 $ 58.4 $ (7.4) $ 50.8 $ 26.8
=========== ========== ========== ========== ==========
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 35.5 $ 42.1 $ 20.2 $ 41.1 $ 47.6
=========== ========== ========== ========== ==========
Cash paid for income taxes $ 44.1 $ 15.7 $ 4.3 $ 21.8 $ 12.1
=========== ========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
32
35
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts
of Lear Seating Corporation ("the Company"), a Delaware
corporation, and its wholly-owned and majority-owned
subsidiaries. Investments in less than majority-owned
businesses are generally accounted for under the equity
method (Note 9).
Prior to December 31, 1993, the Company was a wholly-owned
subsidiary of Lear Holdings Corporation ("Holdings").
On December 31, 1993, Holdings was merged with and into
the Company and the separate corporate existence of
Holdings ceased (the "Merger"). The Merger has been
accounted for and reflected in the accompanying
financial statements as a merger of companies under
common control. As such, the financial statements of
the Company have been restated as if the post-Merger
structure had existed for all periods presented.
In February 1994, the Company changed its fiscal year end
from June 30 to December 31, effective December 31,
1993. Accordingly, the year ended December 31, 1993
does not constitute a fiscal year.
A 33-for-1 split of the Company's common stock was effective
as of the Company's initial public offering date (Note
3). All references to the numbers of shares of common
stock, stock options, warrants and income (loss) per
share in the accompanying consolidated financial
statements and notes thereto have been adjusted to give
effect to the split.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Significant transactions and balances among the Company
and its subsidiaries have been eliminated in the
consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or market.
Cost is determined principally using the first-in,
first-out method. Finished goods and
work-in-process inventories include material, labor
and manufacturing overhead costs.
Inventories are comprised of the following (in millions):
December 31,
------------------
1994 1993
Raw materials $ 93.4 $ 42.5
Work-in-process 13.9 23.4
Finished goods 19.3 5.8
------ ------
$126.6 $ 71.7
====== ======
33
36
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciable
property is depreciated over the estimated useful lives of the
assets, using principally the straight-line method as follows:
Buildings and improvements 20 to 25 years
Machinery and equipment 5 to 15 years
Goodwill
Goodwill consists of the excess of the purchase price and related
acquisition costs over the fair value of identifiable net
assets acquired. Goodwill is amortized on a straight-line
basis over 40 years. The Company evaluates the carrying value
of goodwill for potential impairment on an ongoing basis. Such
evaluations compare operating income before amortization of
goodwill of the operations to which goodwill relates to the
amortization recorded. The Company also considers future
anticipated operating results, trends and other circumstances
in making such evaluations.
Deferred Financing Fees
Costs incurred in connection with the issuance of debt are
amortized over the term of the related indebtedness using the
effective interest method.
Research and Development
Costs incurred in connection with the development of new products
and manufacturing methods are charged to operations as
incurred. Such costs amounted to $21.9 million, $16.2 million,
$7.1 million, $18.2 million and $11.4 million for the years
ended December 31, 1994 and 1993, for the six months ended
December 31, 1993, and for the years ended June 30, 1993 and
1992, respectively.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at the exchange rates in effect at the end of the
period. Revenue and expense accounts are translated using an
average of exchange rates in effect during the period.
Translation adjustments that arise from translating a foreign
subsidiary's financial statements from the functional currency
to U.S. dollars are reflected as cumulative translation
adjustment in the consolidated balance sheets.
Until December 31, 1992, non-monetary assets and liabilities of a
foreign subsidiary operating in Mexico were translated using
historical rates, while monetary assets and liabilities were
translated at the exchange rates in effect at the end of the
period, with the U.S. dollar effects of exchange rate changes
included in the results of operations. As of January 1, 1993,
Mexico's economy was no longer deemed to be highly
inflationary, and since then, the accounts of the subsidiary
operating in Mexico have been translated consistent with other
foreign subsidiaries.
Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other
than the functional currency, except those transactions which
operate as a hedge of a foreign currency investment position,
are included in the results of operations as incurred.
34
37
During December 1994, the Mexican peso experienced a devaluation
of approximately 35%. Because the Company consolidates its
Mexican subsidiary as of the end of November, the effects of
this devaluation are not included in the consolidated financial
statements. The devaluation is expected to result in a
decrease in stockholders' equity of approximately $10.4
million, based on exchange rates at December 31, 1994, and the
effect on the results of operations is not expected to be
material.
Income Taxes
The consolidated financial statements reflect the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", for all periods presented. Since the year
ended December 31, 1993 does not constitute a fiscal year, the
consolidated national income tax provision for this period was
determined based upon the provisions of APB Opinion No. 28,
"Interim Financial Reporting."
Deferred national income taxes represent the effect of cumulative
temporary differences between income and expense items reported
for financial statement and tax purposes, and between the bases
of various assets and liabilities for financial statement and
tax purposes. Deferred tax assets are reduced by a valuation
allowance if, based on the weight of evidence, it is deemed
more likely than not that the asset will not be realized.
Weighted Average Shares Outstanding
The weighted average number of common shares outstanding for the
years ended December 31, 1994 and 1993, for the six months
ended December 31, 1993, and for the years ended June 30, 1993
and 1992 were 47,438,477, 35,500,014, 35,500,014, 40,049,064
and 27,768,312, respectively. Shares exercisable under the
1988, 1992 and 1994 Stock Option Plans and warrants (Note 16)
are included in the weighted average share calculation for the
years ended December 31, 1994 and June 30, 1993. These shares
are not included in the calculation of weighted average common
shares outstanding in other periods as their impact would be
anti-dilutive.
Industry Segment Reporting
The Company is principally engaged in the design and manufacture
of automotive seating and, therefore, separate industry segment
reporting is not applicable.
Reclassifications
Certain items in prior years' financial statements have been
reclassified to conform with the presentation used in the year
ended December 31, 1994.
(3) 1994 INITIAL PUBLIC OFFERING
In April 1994, the Company completed an initial public offering of
its common stock (the "IPO"), pursuant to which the Company sold
7,187,500 shares of its common stock for total proceeds of
approximately $111.4 million. Fees and expenses related to the
IPO totaled $7.8 million, including approximately $.9 million paid
to Lehman Brothers Inc. The net proceeds of the offering were
used to reduce outstanding borrowings under the Credit Agreement
(Note 11).
35
38
In the same offering, FIMA Finance Management Inc., ("FIMA") a
wholly-owned subsidiary of EXOR Group S.A. (formerly IFINT S.A.),
sold 3,125,000 shares of the Company's common stock in the public
market. The Company received no proceeds from the sale of these
shares.
On a pro forma basis, assuming the IPO had taken place as of January
1, 1994, the consolidated results of operations of the Company
would have been as follows (Unaudited; in millions, except per
share data):
Year Ended
December 31,
1994
------------
Net income $60.5
Net income per common share 1.22
The pro forma information above does not purport to be indicative of
the results that actually would have been achieved if the IPO had
occurred as of January 1, 1994, and is not intended to be a
projection of future results or trends.
(4) 1994 REFINANCING
On February 3, 1994, the Company completed a public offering of
$145.0 million of 8 1/4% Subordinated Notes, due 2002 (the "8 1/4%
Notes"). The 8 1/4% Notes require interest payments semi-annually
on February 1 and August 1. Fees and expenses related to the
issuance of the 8 1/4% Notes were approximately $5.0 million,
including underwriting fees of $2.4 million paid to Lehman
Brothers Inc.
The net proceeds from the sale of the 8 1/4% Notes were used to
finance the redemption of the 14% Subordinated Debentures.
