1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 27, 1998
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ___________________.
COMMISSION FILE NUMBER: 1-11311
LEAR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3386776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48086-5008
(Address of principal executive offices) (zip code)
(248) 447-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes |X| No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Approximate number of shares of Common Stock, $0.01 par value per share,
outstanding at July 31, 1998: 67,114,742
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LEAR CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 27, 1998
INDEX
Part I - Financial Information: Page No.
- ------------------------------- --------
Item 1 - Consolidated Financial Statements
Introduction to the Consolidated Financial Statements 3
Consolidated Balance Sheets - June 27, 1998 and
December 31, 1997 4
Consolidated Statements of Income - Three and Six
Month Periods ended June 27, 1998 and June 28, 1997 5
Consolidated Statements of Cash Flows - Six Month
Periods ended June 27, 1998 and June 28, 1997 6
Notes to the Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II - Other Information:
Item 4 - Submission of Matters to a Vote of Security Holders. 16
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
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LEAR CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements of Lear Corporation and
subsidiaries (the "Company") have been prepared by Lear Corporation, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission for the period ended
December 31, 1997.
The financial information presented reflects all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results of operations and statements of
financial position for the interim periods presented. These results are not
necessarily indicative of a full year's results of operations.
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LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
June 27, Dec. 31,
1998 1997
-------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28.2 $ 12.9
Accounts receivable, net 1,370.2 1,065.8
Inventories 263.0 231.4
Recoverable customer engineering and tooling 198.8 152.6
Other 169.3 152.2
--------- ---------
2,029.5 1,614.9
--------- ---------
LONG-TERM ASSETS:
Property, plant and equipment, net 1,017.7 939.1
Goodwill, net 1,789.5 1,692.3
Other 279.2 212.8
--------- ---------
3,086.4 2,844.2
--------- ---------
$ 5,115.9 $ 4,459.1
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 52.2 $ 37.9
Accounts payable 1,364.3 1,186.5
Accrued liabilities 752.8 620.5
Current portion of long-term debt 13.0 9.1
--------- ---------
2,182.3 1,854.0
--------- ---------
LONG-TERM LIABILITIES:
Deferred national income taxes 60.3 61.7
Long-term debt 1,277.8 1,063.1
Other 277.3 273.3
--------- ---------
1,615.4 1,398.1
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000 authorized;
67,106,362 issued at June 27, 1998 and
66,872,188 issued at December 31, 1997 .7 .7
Additional paid-in capital 854.8 851.9
Notes receivable from sale of common stock (.1) (.1)
Less- Common stock held in treasury, 10,230 shares at cost (.1) (.1)
Retained earnings 514.3 401.3
Minimum pension liability adjustment (.5) (.5)
Cumulative translation adjustment (50.9) (46.2)
--------- ---------
1,318.2 1,207.0
--------- ---------
$ 5,115.9 $ 4,459.1
========= =========
The accompanying notes are an integral part of these balance sheets.
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LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
------------------ ----------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 2,175.0 $ 1,839.3 $ 4,207.1 $ 3,563.3
Cost of sales 1,943.4 1,625.8 3,775.3 3,171.9
Selling, general and administrative expenses 80.5 67.2 158.5 133.3
Amortization of goodwill 11.5 9.7 23.0 19.4
---------- ---------- ---------- ----------
Operating income 139.6 136.6 250.3 238.7
Interest expense 25.5 26.7 50.2 53.9
Other expense, net 5.5 7.3 13.5 12.8
---------- ---------- ---------- ----------
Income before provision for
national income taxes 108.6 102.6 186.6 172.0
Provision for national income taxes 42.9 41.5 73.6 69.0
---------- ---------- ---------- ----------
Net income $ 65.7 $ 61.1 $ 113.0 $ 103.0
========== ========== ========== ==========
Basic net income per share $ .98 $ .92 $ 1.69 $ 1.56
========== ========== ========== ==========
Diluted net income per share $ .96 $ .90 $ 1.65 $ 1.51
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
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LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
Six Months Ended
----------------
June 27, 1998 June 28, 1997
------------- -------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 113.0 $ 103.0
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 106.5 89.0
Other, net (67.3) (20.1)
Change in working capital items, net (128.3) (48.4)
-------- ---------
Net cash provided by operating activities 23.9 123.5
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (125.1) (75.1)
Acquisitions, net (101.1) (59.1)
Other, net - 1.4
-------- ---------
Net cash used in investing activities (226.2) (132.8)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net 191.8 (56.2)
Increase in cash overdrafts 10.1 38.7
Short-term borrowings, net 13.7 10.8
Other, net 2.9 3.5
-------- ---------
Net cash provided by (used in) financing activities 218.5 (3.2)
-------- ---------
Effect of foreign currency translation (0.9) 3.0
-------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 15.3 (9.5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12.9 26.0
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28.2 $ 16.5
======== =========
CHANGES IN WORKING CAPITAL, NET OF IMPACT OF ACQUISITIONS:
Accounts receivable $ (225.4) $ (234.1)
Inventories (16.6) 5.2
Accounts payable 83.3 89.5
Accrued liabilities and other 30.4 91.0
-------- ---------
$( 128.3) $ (48.4)
======== =========
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 49.5 $ 53.2
======== =========
Cash paid for income taxes $ 41.2 $ 41.7
======== =========
The accompanying notes are an integral part of these statements.
