1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1995JUNE 12, 1996
REGISTRATION NO. 33-333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LEAR SEATING CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3386776
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
21557 TELEGRAPH ROAD
SOUTHFIELD, MICHIGAN 4803448086-5008
(810) 746-1500
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
JAMES H. VANDENBERGHE
21557 TELEGRAPH ROAD
SOUTHFIELD, MICHIGAN 4803448086-5008
(810) 746-1500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Robert W. Ericson David Mercado
John L. MacCarthy
Winston & Strawn
200 Park Avenue
New York, New York 10166
(212) 294-6700
David Mercado
Cravath, Swaine & Moore
Winston & Strawn
825 Eighth Avenue
35 W. Wacker Drive
New York, New York 10019
Chicago, Illinois 60601
(212) 474-1000
(312) 558-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED
NUMBER OF PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SHARESNUMBER OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE SHARES TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2)PRICE(1)(2) FEE
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Common Stock, $.01 par value........... 17,250,000 $26.875 $463,593,750 $159,860$38.57 $665,332,500 $229,425
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(1) Includes 2,250,000 shares to cover the Underwriters' over-allotment options.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low prices
reported on the New York Stock Exchange Composite Tape on July 31, 1995.June 10, 1996.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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EXPLANATORY NOTESNOTE
This Registration Statement covers the registration of 17,250,000 shares of
Common Stock, $.01 par value per share, of Lear Corporation for sale in
underwritten public offerings (the "Offerings") in the United States and Canada
(the "U.S. Offering") and outside of the United States and Canada (the
"International Offering"). The complete Prospectus relating to the U.S. Offering
(the "U.S. Offering Prospectus") follows immediately after thesethis Explanatory
Notes.Note. Following the U.S. Offering Prospectus is an alternate cover page and
alternate back cover page for the Prospectus to be used in the International
Offering (the "International Prospectus" and, together with the U.S. Offering
Prospectus, the "Prospectuses"). Otherwise, the International Prospectus will be
identical to the U.S. Offering Prospectus.
On July 20, 1995, the Company commenced an offer to purchase all of the
shares of Automotive Industries Holding, Inc. ("AIH"), which expires on August
16, 1995. The Prospectus assumes that AIH will be acquired pursuant to the offer
to purchase, and that AIH will become a wholly-owned subsidiary of the Company.
The Prospectus further assumes that the funds used to acquire AIH were borrowed
under the New Credit Agreement (as defined therein).
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Information contained herein is subject to completion or amendment.INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, dated August 4, 1995June 12, 1996
PROSPECTUS
15,000,000 Shares
[LEAR LOGO]LEAR CORP. LOGO
COMMON STOCK
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Of the 15,000,000 shares of Common Stock ("Common Stock") of Lear
Seating
Corporation ("Lear" or the "Company") being offered hereby, 10,000,0007,500,000 shares are
being offered by the Company and 5,000,0007,500,000 shares are being offered by certain
stockholders of the Company (the "Selling Stockholders"). See "Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Stockholders. Of the 15,000,000 shares of Common
Stock being offered hereby, 12,000,000 shares are being offered initially in the
United States and Canada by the U.S. Underwriters (the "U.S. Offering") and
3,000,000 shares are being offered initially outside the United States and
Canada by the International Managers (the "International Offering" and, together
with the U.S. Offering, the "Offerings"). The public offering price and
underwriting discounts and commissions per share are identical for both
Offerings. See "Underwriting." Concurrently with the Offerings, the Company is
undertaking a public offering (the "Note Offering") of $200,000,000 principal
amount of subordinated notes due 2006. The Offerings are not conditioned upon
the consummation of the Note Offering.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "LEA." On July 31, 1995,June 11, 1996, the reported last sale price of the Common
Stock on the New York Stock Exchange Composite Tape was $27$38 1/2 per share.
SEE "RISK FACTORS" COMMENCING ON PAGE 911 HEREIN FOR CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
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Per Share.............................. $ $ $ $
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Total(3)............................... $ $ $ $
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(1) Lear and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters, the International Managers and certain other persons against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by Lear estimated at $ .
(3) The Selling Stockholders have granted the U.S. Underwriters and the
International Managers a 30-day option to purchase up to an aggregate of
2,250,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $ ,
$ and $ , respectively. See "Underwriting."
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The shares of Common Stock offered by this Prospectus are offered by the
U.S. Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain further conditions. It is expected that
delivery of certificates for shares will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1995.1996.
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LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
PAINEWEBBER INCORPORATED
SCHRODER WERTHEIM & CO.
, 19951996
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[LEAR SEATING[INSIDE FRONT COVER]
LEAR CORPORATION LOGO]
[Photo of Chevrolet Cavalier]
[Photo of Surebond(TM) SEAT]
[Photos of Interior Trim Components]
[Photos of Ford Windstar Interior]LOGO
INTERIOR PRODUCT CAPABILITIES
[A PICTURE OF A FORD WINDSTAR SEAT SYSTEM]
[A PICTURE OF A FORD WINDSTAR]
[A PICTURE OF A CHEVROLET CAVALIER DOOR PANEL]
[A PICTURE OF A CHEVROLET CAVALIER]
[DIAGRAM OF AN AUTOMOTIVE INTERIOR]
[A PICTURE OF A SAAB 9000]
[A PICTURE OF A SAAB 9000 HEADLINER]
[A PICTURE OF A JEEP GRAND CHEROKEE]
[A PICTURE OF A JEEP GRAND CHEROKEE FLOOR SYSTEM]
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[Photo of Fiat Punto Interior]
[Photo of Fiat Punto]
[Photo of Interior Components]
[Photo of Shaker Table]
[HIGH-IMPACT, CUSTOMER-FOCUSED TECHNOLOGY.
Lear Seating Corporation is dedicated to
providing its customers with world-class
products and services. From its Technical
Centers in Southfield and Rochester Hills,
Michigan, and Turin, Italy, research, advanced
engineering and testing focus on future
products for the world market. These centers
demonstrate Lear's ongoing commitment as a
technology leader and as a Tier 1 interior
systems supplier.]
[Photo of Crash Sled] [Photo of Side Entry Durability Test]
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IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
DURING THE OFFERINGS, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK OF THE COMPANY PURSUANT TO EXEMPTIONS
FROM RULES 10b-6, 10b-7, AND 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). The registration
statement ("Registration Statement") (which term encompasses any amendments
thereto) and the exhibits thereto filed by the Company with the Commission, as
well as the reports and other information filed by the Company with the
Commission, may be inspected at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and isare also available for inspection and copying at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048;10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and at the New York Stock Exchange located
at 11 Wall20 Broad Street, New York, New York 10005. Copies of such material may also
be obtained from the Public Reference Section of the Commission at 450 FirstFifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement or
to a document incorporated by reference herein, reference is hereby made to the
exhibit for a more complete description of the matter involved and each such
statement shall be deemed qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference and made a part hereof:
(a) Thethe Company's Annual Report on Form 10-K for the year ended December 31,
1994;1995;
(b) Thethe Company's Quarterly Report on Form 10-Q for the period ended April
1, 1995;March 30,
1996;
(c) The Company's Quarterly Report on Form 10-Q for the period ended July
1, 1995;
(d) The Company's Current Report on Form 8-K dated December 15, 1994, as
amended by itsMay 22, 1996;
(d) the audited consolidated financial statements of Automotive Industries
Holding, Inc. and the notes thereto included on pages 3 through 36 of the
Company's Current Report on Form 8-K/A filed on February8-K dated August 28, 1995; and
(e) Thethe Company's Registration Statement on Form 8-A filed on April 1, 1994, as
amended by Amendment No. 1 on Form 8-A/A filed on April 5, 1994.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the Offerings shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in any subsequently filed document which is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to the Company's principal
office: Lear Seating Corporation, 21557 Telegraph Road, P.O. Box 5008, Southfield,
Michigan 48034,48086-5008, Attention: SecretaryDirector of Investor Relations (telephone: (810) 746-1500)(800)
413-5327).
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere or
incorporated by reference in this Prospectus. As used in this Prospectus, unless
the context otherwise requires, the "Company" or "Lear" refers to Lear
Seating
Corporation and its consolidated subsidiaries. A significant portion of the
Company's operations, including the operations of the Company's AI Division and
Masland Division, are conducted through wholly-owned subsidiaries of Lear
Corporation. Effective as of May 9, 1996, Lear changed its name from "Lear
Seating Corporation" to "Lear Corporation." Unless otherwise indicated, all
information contained in this Prospectus is based on the assumption that the
Underwriters' over-allotment option is not exercised.
On May 30, 1996, Lear, through its wholly-owned subsidiary, PA Acquisition
Corp. ("Acquisition Corp."), commenced an offer to purchase (the "Tender Offer")
all of the outstanding shares of common stock of Masland Corporation
("Masland"). The Tender Offer is currently scheduled to expire on June 26, 1996.
The Tender Offer is conditioned on, among other things, there having been
tendered a majority of the outstanding shares ("Shares") of Masland's common
stock on a fully diluted basis. Following consummation of the Tender Offer, the
Company will cause Acquisition Corp. to be merged with and into Masland, such
that Masland will become a wholly-owned subsidiary of Lear (the "Merger"). The
consummation of the Merger is subject to the satisfaction or waiver of a number
of conditions, including the approval of the Merger by the requisite vote of the
stockholders of Masland. Under the General Corporation Law of the State of
Delaware (the "Delaware Law"), the stockholder vote necessary to approve the
Merger will be the affirmative vote of at least a majority of the Shares.
Accordingly, if the Company, through Acquisition Corp., acquires a majority of
Masland's outstanding Shares, it will have the voting power required to approve
the Merger without the affirmative vote of any other stockholders of Masland.