Simultaneous with the sale of the 8 1/4% Notes, the Company called
the 14% Subordinated Debentures for redemption on March 4, 1994,
at a redemption price equal to 105.4% of the outstanding principal
amount of $135.0 million, plus accrued interest to the redemption
date. The premium for early extinguishment of the 14%
Subordinated Debentures and the accelerated amortization of
deferred financing fees totaled approximately $10.7 million. This
amount has been reflected as an extraordinary loss in the periods
ending December 31, 1993. The deferred tax benefit related to
this extraordinary loss was offset by a valuation allowance.
(5) 1992 REFINANCING AND SALE OF COMMON STOCK
On July 30, 1992, the Company sold $125.0 million of 11 1/4% Senior
Subordinated Notes (the "11 1/4% Notes"). Fees and expenses
related to issuance of the 11 1/4% Notes were approximately $5.0
million, including consulting and underwriting fees of $2.2
million paid to Lehman Brothers Inc. and $.1 million paid to FIMA
for consulting fees.
Simultaneous with the sale of the 11 1/4% Notes, the Company issued
3,999,996 shares of common stock to the four merchant banking
partnerships affiliated with Lehman Brothers Inc. (the "Lehman
Funds") and FIMA for total proceeds of approximately $20.0
million. Fees and expenses related to the sale were $.4 million
paid to the Lehman Funds and FIMA. Certain management investors
also purchased 84,183 shares of common stock previously held in
treasury for approximately $.4 million.
On August 14, 1992, the Company redeemed the 14 1/4% Senior
Subordinated Discount Notes (the "Discount Notes") at a redemption
price equal to 103% of the outstanding principal amount of $85.0
36
39
million plus accrued interest. The prepayment premium for early
extinguishment of these notes and the accelerated amortization of
deferred financing fees totaled approximately $4.7 million and
have been reflected as an extraordinary loss in the year ended
June 30, 1992. The deferred tax benefit related to this
extraordinary loss was offset by a valuation allowance.
A portion of the net proceeds from the sale of the 11 1/4% Notes and
common stock described above were used to finance the redemption of
the Discount Notes and to prepay $15.0 million of the Domestic Term
Loan. The balance of the proceeds was designated for temporary
reduction of outstanding borrowings on the Domestic Revolving
Credit Loan, expansion of the Company's operations and for general
corporate purposes.
(6) 1991 CAPITALIZATION AND RELATED TRANSACTIONS
Pursuant to a Stock Purchase Agreement dated September 27, 1991 (the
"1991 Agreement"), the Company issued 14,999,985 shares of common
stock to the Lehman Funds and FIMA, for total proceeds of
approximately $75.0 million. Fees and expenses related to the
sale and the transactions described below approximated $7.6
million, of which approximately $3.2 million was charged to other
expense and approximately $1.8 million was capitalized as deferred
financing fees. Such fees and expenses included $4.5 million paid
to Lehman Brothers Inc.
The Lehman Funds and FIMA also purchased all of the outstanding
common stock and warrants owned by the Company's former majority
owner, General Electric Capital Corporation ("GECC"), and certain
other stockholders.
Simultaneous with the sale of common stock, the Company obtained a
$20.0 million real estate mortgage from GECC.
The net proceeds from the sale of common stock and the real estate
mortgage were used primarily to reduce outstanding borrowings on
the Domestic Revolving Credit Loan and to prepay the Domestic Term
Loan. A write-off of deferred financing fees of $.4 million
related to the prepayment of the Domestic Term Loan was recognized
as an extraordinary loss in the consolidated statement of
operations for the year ended June 30, 1992. The deferred tax
benefit related to this extraordinary loss was offset by a
valuation allowance.
The 1991 Agreement required the Company to make certain
representations and warranties prior to the sale with respect to
its tax position and title to the new shares. The Company is
required to indemnify the parties to the Agreement for any
aggregate losses, liabilities, claims or expenses arising from a
breach of the aforementioned representations and warranties.
Management is not currently aware of any information or condition
which will require indemnification under the terms of the
Agreement.
(7) FSB ACQUISITION
On December 15, 1994, the Company purchased from Gilardini S.p.A., an
Italian Corporation, all of the outstanding common stock of Sepi
S.p.A., an Italian Corporation, all of the outstanding common
stock of Sepi Poland S.p. Z o.o. and a 35% interest in a Turkish
joint venture (collectively, the "Fiat Seat Business", or "FSB").
The FSB is engaged in the design and manufacture of automotive
seating, with its principal customers being Fiat S.p.A. and its
affiliates ("Fiat"). In connection with this transaction, the
Company and Fiat entered into a long-term supply agreement for
certain products produced by the FSB.
37
40
The acquisition was accounted for as a purchase, and accordingly, the
assets purchased and liabilities assumed in the acquisition have
been reflected in the accompanying balance sheet as of December
31, 1994. The operations of the FSB since the acquisition are not
material to the statement of operations of the Company for the
year ended December 31, 1994. The purchase price was allocated to
the purchased assets as follows (in millions):
Cash consideration paid to seller,
net of cash acquired of $6.9 million $ 85.3
Deferred purchase price, due 1998 12.3
Short-term borrowings from Fiat assumed 66.7
Fees and expenses, including $1.5 million not yet paid 4.2
Receivable from seller (1.2)
--------
Cost of acquisition $ 167.3
========
Property, plant and equipment $ 72.2
Investment in Industrias Cousin Freres, S.L. (Note 9) 4.9
Employee termination indemnities assumed (17.8)
Net non-cash working capital 15.4
Other assets purchased and liabilities assumed, net (12.5)
Goodwill 105.1
--------
Total cost allocation $ 167.3
========
A portion of the purchase price had not yet been paid as of December
31, 1994. The remaining payments are included in the accompanying
consolidated balance sheet as of December 31, 1994 in other
long-term liabilities.
The cash portion of the purchase price was financed with borrowings
under the Company's Credit Agreement (Note 11). The purchase
price and related allocation may be revised in the next year based
on revisions of preliminary estimates of fair values made at the
date of purchase. Such changes are not expected to be
significant.
Assuming the acquisition had taken place as of the beginning of each
period presented, the consolidated pro forma results of operations
of the Company would have been as follows, after giving effect to
certain adjustments, including certain operations adjustments
consisting principally of management's estimates of the effects of
product pricing adjustments negotiated in connection with the
acquisition, increased interest expense, depreciation adjustments
and goodwill amortization, estimated engineering savings, the
elimination of certain costs assumed by the seller and the related
income tax effects (Unaudited; in millions, except per share
data):
38
41
Year Ended December 31,
-----------------------------
1994 1993
------------ ------------
Net sales $ 3,603.4 $ 2,317.3
Income (loss) before extraordinary item 35.7 (22.8)
Net income (loss) 35.7 (34.5)
Income (loss) per common share before
extraordinary item .75 (.64)
Net income (loss) per common share .75 (.97)
The pro forma information above does not purport to be indicative of
the results that actually would have been achieved if the
operations were combined during the periods presented, and is not
intended to be a projection of future results or trends.
(8) NAB ACQUISITION
On November 1, 1993, the Company purchased certain assets of the
Plastics and Trim Products Division of Ford Motor Company ("Ford")
consisting of (i) the U.S. operations that supply seat trim and
trimmed seat assemblies to Ford which are manufactured by Favesa,
S.A. de C.V.; (ii) all of the shares of Favesa, a maquiladora
operation located in Juarez, Mexico; and (iii) certain inventories
and assets employed in the operation of the NAB (collectively, the
"NAB"). In connection with this transaction, the Company and Ford
entered into a long-term supply agreement for certain products
produced by these operations at agreed upon prices.
This acquisition was accounted for as a purchase, and accordingly,
the operating results of the NAB have been included in the
accompanying financial statements since the date of acquisition.