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LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear
Corporation, a Delaware corporation, and its wholly-owned and majority-owned
subsidiaries. Investments in less than majority-owned businesses are generally
accounted for under the equity method.
(2) 1998 ACQUISITIONS
Delphi Automotive Systems
In February, 1998, the Company signed an agreement to negotiate exclusively
to acquire the seating business of Delphi Automotive Systems ("Delphi Seating"),
a division of General Motors Corporation. Delphi Seating is a leading supplier
of seat systems to General Motors. The acquisition is expected to close in the
third quarter of 1998. However, there can be no assurance that the acquisition
will be consummated.
Chapman
In May, 1998, the Company acquired the A.W. Chapman Ltd. and A.W. Chapman
Belgium NV subsidiaries ("Chapman") of the Rodd Group Limited. Chapman produces
seat tracks, mechanisms and seat height adjusters at plants in Bicester and
Shepperton in the U.K. and in Houthalen, Belgium.
Gruppo Pianfei S.r.L.
In May, 1998, the Company acquired Gruppo Pianfei S.r.L. ("Pianfei").
Pianfei produces door panels, headliners and plastic interior components at six
facilities located throughout Italy.
Strapazzini Resine S.r.L.
In May, 1998, the Company acquired Strapazzini Resine S.r.L.
("Strapazzini"). Strapazzini produces instrument panels, door panels, sunshades,
consoles, and pillar trim at two facilities located in Italy.
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LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(3) 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):
June 27, Dec. 31,
1998 1997
---- ----
Raw materials $ 181.1 $ 165.7
Work-in-process 24.8 22.5
Finished goods 57.1 43.2
--------- -------
$ 263.0 $ 231.4
========= =======
(4) 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. A summary of property, plant and equipment is shown below
(in millions):
June 27, Dec. 31,
1998 1997
---- ----
Land $ 64.5 $ 60.5
Buildings and improvements 371.1 345.9
Machinery and equipment 1,099.9 974.2
--------- --------
Total property, plant and equipment 1,535.5 1,380.6
Less accumulated depreciation (517.8) (441.5)
--------- --------
Property, plant and equipment, net $ 1,017.7 $ 939.1
========= ========
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LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(5) LONG-TERM DEBT
Long term debt is comprised of the following (in millions):
June 27, Dec. 31,
1998 1997
---- ----
Credit agreement $ 775.6 $ 647.7
Other 179.2 88.5
--------- ---------
954.8 736.2
Less- Current portion (13.0) (9.1)
--------- ---------
941.8 727.1
--------- ---------
9 1/2% Subordinated Notes 200.0 200.0
8 1/4% Subordinated Notes 136.0 136.0
--------- ---------
336.0 336.0
--------- ---------
$ 1,277.8 $ 1,063.1
========= =========
(6) FINANCIAL INSTRUMENTS
The company uses derivative financial instruments selectively to offset
exposures to market risks arising from changes in foreign exchange rates and
interest rates. Derivative financial instruments currently utilized by the
Company primarily include forward foreign exchange contracts and interest rate
swaps.
Certain foreign currency contracts entered into by the Company qualify for
hedge accounting as only firm foreign currency commitments are hedged. Gains and
losses from these contracts are deferred and generally recognized in cost of
sales as of the settlement date. Other foreign currency contracts entered into
by the Company, which do not receive hedge accounting treatment, are marked to
market with unrealized gains or losses recognized in other expense in the income
statement. Interest rate swaps are accounted for by recognizing interest expense
and interest income in the amount of anticipated interest payments.
(7) FINANCIAL ACCOUNTING STANDARDS
Earnings per Share
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," which was effective December 15, 1997.