Furthermore, if the Company acquires at least 90% of the outstanding Shares
pursuant to the Tender Offer or otherwise, the Company would be able to effect
the Merger pursuant to the "short-form" merger provisions of Section 253 of the
Delaware Law, without prior notice to, or any action by, any other stockholder
of Masland. In such event, the Company intends to effect the Merger as promptly
as practicable following the purchase of the Shares in the Tender Offer. If the
Company acquires a majority of the Shares in the Tender Offer, but less than
90%, it will take all action necessary, in accordance with the Delaware Law,
Masland's certificate of incorporation and by-laws and applicable securities
laws to convene a meeting of stockholders of Masland as promptly as possible to
approve the Merger. In such event, it is anticipated that the Merger would not
be completed until 45 days or longer after the date of the consummation of the
Tender Offer. Unless otherwise indicated, this Prospectus assumes that the
Tender Offer and the Merger have been consummated.
THE COMPANY
GENERAL
Lear Seating Corporation is the largest independent supplier of automotive seatinterior systems in
the estimated $40 billion global automotive interior market and the tenth
largest independent automotive supplier in the world. The Company's principal
products includeinclude: finished automobile and light truck seat systems,systems; interior
trim products, such as door panels and headliners; and component products, such
as seat frames, seat covers and other seat components.various blow molded plastic parts. The Company's
seatextensive product offerings were recently expanded through the acquisition of
Masland Corporation ("Masland"), a leading Tier I designer and manufacturer of
automotive floor and acoustic systems and interior and luggage trim components.
This acquisition, together with the August 1995 acquisition of Automotive
Industries Holding, Inc. ("AI" or "Automotive Industries"), has made Lear the
world's largest independent automotive supplier with the ability to design,
engineer, test and deliver products for a total vehicle interior. As original
equipment manufacturers ("OEMs") continue their worldwide expansion and seek
ways to improve their vehicle quality while simultaneously reducing the costs of
various vehicle components, management believes that suppliers such as Lear will
be increasingly asked to fill the role of "Systems Integrator" to manage the
design, purchasing and supply of the total automotive interior. Lear's
full-service capabilities make it well-positioned to fill this role.
The Company has experienced substantial growth in market presence and
profitability over the last five years both as a result of internal growth as
well as acquisitions. The Company's sales have grown from approximately $1.1
billion for the year ended June 30, 1991 to approximately $4.7 billion for the
year ended
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December 31, 1995, a compound annual growth rate of 38%. After giving pro forma
effect to the AI and Masland acquisitions, the Company sales would have been
approximately $5.7 billion for the year ended December 31, 1995. The Company's
operating income has grown from approximately $44.7 million for the year ended
June 30, 1991 to approximately $244.8 million for the year ended December 31,
1995, a compound annual growth rate of 46%.
The Company's present customers include 24 OEMs, the most significant of
which are designed, manufacturedFord, General Motors, Fiat, Chrysler, Volvo, Saab, Volkswagen, Audi
and assembled at
the Company's manufacturing facilities, are shipped to customer assembly plants
on a sequential, just-in-time basis.BMW. As of JulyJune 1, 1995,1996, after giving pro forma effect to the acquisition of
Masland, the Company would have employed approximately 26,00040,000 people in 1819
countries and operated 82131 manufacturing, research, design, engineering, testing
and administration facilities.
STRATEGY
The Company's sales have grown rapidly from approximately $159.8 million inprincipal objective is to expand its position as the fiscal year ended June 30, 1983 to approximately $3.1 billion in the year ended
December 31, 1994, a compound annual growth rate of approximately 30%.
With the acquisition of Automotive Industries Holding, Inc. ("AIH"), the
Company has become the largestleading
independent Tier I supplier of automotive seat
and interior systems toin the North American and European vehicle markets. AIH is
a leading designer and manufacturer of high quality interior trim systems and
blow molded products principally for North American and European car and light
truck manufacturers.
STRATEGY
Theworld. To this end,
the Company's strategy is to capitalize on two significant trends in the
automotive industry: (i) the outsourcing of automotive components and systems by
original equipment manufacturers ("OEMs");OEMs; and (ii) the consolidation and globalization of the OEMs' supply base.
Outsourcing of interior components and systems has increased in response to
competitive pressures on OEMs to improve quality and reduce capital needs, costs
of labor, overhead and inventory. Consolidation among automotive industry
suppliers has occurred as OEMs have more frequently awarded long-term sole
source contracts to the most capable global suppliers. Increasingly, the
criteria for selection includesinclude not only cost, quality and responsiveness, but
also certain full-service capabilities including design, engineering and project
management support. With the recent acquisitions of AI and Masland, Lear has
substantial manufacturing capabilities in four of the five principal automotive
interior segments: seat systems; floor and acoustic systems; door panels; and
headliners. The Company intends to enter into the remaining interior segment,
instrument panels, through strategic alliances, acquisitions, supplier
relationships and/or joint ventures.
Elements of the Company's strategy include:
- Strong Relationships with the OEMs. The Company's management has
developed strong relationships with its 1724 OEM customers which allow Lear
to identify business opportunities and customer needs in the early stages
of vehicle design. Management believes that working closely with OEMs in
the early stages of designing and engineering seatautomotive interior systems
and components gives it a competitive advantage in securing new business.
Lear maintains an excellent reputation with the OEMs for timely delivery
and customer service and for providing world class quality at competitive
prices.
- Global Presence. In 1995, more than two-thirds of total worldwide
vehicle production occurred outside of the United States and Canada. Due to
the opportunity for significant cost savings and improved product quality
and consistency, OEMs have increasingly required their suppliers to
manufacture automotive interior systems and components in multiple
geographic markets. In recent years, the Company has aggressively expanded
its operations in Western Europe and emerging markets in South America,
South Africa, the Pacific Rim and elsewhere, giving it the capability to
provide its products on a global basis to its OEM customers. In 1995, the
Company's sales outside the United States and Canada, after giving pro
forma effect to the AI and Masland acquisitions, would have grown to
approximately $1.7 billion, or approximately 30% of the Company's total pro
forma sales.
- Increased Interior Content. OEMs increasingly view the interior of
the vehicle as a major selling point to their customers. A major focus of
Lear's research and development efforts is to identify new interior
features that make vehicles safer and more comfortable, while continuing to
appeal to consumer preferences. The development of these features has been,
and management believes will continue to be, an important factor in the
Company's future growth.
- 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 twofour advanced technical
centers (in Southfield, Michigan, Rochester Hills, Michigan, Plymouth,
Michigan and Turin, Italy) where it develops and tests current and future
products to determine compliance with safety standards, quality and
durability, response to environmental conditions and user wear and tear.
The
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Company also has state-of-the art acoustics testing, instrumentation and
data analysis capabilities. At its 1216 customer-dedicated engineering
centers, specific program applications are developed and tested. The
Company has also made substantial investments in advanced computer aided
design, engineering and manufacturing ("CAD/CAM") systems.
- Lean Manufacturing Philosophy. Lear's "lean manufacturing"
philosophy seeks to eliminate waste and inefficiency in its own operations
and in those of its customers and suppliers. The Company,
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whoseAll of the Company's seat
system facilities and many of its other manufacturing facilities are linked
by computer directly to those of itsthe Company's suppliers and customers, receivescustomers.
These facilities receive components from itstheir suppliers on a just-in-time
("JIT") basis, and delivers seatdeliver interior systems and components to itstheir
customers on a sequential just-in-time basis, which provides products to an
OEM's manufacturing facility in the color and order in which the products
are used. This process minimizes inventories and fixed costs for both the
Company and its customers and enables the Company to deliver products on as
little as 90 minutes' notice.
- Global Presence. Due to significant cost savings and improved
product quality and consistency, OEMs have increasingly required their
suppliers to manufacture seat systems and other components in multiple
geographic markets. By expanding its operations outside the United States,
Lear provides its products on a global basis to its OEM customers. For the
six months ended July 1, 1995 approximately 54% of the Company's sales were
outside the United States.
- Growth Through Strategic Acquisitions. Strategic acquisitions have
been, and the Companymanagement believes will continue to be, an important element in
itsthe Company's growth worldwide and in its efforts to capitalize on
automotive industry trends. These acquisitions complement Lear's existing
capabilities and provide new growth opportunities. The Company's recent
acquisitions have expanded its OEM customer base and worldwide presence and
have
enhanced its relationships with existing customers. The acquisition of AIH
(the "AIH Acquisition") hasCompany's most
recent acquisitions have also given the Companyit a significant presence in the
non-seating segmentsegments of the automobile and light truck interior market. In
1995, after giving pro forma effect to the AI and Masland acquisitions, the
Company's sales of non-seating systems and components would have been
approximately $1.4 billion, or approximately 25% of the Company's total pro
forma sales.
Implementation of the Company's strategy has resulted in rapid growth of
the Company's net sales from approximately $159.8 million in the fiscal year
ended June 30, 1983 to approximately $3.1$4.7 billion in the year ended December 31,
1994,1995, a compound annual growth rate of approximately 30%33%. This growthincrease in sales
has been driven both internally andachieved through internal growth as well as through acquisitions. In
1994,1995, the Company heldwas the leading independent supplier to the $40 billion global
automotive interior market, with a leading 38%12% share of the estimated $4.8 billion North American outsourced seat
systems market and a 27% share of the estimated $6.8 billion total seat systems
market. Afterafter giving pro forma effect to
the acquisition of the primary
automotive seat systems supplier to Fiat S.p.A. (the "FSB Acquisition"), the
Company's share of the estimated $2.4 billion European outsourced seat systems
market would have been a leading 33%AI and its share of the estimated $4.5 billion
total seat systems market would have been 18%.Masland acquisitions. The Company's North American content per
vehicle has increased from $12 in 1983 to $169$227 in 1994.1995. In Europe, the Company's
content per vehicle has grown from $3 in 1983 to $80$102 in 1994 after
giving pro forma effect to the FSB Acquisition.1995.