The purchase price, after giving effect to an adjustment related
to changes in the NAB working capital, consisted of the following
and has been allocated to the net assets purchased as follows (in
millions):
Cash consideration paid to seller, net of cash
acquired of $2.7 million $170.7
Execution of promissory notes (Notes 10 and 11) 10.5
Fees and expenses (including $.5 million paid to
Lehman Brothers Inc.) 1.4
------
Cost of acquisition $182.6
======
Property, plant and equipment $ 79.8
Net non-cash working capital 1.7
Other assets purchased and liabilities assumed, (3.0)
Goodwill 104.1
------
Total cost allocation $182.6
======
The cash portion of the purchase price was financed with borrowings
under the Company's domestic Credit Agreement (Note 11).
39
42
As part of the NAB acquisition, the Company acquired and has
exercised an option to cause Ford to purchase two facilities in
consideration of Ford canceling a $19.9 million note payable (Note
10). The Company exercised this option, and the sale of these
facilities occurred in March 1994. The Company leased one of
these facilities until August 1994.
Assuming the acquisition had taken place as of the beginning of each
period presented, the consolidated pro forma results of operations
of the Company would have been as follows, after giving effect to
certain adjustments, including certain operations adjustments
consisting principally of managements' estimates of the effects of
product pricing adjustments negotiated in connection with the
acquisition and incremental ongoing NAB engineering, overhead and
administrative expenses, increased interest expense and goodwill
amortization and the related income tax effects (Unaudited; in
millions, except per share data):
Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30,
1993 1993 1993
------------ ------------ -----------
Net sales $2,361.4 $1,159.5 $2,235.2
Income (loss) before extraordinary item 5.1 (19.6) 26.6
Net income (loss) (6.6) (31.3) 26.6
Income (loss) per common share before
extraordinary item .12 (.55) .66
Net income (loss) per common share (.16) (.88) .66
The pro forma information above does not purport to be indicative of
the results that actually would have been achieved if the
operations were combined during the periods presented, and is not
intended to be a projection of future results or trends.
(9) INVESTMENTS IN AFFILIATES
The investments in affiliates are as follows:
Percent Beneficial Ownership
------------------------------------
December 31, June 30,
----------------- ----------------
1994 1993 1993 1992
------ ------ ------ ------
Industrias Cousin Freres, S.L. (Spain) 49% -% -% -%
Lear Seating Thailand Corporation 49 - - -
Markol Otomotiv Yan Sanayi Ve Ticart (Turkey) 35 - - -
General Seating of America, Inc. 35 35 35 35
General Seating of Canada, Ltd. 35 35 35 35
Probel, S.A. (Brazil) 31 31 31 31
Pacific Trim Corporation Ltd. (Thailand) 20 20 20 20
The above businesses are generally involved in the manufacture of
automotive seating and seating components.
40
43
All of the above investments in affiliates are accounted for using
the equity method, except Probel. In June 1993, the Company
revalued its investment in Probel, which was previously accounted
for using the cost method, to zero due to continued operating
losses and other factors impacting its potential recoverability.
A charge of approximately $1.7 million was recorded and is
reflected in equity income of affiliates in the consolidated
statement of operations in the year ended December 31, 1993 and the
year ended June 30, 1993. The investments in Industrias Cousin
Freres, S.L. and Markol Otomotiv Yan Sanayi Ve Ticart were acquired
as part of the FSB acquisition (Note 7).
The aggregate investment in affiliates was $11.0 million and $4.6
million as of December 31, 1994 and 1993, respectively.
Dividends of approximately $.8 million, $1.0 million and $.9 million
were received by the Company in the years ended December 31, 1994
and June 30, 1993 and 1992, respectively, from General Seating of
Canada, Ltd. Additionally, a dividend of $.1 million was received
from General Seating of America in 1994. No other dividends were
received by the Company from affiliates during 1994, 1993 or 1992.
Summarized group financial information for affiliates accounted for
under the equity method is as follows (Unaudited; in millions):
December 31,
---------------------
1994 1993
------ -------
Balance sheet data:
Current assets $ 36.8 $18.3
Non-current assets 25.6 14.1
Current liabilities 24.3 14.5
Non-current liabilities 14.5 5.7
Year Ended Six Months
December 31, Ended Year Ended June 30,
----------------------- December 31, ---------------------------
1994 1993 1993 1993 1992
-------- -------- -------- -------- --------
Income statement data:
Net sales $140.4 $122.4 $ 58.4 $119.8 $129.2
Gross profit 14.1 12.6 4.9 13.0 19.3
Income before provision for
income taxes 6.0 7.3 2.3 10.8 11.6
Net income 3.9 5.0 1.4 6.6 8.2
The Company had sales to affiliates of approximately $14.0 million,
$11.1 million, $5.3 million, $10.7 million and $11.8 million for
the years ended December 31, 1994 and 1993, for the six months
ended December 31, 1993, and for the years ended June 30, 1993 and
1992, respectively.
The Company has guaranteed certain obligations of its affiliates. The
Company's share of amounts outstanding under guaranteed
obligations as of December 31, 1994 amounted to $6.0 million.
41
44
(10) SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following (in millions):
December 31,
------------------------
1994 1993
------- -------
Lines of credit $ 1.0 $ 3.2
Note payable to bank, LIBOR + 3/4% 15.0 15.0
Short-term borrowing, Fiat S.p.A., 9 3/4 % (Note 7) 66.7 -
Unsecured notes payable --
NAB acquisition note payable, non-interest bearing
(Note 8) 1.2 9.3
NAB acquisition note payable, 11 1/2% (Note 8) - 19.9
Trade acceptance payable, 6% and 7 1/4% at
December 31, 1994 and 1993, respectively .2 .8
------ ------
$ 84.1 $ 48.2
====== ======
At December 31, 1994, the Company has lines of credit available with
banks of approximately $61.0 million, subject to certain
restrictions imposed by the Credit Agreement (Note 11).
Weighted average interest rates under these agreements at December
31, 1994 and 1993 were 9.1% and 6.3%, respectively.
42
45
(11) LONG-TERM DEBT
Long-term debt is comprised of the following (in millions):
December 31,
------------------------
1994 1993
-------- --------
Domestic revolving credit loan $121.9 $230.7
German term loan 7.1 7.6
City of Hammond, IN Industrial Revenue Bonds 9.5 -
Development Authority of Clayton County, GA
Industrial Revenue Bonds 9.5 -
Loans from Italian Governmental Agencies 2.6 -
------ ------
150.6 238.3
Less -- Current portion (1.9) (1.2)
------ ------
148.7 237.1
------ ------
Subordinated Debt:
8 1/4% Subordinated Notes (Note 4) 145.0 -
11 1/4% Senior Subordinated Notes 125.0 125.0
14% Subordinated Debentures (Note 4) - 135.0
------ ------
270.0 260.0
------ ------
Note Payable - 1.2
------ ------
$418.7 $498.3
====== ======
In October 1993 and again in November 1994, the Company amended and
restated its existing credit agreement with a syndicate of banks
to increase available credit and relax certain other provisions
under the agreement. The new $500 million revolving credit
facility (the "Credit Agreement") enabled the Company to finance
the cash portion of the FSB acquisition (Note 7) and to replace
the existing Domestic Term Loan and Domestic Revolving Credit
Facility which was used to finance the NAB acquisition (Note 8)
and retire a $20 million mortgage. The accelerated amortization of
deferred financing fees related to the previous Domestic Term Loan
and Domestic Revolving Credit Facility and the mortgage totaled
approximately $1.5 million. This amount, net of the related tax
benefit of $.5 million, has been reflected as an extraordinary
loss in the periods ending December 31, 1993. In connection with
this transaction, the Company paid $.5 million to Lehman Brothers
for consulting fees. In addition, Lehman Commercial Paper, Inc.,
an affiliate of the Lehman Funds, is a managing agent of the
Credit Agreement and received fees of $.7 million.
Loans under the Credit Agreement bear interest at the Eurodollar rate
plus 1/2% to 1% or prime rate depending on the satisfaction of
certain financial ratios. The Company pays a commitment fee on
the
43
46
unused balance of the facility of 1/5% to 3/8%, depending on
certain ratios. At December 31, 1994, interest was being charged
at the Eurodollar rate plus 3/4% and the commitment fee is 1/4%.