The statement changes the calculation of earnings per share to be more
consistent with countries outside of the United States. In general, the
statement requires two calculations of earnings per share to be disclosed, basic
EPS and diluted EPS. Basic EPS is computed using only weighted average shares
outstanding. Diluted EPS is computed using the average share price for the
period when
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LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
calculating the dilution of stock options. Net income per share information has
been restated for all periods presented. Shares outstanding for the periods
presented were as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Weighted Average shares
outstanding 67,089,593 66,073,255 67,028,822 65,925,861
Dilutive effect of stock
options 1,359,323 1,997,018 1,419,690 2,133,419
---------- ---------- ---------- ----------
Diluted shares outstanding 68,448,916 68,070,273 68,448,512 68,059,280
========== ========== ========== ==========
Comprehensive Income
In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income. Comprehensive income is defined as all changes in a
Company's net assets except changes resulting from transactions with
shareholders. It differs from net income in that certain items currently
recorded to equity would be a part of comprehensive income.
Comprehensive income for the periods is as follows (in millions):
Three Months Ended Six Months Ended
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Net income $ 65.7 $ 61.1 $ 113.0 $ 103.0
------ ------ ------- -------
Other comprehensive income
Foreign currency translation adjustment 7.0 (0.9) (4.7) (27.0)
Minimum pension liability adjustment - - - -
------ ------ ------- -------
Other comprehensive income 7.0 (0.9) (4.7) (27.0)
------ ------ ------- -------
Comprehensive income $ 72.7 $ 60.2 $ 108.3 $ 76.0
====== ====== ======= =======
Reclassification
Certain items in prior year's quarterly financial statements have been
reclassified to conform with the presentation used in the quarter ended June 27,
1998.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 1998 VS. THREE MONTHS ENDED JUNE 28, 1997.
Net sales increased by 18.2% to $2.2 billion in the second quarter of 1998
as compared to $1.8 billion in the second quarter of 1997. Net sales for the
quarter ended June 27, 1998 benefited from acquisitions, which collectively
accounted for $253.6 million of the increase and new business introduced in
North America and Europe. Partially offsetting the increase in sales were
unfavorable exchange rate fluctuations in Europe, North America and South
America and reduced market demand on certain mature programs. As a result of
Lear's global presence, the Company anticipates that foreign exchange
fluctuations will continue to impact net sales. Although sales were impacted by
the General Motors work stoppage in the second quarter of 1998, the overall
impact in comparison to 1997 was minimal due to General Motors and Chrysler work
stoppages in the second quarter of 1997.
Net sales in the United States and Canada of $1.3 billion in the second
quarter of 1998 exceeded the comparable period in the prior year by $102.1
million, or 8.6%. Net sales in the current quarter benefited from new truck and
passenger car programs introduced by domestic automotive manufacturers and $39.6
million in revenues from acquisitions. Partially offsetting the increase in net
sales was a downturn in industry build schedules on mature programs. The 1998
General Motors work stoppages impacted revenues by approximately $70.0 million
in the second quarter of 1998.
Net sales in Europe of $.7 billion increased by $178.1 million, or 36.8%,
in the second quarter of 1998 as compared to the second quarter of 1997. Net
sales in the quarter ended June 27, 1998 benefited from $185.8 million in
revenues from acquisitions and new passenger car programs. Partially offsetting
the increases in net sales were unfavorable exchange rate fluctuations in Italy,
Germany and Sweden.
Net sales of $216.8 million in the Company's remaining geographic regions,
consisting of Mexico, South America, the Asia/Pacific Rim region and South
Africa, increased by $55.5 million as compared to the second quarter of 1997.
Net sales in the second quarter of 1998 benefited from the contribution of $28.5
million in sales from recent acquisitions and incremental volume on existing
Chrysler truck programs in Mexico.
Gross profit and gross margin were $231.6 million and 10.6% for the second
quarter of 1998 as compared to $213.5 million and 11.6% for the second quarter
of 1997. Gross profit in 1998 reflects the contribution of recent acquisitions
and the overall growth in new and established programs. Gross margin in the
second quarter of 1998 declined in relation to prior year due to a shift in
product mix in the United States and Canada and to new program and facility
costs in Europe, the Asia/Pacific Rim region, the United States and South
America.
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Selling, general and administrative expenses, including research and
development, as a percentage of net sales, remained unchanged at 3.7% in the
second quarter of 1998 as compared to the same period in the prior year. Actual
expenditures in the current quarter increased in comparison to the prior year
period due to the integration of engineering and administrative expenses
incurred as a result of acquisitions and research, development and
administrative expenses required to support existing and potential new business
opportunities.