RECENT ACQUISITIONS
In August 1995,The Company is acquiring all of the Company purchased AIHissued and outstanding common stock of
Masland (the "Masland Acquisition") for an aggregate purchase price of
$926.4approximately $459.6 million (including the assumption of $282.3 million of AIH'sMasland's existing
indebtedness, net of cash and cash equivalents, of $64.7 million and the payment
of fees and expenses of $10 million in connection with the acquisition). The
acquisition of AIH,Masland gives the Company substantial capabilities to produce
automotive floor and acoustic systems, which the Company did not previously
have. In 1995, Masland held a leading 38% share of the estimated $1 billion
North American floor and acoustic systems market. Masland is also a major
supplier of interior and luggage compartment trim components and other
acoustical products which are designed to minimize noise and vibration for
passenger cars and light trucks. Masland supplies the North American operations
of Ford, Chrysler, General Motors, Honda, Isuzu, Mazda, Mitsubishi, Nissan,
Subaru and Toyota, as well as the European operations of Nissan, Peugeot and
Saab. Masland has had a continuous relationship with Ford, its largest customer,
since 1922. For its fiscal year ended June 30, 1995, Masland had net sales,
EBITDA, operating income and net income of $496.6 million, $62.2 million, $47.0
million and $21.3 million, respectively.
In August 1995, the Company acquired all of the issued and outstanding
common stock of Automotive Industries, a leading designer and manufacturer of
high quality interior trim systems and blow molded products principally for
North American and European car and light truck manufacturers, positionsmanufacturers. The acquisition
of AI (the "AI Acquisition") afforded Lear a significant presence in the door
panel and headliner segments of the interior market, which account for
approximately 15% of the global automotive interior market. The AI
5
9
Acquisition also gave the Company access to AI's premier program management
systems, CAD/CAM capabilities, product and process variety and technological
expertise.
The acquisitions of AI and Masland have solidified the Company's position
as the largest,leading independent automotive interior supplier in the world. Currently,
Lear has manufacturing capabilities in four of the five principal automotive
interior segments: seat systems; floor and acoustic systems; door panels; and
headliners. Lear intends to enter into the remaining segment, instrument panels,
through strategic alliances, acquisitions, supplier relationships and/or joint
ventures. Management believes that the Company's ability to offer OEMs a total
interior system provides Lear with a competitive advantage as OEMs continue to
reduce their supplier base while demanding improved quality and additional Tier
I supplier of automotive seat and
interior systems to the estimated $22 billion North American and European total
interior market. AIH's sales have grown rapidly from approximately $209.5
million in 1991 to approximately $512.8 million in 1994, a compound annual
growth rate of approximately 35%. As a result of the AIH Acquisition, Lear is
able to provide OEMs with a complete portfolio of interior systems and
components and the ability to manage the design, manufacture and supply of the
total automobile and light truck interior. In the near-term, the Company intends
to operate AIH as a separate division, using Lear's existing relationships with
the OEMs to expand AIH's business.services. Management believes that as the outsourcing and supplier
consolidation trends continue, the OEMs will increasingly seek global suppliers,
such as Lear, to provide total interiors, including seat systems, resulting in greater value from the
on-going integration of Lear'sthe Lear, AI and AIH'sMasland businesses and long-term growth
opportunities for the Company.
SinceIn addition to the AI and Masland acquisitions, since 1990 Lear has
completed five additional strategic acquisitions. In December 1994, the Company
completedacquired the FSB Acquisition,primary automotive seat systems supplier to Fiat and certain
related businesses (the "Fiat Seat Business" or the "FSB"), establishing Lear as
the market leader inleading independent supplier of automotive seat systems in Europe. In 1993,
the Company significantly expanded its operations in North America by purchasing
certain portions of the North American seat cover and seat systems business (the
"NAB") of Ford (the "NAB Acquisition"). In 1991 and 1992, the Company acquired
the seat systems businesses of Saab in Sweden and Finland and of Volvo in
Sweden. 4In addition to broadening the Company's geographic coverage, these
acquisitions, like the AI and Masland acquisitions, have expanded the Company's
customer base and solidified relationships with existing customers.
The Company's principal executive offices are located at 21557 Telegraph
Road, Southfield, Michigan 48086-5008. Its telephone number at that location is
(800) 413-5327.
NOTE OFFERING
Concurrently with the Offerings, the Company is undertaking a public
offering of $200 million aggregate principal amount of subordinated notes due
2006 (the "Notes"). The Note Offering is conditioned in its entirety upon the
consummation of the Offerings. The Offerings are not, however, conditioned upon
the consummation of the Note Offering. The net proceeds to the Company from the
Note Offering will be used to repay indebtedness outstanding under the Credit
Agreement (as defined herein).
6
910
THE OFFERINGS
Common Stock offered by:
The Company........................... 10,000,0007,500,000 shares
The Selling Stockholders.............. 5,000,000 shares7,500,000 shares(1)
----------
Total Common Stock Offered.........offered......... 15,000,000 shares
==========
Common Stock offered for sale in:
U.S. Offering......................... 12,000,000 shares
International Offering................ 3,000,000 shares
Common Stock to be outstanding after the
Offerings............................. 56,132,364 shares(1)64,150,532 shares(2)
NYSE Symbol ............................ LEA
Use of Proceeds......................... The net proceeds to the Company from the Offerings
will be used to repay a portion of the indebtedness
outstanding under the New Credit Agreement (as
defined herein) incurred to
finance the AIHMasland Acquisition. The Company will
not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
- -------------------------
(1) 9,750,000 shares if the Underwriters' over-allotment option is exercised in
full.
(2) Excludes 4,371,4524,468,036 shares of Common Stock issuable upon exercise of options
(the "Options") outstanding as of JulyJune 1, 19951996 and granted pursuant to (i) stock option
agreements between the Company and certain management investors, (ii) the
Company's 1992 Stock Option Plan, and(iii) the Company's 1994 Stock Option Plan
and (iv) the Company's 1996 Stock Option Plan. Also excludes (i) 160,653
shares of Common Stock issuable upon exercise of options outstanding as of
June 1, 1996 originally granted under the Automotive Industries Holding,
Inc. 1992 Key Employee Stock Option Plan and (ii) up to 1,256,791 shares of
Common Stock issuable upon exercise of options originally granted under the
Masland Corporation 1991 Stock Purchase and Option Plan and the Masland
Corporation 1993 Stock Option Incentive Plan which may be converted into
options to purchase Common Stock in connection with the Masland Acquisition.
The options described in the preceding two sentences are collectively
referred to herein as the "Options."
RISK FACTORS
Investment in the Company's Common Stock involves certain risks discussed
under "Risk Factors" that should be considered by prospective investors.
57
1011
SUMMARY FINANCIAL DATA OF THE COMPANY
The following summary consolidated financial information and other data were derived from the
consolidated financial statements of the Company. The consolidated financial
statements of the Company for each of the fiscal years ended December 31, 1995, 1994
and 1993 and June 30, 1993 and 1992 have been audited by Arthur Andersen LLP. The consolidated financial
statements of the Company for the sixthree months ended JulyMarch 30, 1996 and April 1,
1995 and July 2, 1994 are unaudited; however, in the Company's opinion, they reflect all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and results of operations offor such
periods. The results for the sixthree months ended July
1, 1995March 30, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year. The
summary financial data below should be read in conjunction with the other
financial data of the Company included in this Prospectus, the consolidated
financial statements of the Company and the notes thereto incorporated by
reference in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company."
LEAR SEATING CORPORATION
SIXAS OF OR FOR THE
THREE MONTHS ENDED AS OF OR FOR THE YEAR ENDED
-------------------- ----------------------------------------------------
JULY--------------------- --------------------------------------------
MARCH 30, APRIL 1, JULY 2, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,DECEMBER 31,
1996 1995 1995 1994 1994 1993
1993 1992
----------------- -------- ------------ ------------ -------- --------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND CONTENT PER VEHICLE DATA)
OPERATING DATA:
Net sales....................... $2,186.1 $1,508.9sales.............................. $1,405.8 $1,043.5 $4,714.4 $3,147.5 $1,950.3
$1,756.5 $1,422.7
Operating income................ 114.9 84.6income....................... 70.0 47.7 244.8 169.6 79.6
81.1 56.8Interest expense(1).................... 24.4 14.2 75.5 46.7 45.6
Net income (loss)(1)............ 45.9 27.7(2)................... 25.8 17.0 91.6 59.8 (13.8) 10.1 (22.2)
Net income (loss) per share(1)...................... .92 .61share(2)......... .43 .34 1.74 1.26 (.39) .25 (.80)
BALANCE SHEET DATA:
Total assets.................... $1,855.1 $1,217.2assets........................... $3,122.2 $1,797.9 $3,061.3 $1,715.1 $1,114.3
$ 820.2 $ 799.9
Long-term debt.................. 460.1 383.5debt......................... 1,033.3 519.9 1,038.0 418.7 498.3
321.1 348.3
Stockholders' equity............ 246.5 184.0equity................... 612.5 217.1 580.0 213.6 43.2
75.1 49.4
OTHER DATA:
EBITDA(2).......................EBITDA(3).............................. $ 152.0103.2 $ 111.566.1 $ 336.8 $ 225.7 $ 122.2
$ 121.8 $ 91.8Depreciation and amortization.......... 33.2 18.4 92.0 56.1 42.6
Capital expenditures............ 42.6 35.0expenditures................... 33.7 23.6 110.7 103.1 45.9 31.6 27.9
North American content per
vehicle(3).................... 193 159vehicle(4)........................... 274 182 227 169 112 98 94
European content per vehicle(4).................... 90 38vehicle(5)........ 107 78 102 48 38
37 21Ratio of EBITDA to interest
expense (1)(3)....................... 4.2x 4.7x 4.5x 4.8x 2.7x
Ratio of earnings to fixed
charges(6)........................... 2.5x 2.9x 2.9x 3.2x 1.5x
- -------------------------
(1) Interest expense includes non-cash charges for amortization of deferred
financing fees of approximately $.8 million, $.6 million, $2.7 million, $2.4
million and $2.6 million for the three months ended March 30, 1996 and April
1, 1995 and for the years ended December 31, 1995, 1994 and 1993,
respectively.