Amounts available to be drawn under the Credit Agreement will
decrease by $58.75 million on each of November 30, 1997, May 31
and November 30, 1998 and May 31, 1999. The facility expires on
November 30, 1999.
The Company had available unused long-term revolving credit
commitments of $316.6 million at December 31, 1994, net of $61.5
million of outstanding letters of credit. Borrowings on revolving
credit loans were $495.2 million, $986.3 million, $820.5 million,
$549.2 million and $737.8 million for the years ended December 31,
1994 and 1993, for the six months ended December 31, 1993, and for
the years ended June 30, 1993 and 1992, respectively. Repayments
on revolving credit loans were $604.0 million, $760.8 million,
$589.8 million, $573.3 million and $748.1 million for the years
ended December 31, 1994 and 1993, for the six months ended
December 31, 1993, and for the years ended June 30, 1993 and 1992,
respectively.
The German Term Loan bears interest at a stated rate of 9.125%, is
payable in Deutschemarks in quarterly installments of
approximately $.3 million through March 2000, and is
collateralized by certain assets of a German subsidiary.
The Industrial Revenue Bonds (IRBs) are payable in 2024, and bear
interest at variable rates which are reset periodically. At the
Company's option, the rates can be reset weekly or monthly, or
can be fixed for a period of time or through maturity. As of
December 31, 1994, the City of Hammond IRB and the Development
Authority of Clayton County IRB bore interest rates of 4.0% and
5.9% respectively.
The Loans from Italian Governmental Agencies are payable in
installments every six months through 2000, and bear interest at
4.75% and 11.28%.
The 8 1/4% Subordinated Notes, due in 2002, require interest payments
semi-annually on February 1 and August 1.
The 11 1/4% Senior Subordinated Notes, due in 2000, require interest
payments semi-annually on January 15 and July 15.
The Credit Agreement and Subordinated Debt Agreements contain
numerous restrictive covenants. The most restrictive of these
covenants are financial covenants related to maintenance of
certain levels of net worth, operating profit and interest
coverage. The financial covenants generally become more
restrictive with the passage of time. These agreements also,
among other things, restrict the Company's ability to incur
additional indebtedness, declare dividends, make investments and
advances, sell assets and limit capital expenditures to specified
amounts. The German Term Loan agreement also contains certain
restrictive covenants.
As of December 31, 1994, the Company is able to declare limited
dividends of up to $2.5 million per quarter. Loans under the
Credit Agreement are collateralized by substantially all assets of
the Company.
44
47
The scheduled maturities of long-term debt at December 31, 1994 for
the five succeeding years are as follows (in millions):
1995 $ 1.8
1996 1.9
1997 1.9
1998 1.9
1999 123.3
45
48
(12) NATIONAL INCOME TAXES
A summary of income (loss) before provision for national income taxes
and components of the provision for national income taxes for the
indicated periods is as follows (in millions):
Six
Months
Year Ended December 31, Ended Year Ended June 30,
---------------------- December 31, -------------------
1994 1993 1993 1993 1992
------ -------- -------- -------- --------
Income (loss) before provision for
national income taxes, minority
interests in net income of subsidiaries,
equity (income) loss of affiliates
and extraordinary item:
Domestic $ 56.4 $ (3.4) $ (15.1) $ 6.8 $(20.0)
Foreign 58.2 29.5 5.8 21.6 13.5
------ ------ ------- ------- ------
$114.6 $ 26.1 $ (9.3) $ 28.4 $ (6.5)
====== ====== ======= ======= ======
Domestic provision for national income
taxes:
Current provision $ 31.2 $ 7.4 $ 5.4 $ 6.8 $ 2.1
------- ------ ------ ------ -----
Deferred --
Deferred provision - 1.0 .9 1.5 2.6
Benefit of previously unbenefitted net
operating loss carryforwards (2.2) (3.0) (1.6) (2.4) -
------ ------ ------- ------- ------
(2.2) (2.0) (.7) (.9) 2.6
------ ------ ------- ------- ------
Total domestic provision 29.0 5.4 4.7 5.9 4.7
------ ------ ------- ------- ------
Foreign provision for national
income taxes:
Current provision 25.1 22.5 9.7 17.4 12.5
------ ------ ------- ------- ------
Deferred --
Deferred provision .9 (1.0) (1.0) (1.7) (2.1)
Adjustment due to changes
in enacted tax rates - - - (1.0) -
Tax benefit of operating losses - - - (2.8) (2.2)
------ ------ ------- ------- ------
.9 (1.0) (1.0) (5.5) (4.3)
------ ------ ------- ------- ------
Total foreign provision 26.0 21.5 8.7 11.9 8.2
------ ------ ------- ------- ------
Provision for national income taxes $ 55.0 $ 26.9 $ 13.4 $ 17.8 $ 12.9
====== ====== ======= ======= ======
46
49
The differences between tax provisions calculated at the United
States Federal statutory income tax rate of 35% for the periods
ended December 31, 1994 and 1993 and 34% for the years ended June
30, 1993 and 1992 and the actual consolidated national income tax
provision for the periods indicated are summarized as follows (in
millions):
Year Ended Six Months Year Ended
December 31, Ended June 30,
----------------------- December 31, ------------------------
1994 1993 1993 1993 1992
-------- -------- -------- -------- -------
Income (loss) before provision for national
income taxes, minority interests in net
income of subsidiaries, equity (income)
loss of affiliates and extraordinary item
multiplied by the United States Federal
statutory rate $ 40.1 $ 9.1 $ (3.3) $ 9.7 $ (2.2)
Utilization of domestic net
operating loss carryforwards (2.2) (3.0) (1.6) (2.4) -
Differences between domestic and effective
foreign tax rates 1.3 3.7 2.4 .9 3.6
Operating losses not tax benefited 3.0 4.9 4.3 3.6 8.5
Increase in valuation allowance 3.3 8.8 10.8 .4 -
Domestic income taxes provided
on foreign earnings 6.4 .9 .1 1.6 -
Amortization of goodwill 3.0 3.3 1.5 3.2 3.0
Other, net .1 (.8) (.8) .8 -
------ ------ ------ ------ ------
$ 55.0 $ 26.9 $ 13.4 $ 17.8 $ 12.9
====== ====== ====== ====== ======
47
50
Deferred national income taxes represent temporary differences in the
recognition of certain items for income tax and financial
reporting purposes. The components of the net deferred national
income tax liability are summarized as follows (in millions):
December 31,
-------------------------
1994 1993
---------- --------
Deferred national income tax liabilities:
Property and equipment basis differences $ 22.1 $ 13.8
Financing and intercompany transactions 8.8 9.7
Taxes provided on unremitted
foreign earnings 19.4 6.0
Benefit plans 2.0 1.3
Other 5.4 2.6
------ ------
$ 57.7 $ 33.4
------ ------
Deferred national income tax assets:
Tax credit carryforwards $ (8.7) $(23.7)
Tax loss carryforwards (46.8) (17.1)
Benefit plans (9.6) (6.2)
Accruals (15.9) (5.4)
Deferred financing fees - (4.7)
Minimum pension liability adjustment (1.8) (1.8)
Alternative minimum tax carryforward - (.4)
Deferred compensation (6.3) (7.6)
Other (4.8) (1.3)
------ ------
(93.9) (68.2)
Valuation allowance 58.1 51.4
------ ------
(35.8) (16.8)
------ ------
Net deferred national income tax liability $ 21.9 $ 16.6
====== ======
48
51
The classification of the net deferred national income tax liability
is summarized as follows (in millions):
December 31,
------------------------------
1994 1993
---- ----
Deferred tax assets:
Current $ (1.8) $ -
Long-term (1.6) (.9)
Deferred tax liability:
Current - 1.6
Long-term 25.3 15.9
-------- -------
Net deferred national income tax liability $ 21.9 $ 16.6
======== =======
Deferred national income taxes and withholding taxes have been
provided on earnings of the Company's Canadian subsidiary to the
extent it is anticipated that the earnings will be remitted in the
form of future dividends. Deferred national income taxes and
withholding taxes have not been provided on the undistributed
earnings of the Company's European and Mexican subsidiaries as
such amounts are deemed to be permanently reinvested. The
cumulative undistributed earnings at December 31, 1994 on which
the Company had not provided additional national income taxes and
withholding taxes were approximately $23.1 million.