For the quarter ended June 27, 1998, interest expense decreased by $1.2
million to $25.5 million as compared to the prior year due to debt reduction
from cash generation, savings due to the redemption of the Company's 11 1/4%
Senior Subordinated Notes and lower borrowing rates under the Company's
multi-currency revolving credit facility (the "Credit Agreement") due to the
achievement of certain financial ratios. Partially offsetting the above was
interest incurred on borrowings to finance acquisitions.
Other expenses for the second quarter of 1998, which include state and
local taxes, foreign exchange, minority interests in consolidated subsidiaries,
equity in net income of affiliates and other non-operating expenses, decreased
$1.8 million to $5.5 million due primarily to reduced state and local taxes.
Net income for the second quarter of 1998 was $65.7 million, or $.96 per
share, as compared to $61.1 million, or $.90 per share in the previous year.
Earnings per share for the second quarter of 1998 were adversely affected by
approximately $.14 per share due to the General Motors work stoppage. The
provision for income taxes in the current quarter was $42.9 million, or an
effective tax rate of 39.5% as compared to $41.5 million, or an effective tax
rate of 40.4% in the prior year.
SIX MONTHS ENDED JUNE 27, 1998 VS. SIX MONTHS ENDED JUNE 28, 1997.
Net sales of $4.2 billion for the first six months of 1998 increased by
$643.8 million or 18.1%, as compared to the first six months of 1997.
Sales as compared to the prior year benefited from acquisitions, which accounted
for $519.4 million of the increase, and new business introduced globally within
the past twelve months. Partially offsetting the increase in sales were
unfavorable exchange rate fluctuations in Europe and North America and a modest
downturn on certain existing programs.
Gross profit and gross margin were $431.8 million and 10.3% for the first
half of 1998 as compared to $391.4 million and 11.0% a year earlier. Gross
profit for the current six months reflects the contribution of acquisitions
coupled with the benefits derived from the overall growth in sales. Partially
offsetting the increase in gross profit was the impact of new program and
facility costs in Europe, South America and the Asia/Pacific Rim region.
Selling, general and administrative expenses, including research and
development, for the six month period ended June 27, 1998, increased as a
percentage of net sales to 3.8% from 3.7% in the prior year. Actual expenditures
increased in comparison to the prior year period due to the inclusion of
operating expenses of acquired businesses and increased engineering and
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administrative expenses required to support the expansion of existing domestic
and international business.
For the six months ended June 27, 1998, interest expense decreased by $3.7
million to $50.2 million over the comparable period in 1997 largely as a result
of debt reduction from cash generation, savings due to the redemption of the
Company's 11 1/4% Senior Subordinated Notes and lower borrowing rates under the
Credit Agreement due to the achievement of certain financial ratios. Partially
offsetting the above was interest incurred on borrowings to finance
acquisitions.
Other expenses for the first half of 1998, which include state and local
taxes, foreign exchange, minority interests in consolidated subsidiaries, equity
in net income of affiliates and other non-operating expenses, increased to $13.5
million from $12.8 million for the first half of 1997, primarily due to foreign
exchange losses and increased minority interest expense partially offset by
reduced state and local taxes.
Net income for the first six months of 1998 was $113.0 million, or $1.65
per share, as compared to $103.0 million, or $1.51 per share, for the first six
months of 1997. Earnings per share in the current six month period increased by
9.3% over the same period in 1997 despite an increase in the weighted average
number of shares outstanding of approximately four hundred thousand shares.
Earnings per share for the first six months of 1998 were adversely affected by
approximately $.14 per share due to the General Motors work stoppage. The
provision for income taxes in the current period was $73.6 million, or an
effective tax rate of 39.4%, as compared to $69.0 million, or an effective tax
rate of 40.1%, in the previous year period.
LIQUIDITY AND FINANCIAL CONDITION
The Company's financial position remained strong during the first half of
1998 despite the General Motors work stoppages and the additional debt incurred
to finance acquisitions. Net cash provided by operating activities was $24
million during the first six months of 1998 as compared to $124 million for the
same period in 1997. Net income included non-cash depreciation and goodwill
amortization charges of $107 million in 1998 and $89 million in 1997, with the
increase primarily due to the acquisitions of Keiper Car Seating GmbH & Co. and
certain of its subsidiaries and affiliates (collectively, "Keiper Seating"),
Dunlop Cox Limited ("Dunlop Cox"), ITT Automotive's Seat Sub-Systems Unit and
Chapman.
The change in working capital resulted in a use of $128 million and $48
million for the six months ended June 27, 1998 and June 28, 1997, respectively.