(2) After extraordinary charges of $2.6 million and $11.7 million ($.05 and $5.1 million$.33
per share) for the fiscal years ended December 31, 19931995 and June 30, 1992,1993, respectively,
relating to the early extinguishment of debt.
(2)(3) "EBITDA" is operating income plus amortization and depreciation. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles.
(3)(4) "North American content per vehicle" is the Company's net automotive sales
in North America divided by total North American vehicle production. "North
American vehicle production" comprises car and light truck production in the
United States, Canada and Mexico estimated by the Company from industry
sources.
(4)(5) "European content per vehicle" is the Company's net automotive sales in
Western Europe divided by total Western European vehicle production.
"Western European vehicle production" comprises car and light truck
production in Western Europe estimated by the Company from industry sources.
6(6) "Fixed charges" consist of interest on debt, amortization of deferred
financing fees and that portion of rental expenses representative of
interest (deemed to be one-third of rental expenses). "Earnings" consist of
income (loss) before income taxes, fixed charges, undistributed earnings and
minority interest.
8
1112
SUMMARY FINANCIAL DATA OF AUTOMOTIVE INDUSTRIES HOLDING, INC.MASLAND CORPORATION
The following summary consolidated financial information and other data were derived from the
consolidated financial statements of AIH.Masland. The consolidated financial
statements of AIHMasland for each fiscal year presented have been audited by Arthur AndersenPrice
Waterhouse LLP. The consolidated financial statements of AIHMasland for the sixnine
months ended July 1,March 29, 1996 and March 31, 1995 and July 2, 1994 are unaudited; however, in the
opinion of AIH'sMasland's management, they reflect all adjustments, consisting only
of normal recurring items, necessary for a fair presentation of the financial
position and results of operations offor such periods. The results for the sixnine
months ended July 1, 1995March 29, 1996 are not necessarily indicative of the results to be
expected for the full fiscal year. The summary financial data below should be
read in conjunction with the other financial data of AIHMasland included hereinin this
Prospectus, the consolidated financial statements of Masland and the notes
thereto incorporated by reference in this Prospectus and "Management's
Discussion and Analysis of Results of Operations of Automotive
Industries Holding, Inc.Masland Corporation."
AUTOMOTIVE INDUSTRIES HOLDING, INC.MASLAND CORPORATION
SIXAS OF OR FOR THE AS OF OR FOR THE FISCAL YEAR
NINE MONTHS ENDED YEAR ENDED
------------------- --------------------------------------------------------------- ----------------------------
MARCH 29, MARCH 31, JUNE 30, JULY 1, JULY 2,
DECEMBER 31, JANUARY 1, DECEMBER 26,1996 1995 1995 1994 1994 1994 19921993
--------- --------- -------- -------- ------------ ---------- ------------------- -------
(DOLLARS IN MILLIONS)MILLIONS, EXCEPT CONTENT PER VEHICLE DATA)
OPERATING DATA:
Net sales.....................................sales......................................... $ 377.1343.4 $ 236.8 $512.8 $348.7 $272.4373.8 $496.6 $ 429.9 $ 353.5
Operating income.............................. 45.5 31.8 63.9 47.1 36.5income.................................. 26.5 34.2 47.0 45.0 25.8
Net income(1)................................. 21.9 16.8 32.7 24.0 6.9income applicable to common stock............. 11.8 15.0 21.3 20.5 11.7
BALANCE SHEET DATA:
Total assets..................................assets...................................... $ 611.3276.8 $ 461.0 $567.4 $338.5 $233.7226.0 $228.0 $ 203.8 $ 197.3
Long-term debt................................ 221.1 154.0 216.9 93.8 75.8debt.................................... 70.8 40.2 37.0 31.4 50.1
Stockholders' equity.......................... 241.3 207.2 219.9 189.7 109.8equity.............................. 98.8 82.5 88.2 68.5 60.1
OTHER DATA:
EBITDA........................................EBITDA(1)......................................... $ 60.440.2 $ 41.946.5 $ 85.862.2 $ 63.057.6 $ 48.637.1
Capital expenditures.......................... 30.8 18.6 40.5 22.4 8.9expenditures.............................. 20.6 14.7 22.0 17.8 18.0
North American content per vehicle(2)............. 34 31 33 30 26
- -------------------------
(1) Includes a preferred stock dividend of $1.0 million"EBITDA" is operating income plus amortization and depreciation. EBITDA does
not represent and should not be considered as an extraordinary
item relatingalternative to the early extinguishment of debt of $8.3 millionnet income
or cash flow from operations as determined by generally accepted accounting
principles.
(2) "North American content per vehicle" is Masland's net automotive sales in
North America divided by total North American vehicle production. "North
American vehicle production" comprises car and light truck production in the
fiscal year ended December 26, 1992.
7United States, Canada and Mexico estimated by the Company from industry
sources.
9
1213
SUMMARY PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA
The following summary pro forma unaudited consolidated financial and other data were
derived from and should be read in conjunction with the pro forma unaudited
consolidated financial data included elsewhere in this Prospectus. The following
summary pro forma unaudited consolidated operating data and other data of the
Company for the three months ended March 30, 1996 and for the year ended
December 31, 1995 were prepared to illustrate the estimated effects of (i) the
AIHMasland Acquisition (including the refinancing of certain debt of AIHMasland with
borrowings under a $1.5
billion secured revolving credit agreement with Chemical Bank and a syndicate of
financial institutions (the "Newthe Credit Agreement"))Agreement), (ii) the FSBAI Acquisition (including the
refinancing of certain debt of AI with borrowings under the Credit Agreement),
(iii) certain acquisitions completedthe acquisition of Plastifol GmbH & Co. KG ("Plastifol") by AIHAI in July
1995 prior to the acquisition of AIH by
the Company,AI Acquisition (the "Plastifol Acquisition"), (iv) the initial public
offering of Common Stock (the "IPO") by the Company and the application of the net proceeds
thereoftherefrom in April 1994,September 1995 (the "1995 Stock Offering"), (v) the refinancing of
the Company's 14% Subordinated Debentures due 2000prior credit facility with its
8 1/4% Subordinated Notes due 2002,borrowings under the Credit Agreement,
(vi) the refinancingcompletion of the Company's prior
$500 million credit facility (the "Prior Credit Facility") with borrowings under the New Credit Agreement and (vii) the Note Offering and
the Offerings contemplated hereby and the application of the net proceeds to the
Company therefrom to repay indebtedness incurred pursuant tounder the New Credit Agreement to
finance the AIHMasland Acquisition (collectively, the "Pro Forma Transactions"), as
if the Pro Forma Transactions had occurred on January 1, 1994.1995. The following
summary pro forma unaudited consolidated balance sheet data arewere prepared as if
the AIHcompletion of the New Credit Agreement, the Masland Acquisition, the acquisition of Plastifol GmbH & Co. KG ("Plastifol") by AIHNote
Offering and the Offerings contemplated hereby and the application of the net
proceeds therefrom to repay indebtedness incurred pursuant to the New Credit
Agreement to finance the AIHMasland Acquisition had occurred as of July 1, 1995.March 30, 1996.
The following summary pro forma unaudited consolidated financial data do not
purport to represent (i) the actual results of operations or financial condition
of the Company had the Pro Forma Transactions occurred on the dates assumed or
(ii) the results to be expected in the future.
SIXAS OF OR AS OF OR
FOR THE FOR THE
THREE MONTHS ENDED YEAR ENDED
JULY 1, 1995MARCH 30, 1996 DECEMBER 31, 1994
----------------1995
------------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE AND CONTENT PER VEHICLE DATA)
OPERATING DATA:
Net sales.................................................. $2,612.3sales................................................. $ 4,355.61,527.3 $ 5,708.0
Operating income........................................... 164.1 227.1income.......................................... 81.5 327.1
Interest expense(1)....................................... 29.3 122.5
Net income................................................. 56.3 58.9income................................................ 28.3 105.4
Net income per share....................................... .94 .99share...................................... .42 1.56
BALANCE SHEET DATA:
Total assets............................................... $2,954.2assets.............................................. $ 3,700.6
Long-term debt............................................. 1,133.5debt............................................ 1,223.9
Stockholders' equity....................................... 502.4equity...................................... 900.0
OTHER DATA:
EBITDA.....................................................EBITDA(2)................................................. $ 222.6120.7 $ 334.5467.2
Depreciation and amortization............................. 39.2 140.1
Capital expenditures....................................... 73.4 151.0expenditures...................................... 41.8 184.2
North American content per vehicle(1)...................... 231 206vehicle(3)..................... 308 285
European content per vehicle(4)........................... 107 111
Ratio of EBITDA to interest expense(1)(2)................. 4.1x 3.8x
Ratio of earnings to fixed charges(5)..................... 2.5x 2.4x
- -------------------------
(1) Interest expense includes non-cash charges for amortization of deferred
financing of approximately $1.0 million and $3.7 million for the three
months ended March 30, 1996 and the year ended December 31, 1995,
respectively.