In June 1993, the Company settled with the Canadian taxing
authorities on the open issues relating to its Canadian tax
returns through 1989. In addition, a settlement was reached with
Revenue Canada regarding treatment of certain items relating to
the Company's financing subsidiaries. The expense related to
these settlements was provided by the Company prior to the year
ended June 30, 1993, and did not have a material effect on the
Company's results of operations or financial position.
As of December 31, 1994, the Company had tax loss carryforwards of
$122.4 million which relate primarily to certain foreign
subsidiaries including the FSB. Of the total carryforwards, $41.0
million have no expiration, $79.8 million expire in 1995 through
1999, and $1.6 million expire in 2005 and 2006. The tax credit
carryforwards expire in 1999.
(13) RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans
covering substantially all domestic employees and certain
employees in foreign countries. The Company's salaried plans
provide benefits based on a career average earnings formula.
Hourly pension plans provide benefits under flat benefit formulas.
The Company also has a contractual arrangement with a key employee
which provides for supplemental retirement benefits. In general,
the Company's policy is to fund these plans based on legal
requirements, tax considerations, and local practices.
49
52
Components of the Company's pension expense are as follows for the
periods indicated (in millions):
Six Months
Year Ended December 31, Ended Year Ended June 30,
---------------------------- December 31, ---------------------
1994 1993 1993 1993 1992
------- -------- -------- -------- --------
Service cost $ 4.3 $ 3.5 $ 1.9 $ 3.1 $ 2.9
Interest cost on
projected benefit
obligation 6.3 6.1 3.2 5.9 6.2
Actual return on assets (.1) (7.8) (4.5) (6.6) (4.9)
Net amortization and (4.6) 3.1 2.2 1.8 .5
deferral
------ ------ ------ ------- ------
Net pension expense $ 5.9 $ 4.9 $ 2.8 $ 4.2 $ 4.7
====== ====== ====== ======= ======
The following table sets forth a reconciliation of the funded status
of the Company's defined benefit pension plans to the related
amounts recorded in the consolidated balance sheets (in millions):
December 31, 1994 December 31, 1993
--------------------------- ---------------------------
Plans Whose Plans Whose Plans Whose Plans Whose
Assets Exceed ABO Exceeds Assets Exceed ABO Exceeds
ABO Assets ABO Assets
------------ ------------ ------------ ------------
Actuarial present value of:
Vested benefit obligation $ 16.8 $ 54.8 $ 11.9 $ 58.1
Non-vested benefit obligation 1.3 2.2 .1 3.1
------ ------ ------ ------
Accumulated benefit obligation (ABO) 18.1 57.0 12.0 61.2
Effects of anticipated future
compensation increases 10.2 1.0 1.1 10.1
------ ------ ------ ------
Projected benefit obligation 28.3 58.0 13.1 71.3
Plan assets at fair value 22.7 38.0 18.3 42.8
------ ------ ------ ------
Projected benefit obligation in excess of
(less than) plan assets 5.6 20.0 (5.2) 28.5
Unamortized net loss (3.9) (9.5) (1.3) (12.5)
Unrecognized prior service cost .2 (3.0) - (1.0)
Unamortized net asset (obligation)
at transition 3.1 (1.0) 4.0 (1.6)
Adjustment required to recognize
minimum liability - 12.0 - 11.1
------ ------ ------ ------
Accrued pension (asset) liability recorded
in the consolidated balance sheets $ 5.0 $ 18.5 $ (2.5) $ 24.5
====== ====== ====== ======
50
53
The actuarial assumptions used in determining pension expense and the
funded status information shown above were as follows:
Year Ended Six Months Year Ended
December 31, Ended June 30,
------------------ December 31, --------------------
1994 1993 1993 1993 1992
---- ----- -------- ------- --------
Discount rate:
Domestic plans 7.5-8% 7.5-8% 7.5-8% 8% 8%
Foreign plans 7-8% 7-9% 7-8% 7-9% 9%
Rate of salary progression:
Domestic plans 5% 6% 6% 6% 6%
Foreign plans 3-5% 3-5% 3-5% 3-5% 1-5%
Long-term rate of return
on assets:
Domestic plans 9% 9% 9% 9% 9%
Foreign plans 8% 8-9% 8% 9% 9%
Plan assets include cash equivalents, common and preferred stock, and
government and corporate debt securities.
Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions," required the Company to record a minimum
liability as of December 31, 1994 and 1993. As of December 31,
1994, the Company recorded a long-term liability of $12.0 million,
an intangible asset of $4.4 million, which is included with other
assets, and a reduction in stockholders' equity of $5.8 million,
net of income taxes of $1.8 million.
The Company also sponsors defined contribution plans and participates
in Government sponsored programs in certain foreign countries.
Contributions are determined as a percentage of each covered
employee's salary. The Company also participates in
multi-employer pension plans for certain of its hourly employees
and contributes to those plans based on collective bargaining
agreements. The aggregate cost of the defined contribution and
multi-employer pension plans charged to operations was $2.1
million, $1.7 million, $1.0 million, $1.3 million and $1.1 million
for the years ended December 31, 1994 and 1993, for the six months
ended December 31, 1993 and the years ended June 30, 1993 and
1992, respectively.
(14) POST-RETIREMENT BENEFITS
On July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions" for its domestic
plans. This standard, which must be adopted for foreign plans no
later than 1995, requires that the expected cost of
post-retirement benefits be charged to expense during the years in
which the employees render service to the Company.
The Company's domestic post-retirement plans generally provide for
the continuation of medical benefits for all employees who
complete 10 years of service after age 45 and retire from the
Company at age 55 or older. The Company does not fund its
post-retirement benefit obligation. Rather, payments are made
as costs are incurred by covered retirees.
51
54
As of July 1, 1993, the Company's accumulated post-retirement
benefit obligation was approximately $32.0 million. Because the
Company had previously recorded a liability of $6.3 million
related to these benefits, the net transition obligation, which
is being amortized over 20 years, was $25.7 million. The
following table sets forth a reconciliation of the funded status
of the accrued post-retirement benefit obligation to the related
amounts recorded in the financial statements as of December 31,
1994 and 1993 (in millions):
December 31,
--------------------
1994 1993
-------- --------
Accumulated Post-retirement Benefit Obligation ("APBO"):
Retirees $ 11.8 $ 11.7
Fully eligible active plan participants 4.3 4.1
Other active participants 20.9 19.8
Unrecognized net gain 4.2 -
Unamortized transition obligation (23.7) (25.0)
----------- ---------
Liability Recorded in the Balance Sheet (includes current liability of
$.7 million as of December 31, 1994 and 1993) $ 17.5 $ 10.6
========== =========
Components of the Company's post-retirement benefit expense based
upon an adoption date of July 1, 1993 for the indicated periods
were as follows (in millions):
Years Ended Six Months
December 31, Ended
----------------- December 31,
1994 1993 1993
---- ---- ----
Service cost $3.5 $1.7 $1.7
Interest cost on APBO 2.8 1.3 1.3
Unrecognized net gain - - -
Amortization of transition obligation 1.3 .7 .7
----- ----- -----
Net post-retirement benefit expense $7.6 $3.7 $3.7
===== ===== =====
The APBO as of December 31, 1993 and the net post-retirement benefit
expense in 1994 and 1993 were calculated using an assumed
discount rate of 7.5%. The APBO as of December 31, 1994 was
calculated using an assumed discount rate of 8%. Health care
costs were assumed to rise 13.2% in 1995, with the assumed rate
increase decreasing by 1% per year to a minimum of 6.4% in 2008.