The use of working capital resulted primarily from an increase in reimbursable
customer tooling on new programs and timing on the collection of receivables at
quarter end.
Net cash used in investing activities increased to $226 million in the
first six months of 1998 versus $133 million in the first six months of 1997.
The 1998 Chapman, Pianfei and Strapazzini acquisitions resulted in a net use of
funds of $101 million, while the 1997 Dunlop Cox and Empetek acquisitions
resulted in an aggregate net use of $59 million. Capital expenditures for the
six months ended June 27, 1998 increased to $125 million from $75 million for
the same period in 1997 primarily due to capital expenditures at acquired
companies and to support future
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programs. The Company currently anticipates approximately $175 million in
additional capital expenditures for the remaining six months of 1998.
On May 26, 1998 the Company entered into an amendment to its Credit
Agreement which, among other things, increased total borrowing availability from
$1.8 billion to $2.1 billion and eliminated the pledge of subsidiary stock which
secured the facility. As of June 28, 1998, the Company had $776 million
outstanding under the Credit Agreement and $53 million committed under
outstanding letters of credit, resulting in approximately $1.3 billion unused
and available credit. The Credit Agreement matures on September 30, 2001 and may
be used for general corporate purposes.
In addition to debt outstanding under the Credit Agreement, the Company had
$515 million of long-term debt outstanding as of June 28, 1998, consisting
primarily of $336 million of subordinated notes due between 2002 and 2006.
The Company believes that cash flows from operations and available credit
facilities will be sufficient to meet its debt service obligations, projected
capital expenditures and working capital requirements.
ACCOUNTING POLICIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. Statement 133 is effective for fiscal years
beginning after June 15, 1999. The Company anticipates adopting this standard in
1998 and does not anticipate a material impact on the Company's financial
position or results of operations when adopted.
Segment Information
On June 30, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which requires disclosures for each
segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. It requires limited segment data on a quarterly basis.
It also requires geographic data by country. This statement must be adopted by
the Company in its December 31, 1998 consolidated financial statements.
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YEAR 2000
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. The Company has
completed an evaluation of the impact of the year 2000 issue and management
believes that the costs of addressing this issue will not have a material impact
on the Company's financial position, results of operations or cash flows in
future periods. The Company will expense any maintenance or modification costs
incurred to resolve this issue while the costs of new software will be
capitalized and amortized over the software's useful life.
FORWARD LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to, (i)
general economic conditions in the markets in which the Company operates, (ii)
fluctuations in worldwide or regional automobile and light truck production,
(iii) labor disputes involving the Company or its significant customers, (iv)
changes in practices and/or policies of the Company's significant customers
towards outsourcing automotive components and systems, and (v) fluctuations in
currency exchange rates and (vi) other risks detailed from time to time in the
Company's Securities and Exchange Commission filings. The Company does not
intend to update these forward-looking statements.
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LEAR CORPORATION
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual Meeting of Stockholders of Lear Corporation was held on May
14, 1998. At the meeting, the following matters were submitted to a vote of the
stockholders of Lear Corporation. Pursuant to the rules of the New York Stock
Exchange, there were no broker non-votes in any of the matters described below.
(1) The election of three directors to hold office until the
2001 Annual Meeting of Stockholders. The vote with respect
to each nominee was as follows:
Nominee For Withheld
------- --- --------
Larry W. McCurdy 53,853,801 2,836,739
Roy E. Parrott 53,849,215 2,841,325
Kenneth L. Way 53,848,881 2,841,659
(2) The appointment of the firm of Arthur Andersen LLP as
independent auditors of Lear Corporation for the year
ending December 31, 1998.
For Against Abstain
--- ------- -------
56,613,918 61,663 14,959
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Second Amendment and Release, dated as of May 26, 1998, to the
Amended and Restated Credit and Guarantee Agreement, filed
herewith.
27.1 Financial Data Schedule for the Quarter Ended June 27, 1998.
(b) Reports on Form 8-K.
No exhibits or reports on Form 8-K were filed during the quarter ended
June, 27, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEAR CORPORATION
Dated: August 11, 1998 By: /s/ Donald J. Stebbins
---------------------------------
Donald J. Stebbins
Senior Vice President, and
Chief Financial Officer
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LEAR CORPORATION
FORM 10-Q
EXHIBIT INDEX
FOR THE QUARTER ENDED JUNE 27, 1998
EXHIBIT
NUMBER
10.1 Second Amendment and Release, dated as of May 26, 1998, to the
Amended and Restated Credit and Guarantee Agreement, filed
herewith.
27.1 Financial Data Schedule for the Quarter Ended June 27, 1998.
19