(2) "EBITDA" is operating income plus amortization and depreciation. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles.
(3) "North American content per vehicle" is the Company's pro forma net
automotive sales in North America divided by total North American vehicle
production. "North American vehicle production" comprises car and light
truck production in the United States, Canada and Mexico estimated by the
Company from industry sources.
8(4) "European content per vehicle" is the Company's pro forma net automotive
sales in Western Europe divided by total Western European vehicle
production. "Western European vehicle production" comprises car and light
truck production in Western Europe estimated by the Company from industry
sources.
(5) "Fixed charges" consist of interest on debt, amortization of deferred
financing fees and that portion of rental expenses representative of
interest (deemed to be one-third of rental expenses). "Earnings" consist of
income (loss) before income taxes, fixed charges, undistributed earnings and
minority interest.
10
1314
RISK FACTORS
A potential investor should consider carefully all of the information
contained in this Prospectus before deciding whether to purchase the Common
Stock offered hereby and, in particular, should consider the following:
LEVERAGE
Substantially allA significant portion of the funds needed to finance the Company's recent
acquisitions, including the FSBMasland Acquisition and the AIHAI Acquisition, were
initially raised through borrowings. As a result, the Company has debt that is
substantial in
relation togreater than its stockholders' equity and a significant portion of the Company's
cash flow from operations will be used to service its debt obligations. As of
July 1, 1995,March 30, 1996, after giving effect to the Pro Forma Transactions, the Company
would have had total debt of $1,158.3$1,254.2 million and shareholders'stockholders' equity of $502.4$900.0
million, producing a total capitalization of $1,660.7$2,154.2 million, so that total
debt as a percentage of total capitalization was 69.7%would have been approximately 58%.
The Company's high leverage may have consequences, including the following: (i)
the ability of the Company to obtain additional financing for working capital,
capital expenditures and debt service requirements or other purposes may be
impaired; (ii) the Company may be more highly leveraged than companies with
which it competes, which may place it at a competitive disadvantage; (iii)
because certain of the Company's obligations under the Credit Agreement and (iii)the
New Credit Agreement bear interest at floating rates, an increase in interest
rates could adversely affect the Company's ability to service its debt
obligations; and (iv) the Company may be more vulnerable in the event of a
downturn or disruption in its business or in the economy generally. If the
Company is unable to generate sufficient cash flow to service its debt
obligations, it will have to adopt one or more alternatives, such as reducing or
delaying planned expansion and capital expenditures, selling assets,
restructuring debt or obtaining additional equity capital. There can be no
assurance that any of these strategies could be effected on satisfactory terms.
In addition, because certain of the Company's obligations underCredit Agreement and the New Credit Agreement, beartogether
with the Senior Subordinated Notes (as defined herein), the Subordinated Notes
(as defined herein) and the Notes, contain or will contain various restrictive
covenants including, among other things, financial covenants relating to the
maintenance of minimum operating profit and net worth levels and interest
at floating rates, an increase in interest ratescoverage ratios as well as restrictions on indebtedness, guarantees,
acquisitions, capital expenditures, investments, loans, liens, dividends and
other restricted payments and asset sales. Such restrictions, together with the
leveraged nature of the Company, could adversely affectlimit the Company's ability to meet its debt service
obligations. Asrespond to
market conditions, to provide for unanticipated capital investments or to take
advantage of July 1, 1995, the Company was not a party to any interest
rate swaps or similar arrangements; however, in the future the Company may
determine to enter into such arrangements with respect to all or a portion of
its floating rate debt. Although any interest rate swaps or similar arrangements
entered into by the Company would effectively cap or fix associated interest
rates, such arrangements could have the effect of increasing total interest
expense.
CYCLICALbusiness opportunities.
NATURE OF AUTOMOTIVE INDUSTRY
The Company's principal operations are directly related to domestic and
foreign automotive vehicle production. Automobile sales and production are
cyclical and can be affected by the strength of a country's general economyeconomy. In
addition, automobile production and sales can be affected by labor relations
issues, regulatory requirements, trade agreements and other factors which may have an effect on the level offactors. A decline
in automotive sales and production could result in a decline in the Company's
sales to
automobile and light truck manufacturers.results of operations or financial condition.
RELIANCE ON MAJOR CUSTOMERS AND SELECTED CAR MODELS
Two of the Company's customers, FordGeneral Motors and General Motors,Ford, accounted for
approximately 39%34% and 36%33%, respectively, of the Company's net sales during
fiscal 1994.1995. After giving effect to the AIH Acquisition and the FSBMasland Acquisition, sales to FordGeneral
Motors and General MotorsFord will continue to represent a similar substantial portion of the
Company's total sales. Although the Company has purchase orders from many of its
customers, such purchase orders generally provide for supplying the customers'
annual requirements for a particular model or assembly plant, renewable on a
year-to-year basis, rather than for manufacturing a specific quantity of
products. In addition, certain of the Company's manufacturing and assembly
plants are dedicated to a single customer's automobileautomotive assembly plant. The
customer's decision to close any such plant would require the Company to obtain
alternate supply agreements, relocate existing business to such facility or
close such facility. To date, neither
11
15
model discontinuances nor plant closings have had a material adverse effect on
the Company because of the breadth of the Company's product lines and the
ability of the Company to relocate its facilities with minimal capital
expenditures. There can be no assurances that the Company's loss of business
with respect to 9
14
either a particular automobile model or a particular assembly
plant would not have a material adverse effect on the Company's results of
operations or financial condition in the future.
There is substantial and continuing pressure from the major OEMs to reduce
costs, including costs associated with outside suppliers such as the Company.
Management believes that the Company's ability to develop new products and to
control its own costs, many of which are variable, will allow the Company to
remain competitive. However, there can be no assurance that the Company will be
able to improve or maintain its gross margins.
CONTROL BY LEHMAN BROTHERS HOLDINGS INC.
Certain merchant banking partnerships affiliated with Lehman Brothers
Holdings Inc. (the "Lehman Funds") own an aggregate of approximately 56% of the
outstanding Common Stock. Upon the closing of the Offerings, in which they will
participate as Selling Stockholders, the Lehman Funds will own an aggregate of
approximately 39% of the outstanding Common Stock (in each case, assuming no
Options are exercised and the Underwriters' over-allotment option is not
exercised). Pursuant to an agreement with Lehman Brothers, The Cypress Group
L.L.C. provides consulting services to Lehman Brothers with respect to the
management of the equity investments of the Lehman Funds, including the Lehman
Funds' investment in Lear. After the Offerings, employees of Lehman Brothers and
The Cypress Group L.L.C. will continue to occupy five of the ten seats on the
Company's Board of Directors. As a result of their stock ownership and
representation on the Company's Board of Directors, the Lehman Funds have the
ability to control the affairs and policies of the Company.
RESTRICTIONS ON DIVIDENDS
The Company's ability to pay dividends to holders of Common Stock is
limited under the terms of the New Credit Agreement and of the indentures (the
"Indentures") governing its 11 1/4% Senior Subordinated Notes due 2000 (the
"Senior Subordinated Notes") and its 8 1/4% Subordinated Notes due 2002 (the
"Subordinated Notes"). The Company does not intend to pay any cash dividends in
the foreseeable future. See "Common Stock Price Ranges and Dividends."
FOREIGN EXCHANGE RISK
As a result of recent acquisitions including the acquisitions of FSB, John
Cotton Limited and Plastifol, and the Company's business strategy,
which includes plans for the global expansion of its operations, a significant
portion of the Company's revenues and expenses are denominated in currencies
other than U.S. dollars. Changes in exchange rates therefore may have a
significant effect on the Company's results of operations.operations and financial
condition.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and by-laws, as well as provisions of the Delaware General Corporation Law, may
have the effect of delaying, deterring or preventing transactions involving a
change of control of the Company, including transactions in which stockholders
might otherwise receive a substantial premium for their shares over then current
market prices, and may limit the ability of stockholders to approve transactions
that they may deem to be in their best interests. For example, under the
Restated Certificate of Incorporation, the Board of Directors is authorized to
issue one or more classes of preferred stock having such designations, rights
and preferences as may be determined by the Board of Directors. In addition, the
Board of Directors is divided into three classes, each having a term of three
years, with the term of one class expiring each year. A director may be removed
from office only for cause. These provisions could delay the replacement of a
majority of the Board of Directors and have the effect of making changes in the
Board of Directors more difficult than if such provisions were not in place.
Further, Section 203 of the Delaware General Corporation Law restricts certain
business combinations with any "interested stockholder" as defined in such law.
TheCertain current stockholders of the Company are not, by virtue of their current
holdings, deemed to be "interested stockholders" under this statute. This
statute also may delay, deter or prevent a change of control of the Company. See
"Description of Capital Stock" for additional information regarding these and
certain other anti-takeover provisions adopted by the Company.
10CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. When used in this
document, the words 'anticipate,' 'believe,' 'estimate,' and 'expect' and
similar expressions are generally intended to identify forward-looking
statements. Prospective 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, and (iv) those items identified under
"Risk Factors." Should one or more of those risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
12
1516
USE OF PROCEEDS
All of the net proceeds to the Company from the Offerings will be used to
repay a portion of the indebtedness outstanding under the New Credit Agreement which
was incurred to finance the AIHMasland Acquisition, bearing a rate of interest as
of , 1995June 1, 1996 of approximately %.6.36%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company --
Liquidity and Capital Resources." The Company will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders.