To illustrate the significance of these assumptions, a rise in
the assumed rate of health care cost increases of 1% each year
would increase the APBO as of December 31, 1994 by $4.8 million
and increase the net post-retirement benefit expense by $1.2
million for the year ended December 31, 1994.
52
55
Prior to July 1, 1993, post-retirement benefit costs were expensed
as incurred. Benefit payments were approximately $.8 million, $.4
million, $.8 million and $.9 million for the year and six months
ended December 31, 1993 and for the years ended June 30, 1993 and
1992, respectively.
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers
Accounting for Post-Employment Benefits." This statement
requires that employers accrue the cost of post-employment
benefits during the employees' active service. The Company
adopted this statement effective January 1, 1994. The adoption
of this statement did not have a material effect on the Company's
financial position or results of operations.
(15) COMMITMENTS AND CONTINGENCIES
The Company is the subject of various lawsuits, claims and
environmental contingencies. In addition, the Company has been
identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), for the cleanup of
contamination from hazardous substances at three Superfund sites,
and may incur indemnification obligations for cleanup at two
additional sites. In the opinion of management, the expected
liability resulting from these matters is adequately covered by
amounts accrued, and will not have a material adverse effect on
the Company's consolidated financial position or future results
of operations.
Two of the Company's European subsidiaries factor their accounts
receivable with a bank subject to limited recourse provisions and
are charged a discount fee equal to the current LIBOR rate plus
1%. The amount of such factored receivables, which is not
included in accounts receivable in the consolidated balance sheet
at December 31, 1994 was approximately $65.3 million.
Lease commitments at December 31, 1994 under noncancelable operating
leases with terms exceeding one year are as follows (in
millions):
1995 $ 9.9
1996 8.8
1997 6.9
1998 5.1
1999 4.6
2000 and thereafter 7.5
-----
Total $ 42.8
=====
The Company's operating leases cover principally buildings and
transportation equipment. Rent expense incurred under all
operating leases and charged to operations was $9.8 million,
$12.6 million, $6.5 million, $11.6 million and $8.6 million for
the years ended December 31, 1994 and 1993, for the six months
ended December 31, 1993, and for the years ended June 30, 1993
and 1992, respectively.
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56
(16) STOCK OPTIONS, WARRANTS AND COMMON STOCK SUBJECT TO REDEMPTION
1988 Stock Option Plan
At December 31, 1994, 2,013,018 options granted under stock
option agreements dated September 29, 1988 were issued and
outstanding. The options vested over a three-year period and
are currently exercisable at $1.29 per share. The difference
between the exercise price and the market value at the date of
grant was amortized to expense over the vesting period.
1992 Stock Option Plan
Under the 1992 stock option plan, the Company may grant up to
1,914,000 stock options to the management investors and
certain other management personnel. During fiscal 1993, the
Company granted 1,376,100 of these options. On December 31,
1993, the remaining 537,900 options under this plan were
granted. Pursuant to a plan amendment effective December 31,
1993, all of the options became immediately vested and will
generally become exercisable at $5 per share on September 28,
1996.
Stock option expense for the twelve months and six months ended
December 31, 1993 was approximately $14.5 million, and is
included in incentive stock and other compensation expense in
the accompanying statements of operations. The expense
recognized reflects the immediate vesting of the previously
unvested options on December 31, 1993, based on the estimated
market value of the common stock of the Company of $13.64 per
share.
In addition to the stock option expense, incentive stock and
other compensation expense in the accompanying statements of
operations includes $3.5 million in special management bonuses
approved by the Board of Directors in December 1993.
1994 Stock Option Plan
Concurrent with the IPO (Note 3), the Company granted 498,750
options which are exercisable at $15.50 per share beginning
three years after the date of grant. The options vest over a
three year period and expire seven years after they become
exercisable. No stock compensation expense was recognized
related to these options as the exercise price was equal to
the market price as of the grant date.
54
57
The changes in the number of options outstanding for the periods
indicated are as follows:
Six Months
Year Ended December 31, Ended Year Ended June 30,
------------------------ December 31, ------------------------
1994 1993 1993 1993 1992
---------- ---------- ------------ ---------- ---------
Options outstanding
at beginning of period 4,045,272 3,507,372 3,507,372 2,131,272 2,309,868
Options granted 498,750 537,900 537,900 1,376,100 -
Options exercised (100,797) - - - -
Options revoked (17,457) - - - (178,596)
--------- --------- --------- --------- ---------
Options outstanding
at end of period 4,425,768 4,045,272 4,045,272 3,507,372 2,131,272
========= ========= ========= ========= =========
Warrants
In 1988, the Company sold warrants exercisable into 3,300,000
shares of common stock. The warrants, which entitled the
holder to receive one share of common stock for no additional
consideration, became exercisable on December 1, 1993. All
warrants were exercised or expired in 1994.
Common Stock Subject to Redemption
Prior to the initial public offering of common stock in April
1994 (Note 3), shares of common stock held by management
investors were subject to redemption in limited circumstances,
at a defined cost. This provision of the Stockholders' and
Registration Rights Agreement was eliminated in connection
with the IPO.
Shares subject to limited rights of redemption were stated at
$13.64 per share at December 31, 1993 and $5 per share at June
30, 1993 and 1992.
(17) FINANCIAL INSTRUMENTS
The Company hedges certain foreign currency risks through the use of
forward foreign exchange contracts and options. Such contracts
are generally deemed as and are effective as hedges of the
related transactions. As such, gains and losses from these
contracts are deferred and are recognized on the settlement date,
consistent with the related transactions. As of December 31,
1994, the Company and its subsidiaries have contracted to
exchange up to $81.0 million U.S. for fixed amounts of Canadian
dollars. The contracts mature during 1995. As of December 31,
1994, the unrealized deferred loss on such contracts was $1.9
million.
The carrying values of the Company's subordinated notes vary from
the fair values of these instruments. The fair values were
determined by reference to market prices of the securities in
recent public transactions. As of December 31, 1994, the
carrying value of the Company's subordinated notes was $270.0
million compared to an estimated fair value of $255.2 million.
The carrying values of cash, accounts receivable, accounts
payable and notes payable approximate the fair values of these
instruments due to the short-term,
55
58
highly liquid nature of these instruments. The carrying value of
the Company's senior indebtedness approximates its fair value
which was determined based on rates currently available to the
Company for similar borrowings with like maturities.
(18) GEOGRAPHIC SEGMENT DATA
Worldwide operations are divided into four geographic segments --
United States, Canada, Europe and Mexico. The European
geographic segment includes operations in Austria, Italy, Poland,
France, Germany, Sweden and the United Kingdom. Geographic
segment information is as follows (in millions):
Six Months
Year Ended December 31, Ended Year Ended June 30,
-------------------------- December 31, ---------------------------
1994 1993 1993 1993 1992
---------- ---------- ------------ ---------- ------------
Net Sales:
United States $1,916.5 $1,060.6 $ 587.1 $ 847.1 $ 685.0
Canada 603.8 397.5 179.7 389.9 427.5
Europe 575.5 407.5 191.8 434.2 268.2
Mexico 222.7 208.6 106.4 203.2 173.3
Intersegment sales (171.0) (123.9) (59.8) (117.9) (131.3)
-------- -------- -------- -------- ---------
$3,147.5 $1,950.3 $1,005.2 $1,756.5 $ 1,422.7
======== ======== ======== ======== =========
Operating Income:
United States $ 109.3 $ 61.3 $ 27.1 $ 51.8 $ 32.0
Canada 46.3 25.6 12.1 15.3 14.7
Europe 4.4 (9.6) (7.6) (3.9) 3.0
Mexico 10.2 20.3 8.2 17.9 7.1
Unallocated and
other (a) (.6) (18.0) (18.0) - -
-------- -------- -------- -------- ---------
$ 169.6 $ 79.6 $ 21.8 $ 81.1 $ 56.8
======== ======== ======== ======== =========
Identifiable Assets:
United States $ 784.7 $ 680.7 $ 680.7 $ 370.0 $ 350.7
Canada 249.6 180.1 180.1 200.2 197.4
Europe 595.4 170.8 170.8 181.1 179.5
Mexico 72.5 68.3 68.3 59.1 64.6
Unallocated and
other (b) 12.9 14.4 14.4 9.8 7.7
-------- -------- -------- -------- ---------
$1,715.1 $1,114.3 $1,114.3 $ 820.2 $ 799.9
======== ======== ======== ======== =========
---------------------
(a) Unallocated Operating Income primarily includes the impact of
incentive stock and other compensation expense (Note 16).