COMMON STOCK PRICE RANGE AND DIVIDENDS
The Common Stock is listed for trading on the New York Stock Exchange under
the symbol "LEA." The following table sets forth the high and low sale prices of
the Common Stock as reported on the New York Stock Exchange for the fiscal
periods indicated:
HIGH LOW
---- ------------- --------
1994:
Second Quarter............................................... $20 1/4 $16 1/4
Third Quarter................................................ 19 5/8 16
Fourth Quarter............................................... 22 1/8 17
1995:
First Quarter................................................ 20 7/8 16 5/8
Second Quarter............................................... 24 1/4 17 7/8
Third Quarter................................................ 31 1/8 23
Fourth Quarter............................................... 32 1/4 26 1/4
1996:
First Quarter................................................ 34 25 1/4
Second Quarter (through August 3, 1995)....................... 28 3/8 23June 11)............................. 39 1/4 27 1/2
The reported last sale price of the Common Stock on the New York Stock
Exchange Composite Tape as of a recent date is set forth on the cover page of
this Prospectus.
As of July 15, 1995,June 1, 1996, there were 243249 holders of record of the outstanding
Common Stock and the Company estimates that, at such date, there were
approximately 4,5006,400 beneficial holders.
The Company has never paid dividends on its Common Stock. Any future
payment of dividends is subject to the discretion of the Company's Board of
Directors, which may consider the Company's earnings and financial condition and
such other factors as it deems relevant. In addition, the Credit Agreement, the
New Credit Agreement and the Indentures governing Lear's 11 1/4% Senior
Subordinated Notes due 2000 (the "Senior Subordinated Notes") and 8 1/4%
Subordinated Notes due 2002 (the "Subordinated Notes") presently contain, and
the Indenture relating to the Notes will contain, certain restrictions on the
Company's payment ofability to pay dividends. The Company does not intend to pay any cash
dividends in the foreseeable future.
1113
1617
CAPITALIZATION
The following table sets forth the capitalization of the Company at July 1,
1995,March
30, 1996, after giving effect on a pro forma basis to the AIHMasland Acquisition
and the incurrence of indebtedness under the New Credit Agreement and the Credit
Agreement to finance such acquisition, and as adjusted to reflect the Note
Offering and Offerings contemplated hereby and the application of the net
proceeds to the Company therefrom. See "Use of Proceeds" and "Pro Forma
Financial Data."
AS OF JULY 1, 1995
------------------------------------MARCH 30, 1996
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------------- --------- -----------
(DOLLARS IN MILLIONS)
Short-term debt:
Short-term borrowings...................................borrowings.................................. $ 19.217.3 $ 19.217.3 $ 19.217.3
Current maturitiesportion of long-term debt.................... 1.7 5.6debt...................... 12.0 13.0 (1) 5.6
------ ---------13.0
-------- -------- ----------
Total short-term debt................................ 20.9 24.8 24.8
------ ---------debt............................... 29.3 30.3 30.3
-------- -------- ----------
Long-term debt, less current portion:
Term loans.............................................. 5.8 5.8 5.8
Revolving credit loans.................................. 160.0 1,075.7Domestic revolving loans............................... 715.5 1,179.5 (2) 817.1(4)
Loans from governmental agencies........................ 24.3 27.2704.1(4)
Industrial revenue bonds............................... 20.5 22.5 (1) 27.2
Other, including long-term notes payable and capital
lease obligations.................................... -- 13.4 (1) 13.422.5
Other.................................................. 27.3 27.3 27.3
11 1/4% senior subordinated notesSenior Subordinated Notes due 2000..............2000............. 125.0 125.0 125.0
8 1/4% Subordinated notesNotes due 2002......................2002..................... 145.0 145.0 145.0
------ ---------% Subordinated Notes due 2006....................... -- -- 200.0(5)
-------- -------- ----------
Total long-term debt, less current portion........... 460.1 1,392.1 1,133.5
------ ---------portion.......... 1,033.3 1,499.3 1,223.9
-------- -------- ----------
Stockholders' equity:
Common stock, par value $.01 per share; 150,000,000
shares authorized, 46,142,59456,589,288 shares issued
(56,142,594(64,089,288 after adjustment for the Offerings)...... .5 .5 .6(5)..... .6 .6 .6
Additional paid-in capital.............................. 274.4 274.4 532.9(5)capital............................. 562.9 570.5 (3) 850.4(6)
Notes receivable from sale of common stock.............. (1.0) (1.0 ) (1.0)Common Stock............. (.9) (.9) (.9)
Treasury stock, 10,230 shares of common stock...........Common Stock.......... (.1) (.1 )(.1) (.1)
Retained deficit........................................ (3.6) (6.3 )(3) (6.3)earnings...................................... 68.0 68.0 68.0
Cumulative translation adjustment....................... (17.9) (17.9 ) (17.9)adjustment...................... (14.5) (14.5) (14.5)
Minimum pension liability adjustment.................... (5.8) (5.8 ) (5.8)
------ ---------liability.............................. (3.5) (3.5) (3.5)
-------- -------- ----------
Total stockholders' equity........................... 246.5 243.8 502.4
------ ---------equity.......................... 612.5 620.1 900.0
-------- -------- ----------
Total capitalization............................... $727.5 $1,660.7capitalization.............................. $1,675.1 $2,149.7 $ 1,660.7
======2,154.2
======== ================= ==========
OTHER DATA:
Debt to total capitalization........................... 63.4% 71.2 % 58.2%
- -------------------------
(1) Reflects debt assumed in connection with the AIHMasland Acquisition.
(2) Reflects borrowings under the New Credit Agreement of:of (i) $625.7$377.3 million to
purchaseacquire all of the outstanding common stock of AIH,Masland and retire certain
stock options of Masland in connection with the Masland Acquisition, (ii)
$262.1$75.7 million to retire certain debt assumed in connection with the AIHMasland
Acquisition, and (iii) $27.9$11 million to pay estimated fees and expenses
related to the AIHMasland Acquisition and refinancingthe New Credit Agreement. In
connection with the Masland Acquisition, the Company incurred $300 million
of indebtedness under the PriorNew Credit Facility.Agreement, the proceeds of which were
used to repay borrowings under the Credit Agreement.
(3) Reflects the write-offissuance of deferred finance fees of $4.2 million relatedoptions originally granted under the Masland
Corporation 1993 Stock Option Plan which will be converted into options to
purchase Common Stock in connection with the refinancing of the Prior Credit Facility, net of the tax benefit of
these expenses of $1.5 million.Masland Acquisition.
(4) Reflects the application of the net proceeds from the Offerings of $279.9
million and the Note Offering of $195.5 million.
(5) Reflects the issuance of $200 million aggregate principal amount of the
Offerings toNotes.
(6) Reflects the Company
to repay indebtedness under the New Credit Agreement.
(5) Reflects issuance of 10,000,0007,500,000 shares of Common Stock in the Offerings
at $27$38 5/8 per share, the reported last sale price of the Common Stock on the New York Stock
Exchange Composite Tape as of July 31, 1995, net of $11.4$9.8 million in estimated fees and expenses.
1214
17
w18
PRO FORMA FINANCIAL DATA
The following pro forma unaudited consolidated statements of operations of
the Company for the three months ended March 30, 1996 and for the year ended
December 31, 1995 were prepared to illustrate the estimated effects of (i) the
AIHMasland Acquisition (including the refinancing of certain debt of AIHMasland
pursuant to the
New Credit Agreement), (ii) the FSBAI Acquisition (iii)(including the
refinancing of certain acquisitions
completed by AIH priordebt of AI pursuant to the acquisition of AIH byCredit Agreement), (iii) the
Company,Plastifol Acquisition, (iv) the initial public offering of Common1995 Stock by the Company (the "IPO") and the
application of the net proceeds therefrom in April 1994,Offering, (v) the refinancing of the
Company's 14% Subordinated Debentures due 2000prior credit facility with its 8 1/4% Subordinated
Notes due 2002,borrowings under the Credit Agreement (vi)
the refinancingcompletion of the Prior Credit Facility and pursuant
to the New Credit Agreement and (vii) the Note Offering and the
Offerings contemplated hereby and the application of the net proceeds to the
Company therefrom to repay indebtedness incurred pursuant to the New Credit
Agreement to finance the AIHMasland Acquisition (collectively, the "Pro Forma
Transactions"), as if the Pro Forma Transactions had occurred on January 1,
1994.1995.
The following pro forma unaudited consolidated balance sheet (collectively
with the pro forma unaudited consolidated statements of operations, the "Pro
Forma Statements") was prepared as if the AIHMasland Acquisition, the acquisitioncompletion of
Plastifol by AIHthe New Credit Agreement, and the Note Offering and the Offerings contemplated
hereby and the application of the net proceeds therefrom to repay indebtedness
incurred pursuant to the New Credit Agreement to finance the AIHMasland Acquisition had
occurred as of July 1, 1995.March 30, 1996.
The Pro Forma Statements do not purport to represent (i) the actual results
of operations or financial position of the Company had the Pro Forma
Transactions occurred on the dates assumed or (ii) the results to be expected in
the future.
The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable. The Pro Forma
Statements and accompanying notes should be read in conjunction with the
historical financial statements of the Company, AIH, FSBMasland and Plastifol,AI, including the
notes thereto, and the other financial information pertaining to the Company,
AIH, FSBMasland and Plastifol,AI, including the information set forth in "Capitalization" and
related notes thereto, included elsewhere or incorporated by reference in this
Prospectus.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIXTHREE MONTHS ENDED JULY 1, 1995MARCH 30, 1996
AIH
OPERATING AND
LEAR AIH ACQUISITIONS AIH AIHMASLAND FINANCING
HISTORICAL HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) PRO FORMA ADJUSTMENTS PRO FORMA
---------- ------------- -------------- --------------------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales.......................................... $ 1,405.8 $ 122.5 $(1.0)(2) $1,527.3
Cost of sales...................................... 1,285.2 99.1 (1.0)(2) 1,383.3
--------- ------- ----- --------
Gross profit....................................... 120.6 23.4 -- 144.0
Selling, general and administrative expenses....... 43.3 10.0 -- 53.3
Amortization....................................... 7.3 .6 1.3(3) 9.2
--------- ------- ----- --------
Operating income................................... 70.0 12.8 (1.3) 81.5
Interest expense................................... 24.4 1.1 3.8(4) 29.3
Other expense, net................................. 3.1 .7 -- 3.8
--------- ------- ----- --------
Income before income taxes......................... 42.5 11.0 (5.1) 48.4
Income taxes....................................... 16.7 4.7 (1.3)(5) 20.1
--------- ------- ----- --------
Net income......................................... $ 25.8 $ 6.3 $(3.8) $ 28.3
========= ======= ===== ========
Net income per share............................... $ .43 $ .42
Weighted average shares outstanding (in
millions)........................................ 60.0 7.7(6) 67.7
EBITDA(7).......................................... $ 103.2 $ 120.7
15
19
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
OPERATING AND
LEAR AI MASLAND FINANCING
HISTORICAL PRO FORMA(8) HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ------------ ------------- ------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales................sales............................ $ 2,186.14,714.4 $523.7 $ 377.1473.2 $ 49.1 $ -- $ 426.2 $ -- $2,612.3(3.3)(2) $5,708.0
Cost of sales............ 2,014.7 304.1 36.4sales........................ 4,311.3 428.9 392.8 (3.3)(2) 5,129.7
-------- ------ ----- -------- ------
Gross profit......................... 403.1 94.8 80.4 -- 340.5 -- 2,355.2
--------- ------- ------ ------ ------- ------- --------
Gross profit............. 171.4 73.0 12.7 -- 85.7 -- 257.1578.3
Selling, general and
administrative expenses............... 50.1 24.9 4.2expenses............ 139.0 36.5 39.3 -- 29.1 (0.4)(4) 78.8
Amortization............. 6.4 2.6 -- .5 3.1 4.7(5) 14.2
--------- -------214.8
Amortization......................... 19.3 9.5 2.3 5.3(3) 36.4
-------- ------ ----- -------- ------
------- ------- --------
Operating income......... 114.9 45.5 8.5 (.5) 53.5 (4.3) 164.1income..................... 244.8 48.8 38.8 (5.3) 327.1
Interest expense......... 28.5 9.0 -- 2.1 11.1 14.4(6) 54.0expense..................... 75.5 14.0 3.9 29.1(4) 122.5
Other expense, net....... 5.8net................... 12.0 -- 3.4 -- -- -- -- 5.8
--------- -------15.4
-------- ------ ----- -------- ------ ------- ------- --------
Income before income taxes.................. 80.6 36.5 8.5taxes........... 157.3 34.8 31.5 (34.4) 189.2
Income taxes......................... 63.1 16.8 14.1 (10.2)(5) 83.8
-------- ------ ----- -------- ------
Income before extraordinary items.... 94.2 18.0 17.4 (24.2) 105.4
-------- ------ ----- -------- ------
Extraordinary loss on early
extinguishment of debt............. 2.6 -- -- (2.6) 42.4 (18.7) 104.3
Income taxes............. 34.7 14.6 4.3 (.7) 18.2 (4.9)(7) 48.0
--------- -------(9) --
-------- ------ ----- -------- ------
------- ------- --------
Net income...............income........................... $ 45.991.6 $ 21.918.0 $ 4.217.4 $ (1.9)(21.6) $ 24.2 $ (13.8) $ 56.3
========= =======105.4
======== ====== ===== ======== ====== ======= ======= ========
Net income per share.....share................. $ .921.74 $ .941.56
Weighted average shares outstanding
(in millions).............. 49.6 59.6
13
18
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
AIH
LEAR FSB FSB LEAR/FSB AIH ACQUISITIONS AIH AIH
HISTORICAL HISTORICAL(8) ADJUSTMENTS(9) PRO FORMA HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) PRO FORMA
---------- ------------- -------------- --------- ------------- --------------- -------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales.............................. 52.6 15.0(6) 67.6
EBITDA(7)............................ $ 3,147.5336.8 $ 451.1 $ 4.8 $3,603.4 $ 512.8 $ 239.4 $ -- $ 752.2
Cost of sales.... 2,883.9 443.9 (1.0) 3,326.8 408.9 210.7 (1.8) 617.8
-------- ------- ------ -------- ------- ------- ------ --------
Gross profit..... 263.6 7.2 5.8 276.6 103.9 28.7 1.8 134.4
Selling, general
and
administrative
expenses....... 82.6 31.5 (5.5) 108.6 35.3 14.4 (2.9) 46.8
Amortization..... 11.4 -- 2.0 13.4 4.7 -- 1.5 6.2
-------- ------- ------ -------- ------- ------- ------ --------
Operating income
(loss)......... 169.6 (24.3) 9.3 154.6 63.9 14.3 3.2 81.4
Interest
expense........ 46.7 5.3 4.4 56.4 9.3 (.3) 8.7 17.7
Other expense
(income),
net............ 8.1 .8 -- 8.9 -- (.2) .3 .1
-------- ------- ------ -------- ------- ------- ------ --------
Income (loss)
before income
taxes.......... 114.8 (30.4) 4.9 89.3 54.6 14.8 (5.8) 63.6
Income taxes..... 55.0 .2 (1.5) 53.7 21.9 3.5 (1.7) 23.7
-------- ------- ------ -------- ------- ------- ------ --------
Net income
(loss)......... $ 59.8 $ (30.6) $ 6.4 $ 35.6 $ 32.7 $ 11.3 $ (4.1) $ 39.9
======== ======= ====== ======== ======= ======== ====== =======
Net income per
share.......... $ 1.26
Weighted average
shares
outstanding (in
millions)...... 47.4
OPERATING AND
LEAR/FSB AIH FINANCING
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
--------- --------- ------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales........................................... $3,603.4 $ 752.2 $ -- $4,355.6
Cost of sales....................................... 3,326.8 617.8 -- 3,944.6
--------- --------- ---------- ---------
Gross profit........................................ 276.6 134.4 -- 411.0
Selling, general and administrative expenses........ 108.6 46.8 (.6)(4) 154.8
Amortization........................................ 13.4 6.2 9.5(5) 29.1
--------- --------- ---------- ---------
Operating income.................................... 154.6 81.4 (8.9) 227.1
Interest expense.................................... 56.4 17.7 11.6(6) 85.7
Other expense, net.................................. 8.9 .1 -- 9.0
--------- --------- ---------- ---------
Income before income taxes.......................... 89.3 63.6 (20.5) 132.4
Income taxes........................................ 53.7 23.7 (3.9)(7) 73.5
--------- --------- ---------- ---------
Net income.......................................... $ 35.6 $ 39.9 $ (16.6) $ 58.9
======== ======== ======== ========
Net income per share................................ $ .99
Weighted average shares outstanding (in millions)... 59.6467.2
- -------------------------
(1) The AIH HistoricalMasland historical information represents the audited results of operations
for the year ended December 31, 1994 andamounts derived from (i) the
unaudited results of operations for the sixthree months ended July 1, 1995.
(2) The AIH Acquisitions Historical information representsMarch 29, 1996
and (ii) with respect to the year ended December 31, 1995, the audited
results of operations for three subsidiaries acquired by AIH prior to their respective
acquisitions by AIH. The acquisitions were (i) John Cotton Limited
("Cotton") headquartered in Manchester, EnglandMasland's fiscal year ended June 30, 1995 and acquired in May 1994,
(ii)its
unaudited results of operations for the Gulfstream Division of O'Sullivan Corporation ("Gulfstream")
located in Ohiosix month periods ending December
29, 1995 and Virginia and acquired in December 1994, and (iii)
Plastifol headquartered in Ebersberg, Germany and acquired in July 1995.
(3) The AIH Adjustments information with respect to the Cotton, Gulfstream and
Plastifol acquisitions represents (i) adjustments to depreciation expense
due to the revaluation of assets; (ii) reclassifications needed to present
information on a basis that is consistent with AIH historical information;
(iii)30, 1994.
(2) Reflects the elimination of management fees charged by a previous owner of a
subsidiary acquired by AIH; (iv) interest on borrowings by AIHnet sales from Masland to finance
the acquisitions; and (v) the related income tax effects.
14
19
(4) Represents the elimination of certain management fees charged to AIH by an
affiliate of AIH which ceased to be payable upon the completion of the AIH
Acquisition.
(5)Company.