(b) Unallocated Identifiable Assets primarily consist of deferred
financing fees.
The net assets of foreign subsidiaries were $323.7 million and
$231.7 million at December 31, 1994 and 1993, respectively. The
Company's share of foreign net income (loss) was $32.2 million,
$6.0 million, $(2.4) million, $8.5 million and $7.5 million for
the years ended December 31, 1994 and 1993, for the six months
ended December 31, 1993 and for the years ended June 30, 1993 and
1992, respectively.
56
59
A majority of the Company's sales are to automobile manufacturing
companies. The following is a summary of the percentage of net
sales to major customers:
Year Ended Six Months Year Ended
December 31, Ended June 30,
-------------- December 31, -----------------
1994 1993 1993 1993 1992
---- ---- ------------- ------ ------
Ford Motor Company 39% 28% 33% 22% 22%
General Motors Corporation 36 45 42 48 52
In addition, a significant portion of remaining sales are to the
above automobile manufacturing companies through various other
automotive suppliers or to affiliates of these automobile
manufacturing companies. In addition to the customers listed
above and their affiliates, at December 31, 1994 approximately
32% of the balance of the Company's accounts receivable was from
Fiat and its affiliates.
(19) QUARTERLY FINANCIAL DATA (Unaudited; in millions, except per share data)
Thirteen Weeks Thirteen Weeks Thirteen Weeks Thirteen Weeks
Ended Ended Ended Ended
April 2, July 2, October 1, December 31,
1994 1994 1994 1994
-------------- -------------- -------------- --------------
Net sales $686.7 $822.1 $698.5 $940.2
Gross profit 50.0 78.6 48.9 86.1
Net income 6.5 21.1 6.3 25.9
Net income per common share .16 .43 .13 .54
Thirteen Weeks Thirteen Weeks
Ended Ended
October 2, December 31,
1993 1993
-------------- --------------
Net sales $399.1 $606.1
Gross profit 21.8 50.4
Loss before extraordinary item (10.8) (12.2)
Net loss (11.4) (23.3)
Loss before extraordinary item per common share (.31) (.34)
Net loss per common share (.32) (.66)
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60
Fourteen Weeks Thirteen Weeks Thirteen Weeks Thirteen Weeks
Ended Ended Ended Ended
October 3, January 2, April 3, June 30,
1992 (a) 1993 (a) 1993 1993
--------------- --------------- --------------- --------------
Net sales $359.1 $452.3 $458.0 $487.1
Gross profit 21.4 33.1 40.2 57.8
Net income (loss) (12.3) 1.5 6.1 14.8
Net income (loss) per common share (.36) .04 .15 .37
---------------
(a) The provisions for national income taxes for the fourteen weeks
ended October 3, 1992 and the thirteen weeks ended January 2, 1993
were approximately $1.7 million and $2.8 million, respectively.
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61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Seating Corporation:
We have audited in accordance with generally accepted auditing
standards the consolidated financial statements of LEAR SEATING CORPORATION AND
SUBSIDIARIES ("the Company") included in this Form 10-K and have issued our
report thereon dated February 15, 1995. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
schedule on page 60 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
February 15, 1995.
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62
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
BALANCE BALANCE AT
BEGINNING OTHER END
DESCRIPTION OF PERIOD ADDITIONS RETIREMENTS CHANGES OF PERIOD
----------- --------- --------- ----------- ------- ---------
FOR THE YEAR ENDED JUNE 30, 1992:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $ .1 $ .2 $ (.1) $ - $ .2
Reserve for unmerchantable inventories 1.3 2.8 (1.7) - 2.4
Deferred tax asset valuation allowances 18.1 6.1 - - 24.2
--------- --------- ---------- ------- ---------
$ 19.5 $ 9.1 $ (1.8) $ - $ 26.8
========= ========= ========== ======= =========
FOR THE YEAR ENDED JUNE 30, 1993:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $ .2 $ .5 $ (.2) $ - $ .5
Reserve for unmerchantable inventories 2.4 1.4 (2.0) (.1) 1.7
Deferred tax asset valuation allowances 24.2 8.3 (2.4) - 30.1
--------- --------- ---------- ------- ---------
$ 26.8 $ 10.2 $ (4.6) $ (.1) $ 32.3
========= ========= ========== ======= =========
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $ .5 $ .3 $ (.1) $ (.1) $ .6
Reserve for unmerchantable inventories 1.7 .6 (.2) (.2) 1.9
Deferred tax asset valuation allowances 30.1 23.0 (1.7) - 51.4
--------- --------- ---------- ------- ---------
$ 32.3 $ 23.9 $ (2.0) $ (.3) $ 53.9
========= ========= ========== ======= =========
FOR THE YEAR ENDED DECEMBER 31, 1994:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $ .6 $ .6 $ (.1) $ .1 $ 1.2
Reserve for unmerchantable inventories 1.9 4.0 (1.7) (.1) 4.1
Deferred tax asset valuation allowances 51.4 8.9 (2.2) - 58.1
--------- --------- ---------- ------- ---------
$ 53.9 $ 13.5 $ (4.0) $ - $ 63.4
========= ========= ========== ======= =========
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63
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no disagreement between the management of the Company
and the Company's accountant on any matter of accounting principles or
practices or financial statement disclosure.
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64
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
Incorporated by reference from the Proxy Statement sections entitled
"Election of Directors", "Management" and "Record Date, Outstanding Shares,
Required Vote and Holdings of Certain Stockholders -- Security Ownership of
Certain Beneficial Owners and Management."
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement section entitled
"Executive Compensation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Incorporated by reference from the Proxy Statement section entitled
"Record Date, Outstanding Shares, Required Vote and Holdings of Certain
Stockholders - Security Ownership of Certain Beneficial Owners and Management."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement section entitled
"Certain Transactions."
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65
PART IV
ITEM 14 - EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K.
1. Consolidated Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1994 and 1993.
Consolidated Statements of Operations for the years ended December 31, 1994 and 1993, for the six
months ended December 31, 1993, and for the years ended June 30, 1993 and 1992
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994 and 1993, for
the six months ended December 31, 1993, and for the years ended June 30, 1993 and 1992.
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1993, for the six
months ended December 31, 1993, and for the years ended June 30, 1993 and 1992.
Notes to Consolidated Financial Statements
2. Financial Statements Schedules:
Report of Independent Public Accountants
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 64 through 66 are filed with this Form 10-K or
incorporated by reference as set forth below.
(b) The following report on Form 8-K was filed during the quarter ended December 31, 1994.
Form 8-K, dated December 15, 1994, for the Acquisition of the Fiat Seat Business.
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66
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------ -------
3.1 - Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.3 to the
Company's Transition Report on Form 10-K filed March 31, 1994).
3.2 - Amended and Restated By-laws of Lear (incorporated by reference to Exhibit 3.4 to Lear's Registration
Statement on Form S-1 (No. 33-52565)).
3.3 - Merger Agreement dated December 31, 1993, by and between Lear and Holdings (incorporated by reference to
Exhibit 3.4 to Lear's Registration Statement on Form S-1 (No. 33-51317)).
4.1 - Indenture by and between Lear and The First National Bank of Boston, as Trustee, relating to the 8 1/4%
Subordinated Notes (incorporated by reference to Exhibit 4.1 to the Company's Transition Report on Form 10-K
filed on March 31, 1994).
4.2 - 11 1/4% Senior Subordinated Indenture dated as of July 15, 1992 between Lear and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (No.
33-47867)).
10.1 - Credit Agreement dated as of March 8, 1989, as amended June 21, 1989 (the "Canadian Credit Agreement"),
between Lear Seating Canada, Ltd. and The Bank of Nova Scotia with respect to the establishment of credit
facilities (incorporated by reference to Exhibit 10.28 to Lear's Annual Report on Form 10-K for the year
ended June 30, 1989).
10.2 - Amendment dated September 13, 1989 to the Canadian Credit Agreement (incorporated by reference to Exhibit
10.30 to Lear's quarterly Report on Form 10-Q for the quarter ended September 30 ,1989).
10.3 - Amendment dated March 28, 1990 to the Canadian Credit Agreement (incorporated by reference to Exhibit 10.11
to the Company's Registration Statement on Form S-1 (No. 33-47867)).
10.4 - Amendment dated October 11, 1990 to the Canadian Credit Agreement (incorporated by reference to Exhibit
10.12 to the Company's Registration Statement on Form S-1 (No. 33-47867)).
10.5 - Amendment dated January 23, 1992 to the Canadian Credit Agreement (incorporated by reference to Exhibit
10.13 to the Company's Registration Statement on Form S-1 (No. 33-47867)).
10.6 - Senior Executive Incentive Compensation Plan of Lear (incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (No. 33-47867)).
10.7 - Management Incentive Compensation Plan of Lear (incorporated by reference to Exhibit 10.15 the Company's
Registration Statement on Form S-1 (No. 33-47867)).
10.8 - Stock Option Agreement dated as of September 29, 1988 between the Company and certain management investors
(the "Management Investors") (incorporated by reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (No. 33-25256)).
10.9 - Employment Agreement dated March 20, 1995 between Lear and Kenneth L. Way, filed herewith.
10.10 - Employment Agreement dated March 20, 1995 between Lear and Robert E. Rossiter, filed herewith.
64
67
EXHIBIT
NUMBER EXHIBIT
------ -------
10.11 - Employment Agreement dated March 20, 1995 between Lear and James H. Vandenberghe, filed herewith.
10.12 - Employment Agreement dated March 20, 1995 between Lear and James A. Hollars, filed herewith.
10.13 - Employment Agreement dated March 20, 1995 between Lear and Barthold H. Hoemann, filed herewith.
10.14 - Employment Agreement dated June 1, 1992 between Lear and Donald J. Stebbins (incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement on Form S-1 (No. 33-51317)).
10.15 - Second Amended and Restated Credit Agreement, dated as of November 29, 1994 among the Company, Chemical Bank
as administrative agent, and Bankers Trust Company, The Bank of Nova Scotia, Citicorp USA, Inc., and Lehman
Commercial Paper, Inc., as managing agents, filed herewith.
10.16 - Amended and Restated Stockholders and Registration Rights Agreement dated as of September 27, 1991 by and
among the Company, the Lehman Funds, Lehman Merchant Banking Partners Inc., as representative of the Lehman
Partnerships, FIMA Finance Management Inc., a British Virgin Islands corporation, and the Management
Investors (incorporated by reference to Exhibit 2.2 to Holdings' Current Report on Form 8-K dated September
24, 1991).
10.17 - Waiver and Agreement dated September 27, 1991, by and among Holdings, Kidder Peabody Group Inc., KP/Hanover
Partners 1988, L.P., General Electric Capital Corporation, FIMA Finance Management Inc., a Panamanian
corporation, FIMA Finance Management Inc., a British Virgin Islands corporation, MH Capital Partners Inc.,
successor by merger and name change to MH Equity Corp., SO.PA.F Societa Partecipazioni Finanziarie S.p.A.,
INVEST Societa Italiana Investimenti S.p.A., the Lehman Partnerships and the Management Investors
(incorporated by reference to Exhibit 2.3 to Holdings' Current Report on Form 8-K dated September 24, 1991).
10.18 - Amendment to Amended and Restated Stockholders and Registration Rights Agreement (incorporated by reference
to Exhibit 10.24 to the Company's Transition Report on Form 10-K filed on March 31, 1994).
10.19 - 1992 Stock Option Plan (incorporated by reference to Exhibit 10.7 to Lear's Annual Report on Form 10-K for
the year ended June 30, 1993).
10.20 - Amendment to 1992 Stock Option Plan (incorporated by reference to Exhibit 10.26 to the Company's Transition
Report on Form 10-K filed on March 31, 1994).
10.21 - 1994 Stock Option Plan (incorporated by reference to Exhibit 10.27 to the Company's Transition Report on
Form 10-K filed on March 31, 1994).
10.22 - Stock Purchase Agreement dated as of July 21, 1992 among the Company, the Lehman Funds and FIMA Finance
Management Inc., a British Virgin Islands corporation (incorporated by reference to Exhibit 10.33 to the
Company's Registration Statement on Form S-1 (No. 33-47867)).
10.23 - Asset Purchase and Supply Agreement dated as of November 18, 1991 between Lear Seating Sweden, AB and Volvo
Car Corporation (incorporated by reference to Exhibit 10.34 to the Company's Registration Statement on Form
S-1 (No. 33-47867)).
65
68
EXHIBIT
NUMBER EXHIBIT
------ -------
10.24 - Purchase Agreement dated as of November 1, 1993 between the Company and Ford Motor Company (incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 2,
1993).
10.25 - Stock Purchase Agreement, dated December 15, 1994, by and between Gilardini S.p.A. and the Company
(incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated December 15,
1994).
10.26 - $9,500,000 Loan Agreement between the Development Authority of Clayton County, Georgia and the Company,
dated as of September 1, 1994, filed herewith.
10.27 - $9,500,000 Loan Agreement between the City of Hammond, Indiana and the Company, dated as of July 1, 1994,
filed herewith.
10.28 - Lear Seating Corporation Supplemental Executive Retirement Plan, dated as of January 1, 1995, filed
herewith.
11.1 - Computation of income (loss) per share, filed herewith.
21.1 - List of subsidiaries of the Company, filed herewith.
23.1 - Consent of independent public accountants, filed herewith.
27.1 - Financial Data Schedule, filed herewith.
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69
SIGNATURES
Pursuant to the requirements of Section 13 of 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 March 29, 1995.
Lear Seating Corporation
By: /s/ Kenneth L. Way
----------------------------
Kenneth L. Way
Chairman of the Board and
Chief 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
Seating Corporation and in the capacities indicated March 29, 1995.
/s/ Kenneth L. Way /s/ Larry McCurdy
---------------------------- --------------------------
Kenneth L. Way Larry McCurdy
Chairman of the Board and a Director
Chief Executive Officer
/s/ James H. Vandenberghe /s/ Jeffrey P. Hughes
---------------------------- --------------------------
James H. Vandenberghe Jeffrey P. Hughes
Executive Vice President and a Director
Chief Financial Officer
/s/ Robert E. Rossiter
---------------------------- --------------------------
Robert E. Rossiter Gian Andrea Botta
President, Chief Operating a Director
Officer and a Director
/s/ David P. Spalding /s/ Robert Shower
---------------------------- --------------------------
David P. Spalding Robert Shower
a Director a Director
/s/ Eliot Fried /s/ James A. Stern
---------------------------- --------------------------
Eliot Fried James A. Stern
a Director a Director
/s/ Alan Washkowitz
----------------------------
Alan Washkowitz
a Director
67