(3) The adjustment to goodwill for the AIH Acquisitionamortization represents the following:
SIXTHREE MONTHS ENDED YEAR ENDED
JULY 1, 1995MARCH 30, 1996 DECEMBER 31, 1994
---------------- -----------------1995
------------------ ------------------
(DOLLARS IN MILLIONS)
Amortization of goodwill from the AIH Acquisition..................Masland
Acquisition.......................................... $ 7.3 $14.71.9 $ 7.6
Elimination of the historical goodwill amortization of
AIH......... (2.6) (5.2)Masland.............................................. (.6) (2.3)
------ -----------
$ 4.71.3 $ 9.55.3
====== ===========
(6)16
20
(4) Reflects interest expense changes as follows:
SIXTHREE MONTHS ENDED YEAR ENDED
JULY 1, 1995MARCH 30, 1996 DECEMBER 31, 1994
----------------1995
------------------ -----------------
(DOLLARS IN MILLIONS)
Reduction of interest due to application of the
proceeds from the Offerings.........................................................Offerings.......................... $ (9.3)(4.6) $ (13.2)(19.6)
Reduction of interest due to application of the
proceeds of the 1995 Stock Offering.................. -- (14.7)
Reduction in interest due to application of the
proceeds from the Note Offering to repay indebtedness
incurred under the Credit Agreement.................. (3.3) (14.0)
Estimated interest on the Notes at 9 3/8%.............. 4.7 18.8
Estimated interest on borrowings to finance
the AIH Acquisition at
interest rates of 7.2% in the first six months of 1995 and 5.1%
for the year ended December 31, 1994.............................. 32.6 46.3AI Acquisition................................... -- 39.6
Elimination of interest on AIHAI debt being refinanced................ (10.1) (18.6)
Reduction inrefinanced.......... -- (12.6)
Estimated interest dueon borrowings to application of proceeds fromfinance the IPO... -- (1.2)Masland
Acquisition.......................................... 7.6 32.4
Elimination of interest on the 14% Subordinated Debentures.......... -- (3.3)
Interest on the Subordinated Notes.................................. -- 1.1
Interest on borrowings to finance fees and expenses related to the
New Credit Agreement.............................................. .3 .5
Change in commitment fees due to increased availability under the
New Credit Agreement.............................................. .4 .8
ChangeMasland debt refinanced..... (1.1) (3.8)
Other changes in interest expense, due to rate differences between the Prior
Credit Facilitycommitment fees and
the New Credit Agreement...................... .2 (1.6)
Change inamortization of deferred finance fees due to the Note
Offering, the New Credit Agreement, and the
refinancing of the Priorprior credit facility with the
Credit Facility and the issuance of the Subordinated Notes........ .3 .8Agreement..................................... .5 3.0
------ -------
$ 14.43.8 $ 11.629.1
====== =======
(7)(5) Reflects the income tax effects of the operating and financing adjustments.
(6) The adjustment to weighted average shares outstanding represents the
following:
THREE MONTHS ENDED YEAR ENDED
MARCH 30, 1996 DECEMBER 31, 1995
------------------ -----------------
Effect of the issuance of 7.5 million shares pursuant
to the Offerings..................................... 7.5 7.5
Effect of the issuance of 10.0 million shares pursuant
to the 1995 Stock Offering........................... -- 7.3
Conversion of certain Masland stock options into Lear
stock options in connection with the Masland
Acquisition.......................................... .2 .2
--- -----
7.7 15.0
=== =====
(7) "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 flow from operations as determined by generally accepted
accounting principles.
(8) The FSB HistoricalAI Pro Forma information reflects (i) AI historical unaudited results
of operations for the year ended December 31, 1994
representsperiod from January 1, 1995 through August 17, 1995,
the date on which AI was acquired by the Company; (ii) the unaudited
historical results of operations of FSB translatedPlastifol from Lira to U.S.
Dollars at an average exchange rate of 1611 Lira to one U.S. Dollar.
(9) The FSB Adjustments information represents (i) management's estimatesJanuary 1, 1995 through
the date of the effects of product pricingAI Acquisition and (iii) adjustments negotiated in connection withto reflect interest on
borrowings by AI to finance the FSBPlastifol Acquisition, of $4.8 million; (ii) the elimination of certain costs being
assumed by the seller of $1.5 million; (iii) an increase in depreciation
expense due to the revaluation of the assets of $.5 million; (iv) on-going
savings of $3.5 million as a result of consolidating technical centers; (v)
the elimination of management fees charged by the parent of the seller of
$2.0 million; (vi) amortization of
goodwill as a result of the FSB
Acquisition of $2.0 million; (vii) an increase in interest expense to
finance the FSB Acquisition of $4.4 million; and (viii) the related income tax effects of $1.5 million.such adjustments. The
results from operations of FSBAI for the sixthree months ended July 1,March 30, 1996 and
for the period subsequent to August 17, 1995 are included in the historical
results of the Company.
15(9) Reflects the elimination of the extraordinary loss on refinancing of the
prior credit facility. Such loss would have been incurred in a prior period
had the Pro Forma Transactions taken place as of the beginning of the
periods presented.
17
2021
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF JULY 1, 1995MARCH 30, 1996
OPERATING
ACQUISITION AND AND
LEAR AIH AIH AIHMASLAND VALUATION OF FINANCING
HISTORICAL HISTORICAL ACQUISITIONS(1) ADJUSTED AIH(2)MASLAND(1) ADJUSTMENTS PRO FORMA
---------- ---------- -------------- -------- ---------------- ----------- ---------
(DOLLARS IN MILLIONS)
ASSETS
Current Assets:
Cash.......................Cash and cash equivalents............... $ 53.021.6 $ --14.0 $ --(463.0) $ --463.0(2) $ (906.2) $ 906.2(3) $ 53.035.6
Accounts receivable, net... 700.2 123.2 9.8 133.0net................ 879.0 63.4 -- -- 833.2
Inventories................ 111.0 42.0 4.8 46.8942.4
Inventories............................. 178.9 18.8 -- -- 157.8197.7
Other current assets....... 94.9 40.6 0.4 41.0assets.................... 178.4 28.7 -- -- 135.9
-------- ------ ------ ------207.1
-------- ------- -------- 959.1 205.8 15.0 220.8 (906.2) 906.2 1,179.9
-------- ------ ------ --------------
1,257.9 124.9 (463.0) 463.0 1,382.8
-------- ------- -------- -------- --------
Property, Plantplant and Equipment, net............. 363.9 233.4 21.3 254.7equipment, net........ 648.4 114.7 -- -- 618.6
Other Assets:763.1
Goodwill and other intangibles, net......... 494.4 146.4 39.1 185.5 404.0net....... 1,093.5 6.9 296.1 -- 1,083.9
Deferred finance fees and
other.................... 37.7 25.7 3.1 28.81,396.5
Other..................................... 122.4 30.3 -- 5.3(4) 71.8
-------- ------ ------ ------5.5(3) 158.2
-------- ------- -------- 532.1 172.1 42.2 214.3 404.0 5.3 1,155.7
-------- ------ ------ ------ --------
------- --------
$1,855.1 $611.3$3,122.2 $276.8 $ 78.5 $689.8(166.9) $ (502.2) $ 911.5 $2,954.2
======== ====== ====== ======468.5 $3,700.6
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings......borrowings................... $ 19.217.3 $ 6.9 $ (6.9) $ -- $ -- $ -- $ -- $ -- $ 19.2
Cash overdrafts............ 55.217.3
Accounts payable and drafts............. 881.7 41.1 -- -- 922.8
Accrued liabilities..................... 395.0 24.6 -- -- -- 55.2
Accounts payable........... 766.0 75.4 5.2 80.6 -- -- 846.6
Accrued liabilities........ 199.5 38.3 5.4 43.7 -- (1.5)(4) 241.7419.6
Current portion of long-term debt........... 1.7 3.9 -- 3.9debt....... 12.0 1.0 -- -- 5.6
-------- ------ ------ ------13.0
-------- ------- -------- 1,041.6 117.6 10.6 128.2-------- --------
1,306.0 73.6 (6.9) -- (1.5) 1,168.31,372.7
-------- ------ ------ ------------- -------- --------------- --------
Long-Term Liabilities:
Long-term debt............. 460.1 221.1 60.0 281.1 (264.8) 657.1(5) 1,133.5debt.......................... 1,033.3 70.8 (68.8) 188.6(4) 1,223.9
Deferred national income taxes.................... 24.3 4.4 7.9 12.3taxes.......... 36.7 7.6 -- -- 36.6
Other...................... 82.6 26.944.3
Other................................... 133.7 26.0 -- 26.9 3.9 -- 113.4
-------- ------ ------ ------159.7
-------- ------- -------- 567.0 252.4 67.9 320.3 (260.9) 657.1 1,283.5
-------- ------ ------ --------------
1,203.7 104.4 (68.8) 188.6 1,427.9
-------- ------- -------- -------- --------
Stockholders' Equity......... 246.5 241.3 -- 241.3 (241.3) 255.9(6) 502.4
-------- ------ ------ ------Equity...................... 612.5 98.8 (91.2) 279.9(5) 900.0
-------- ------- -------- $1,855.1 $611.3-------- --------
$3,122.2 $276.8 $ 78.5 $689.8(166.9) $ (502.2) $ 911.5 $2,954.2468.5 $3,700.6
======== ====== ====== ============= ======== =============== ========
- -------------------------
(1) Represents the allocation of the purchase price to net assets of Plastifol
which was acquired by AIH in July 1995.
(2) TheAssumes a purchase price of $926.4$473.6 million which consists of:of (i) $625.7$384.9
million to purchaseacquire all of the common stock of AIH,Masland ($377.3 million to
purchase outstanding shares and $7.6 million in connection with the
retirement of certain stock options of Masland in connection with the
Masland Acquisition), (ii) $282.3$78.7 million of debt assumed in connection with
the AIHMasland Acquisition and (iii) $18.4$10.0 million to pay estimated fees and
expenses related to the AIHMasland Acquisition. The AIHMasland Acquisition was
accounted for using the purchase method of accounting and the total purchase
cost was allocated first to assets and liabilities based on their respective
fair values, with the remainder allocated to goodwill. The allocation of the
purchase price above is based on historical costs and management's estimates
which may differ from the final allocation.
(3)(2) Reflects proceeds of borrowings under the New Credit Agreement of $906.2$463.0
million.
(4)(3) Reflects the capitalization of fees incurred in establishing the New Credit
Agreement of $9.5$1.0 million, netand fees incurred in connection with the Note
Offering of $4.5 million.
(4) Reflects the effects of the unamortized portion of fees from the
Prior Credit Facility of $4.2 million being written-off. Also reflects the
related income tax benefit of $1.5 million from the write-off.Pro Forma Transactions as follows:
Borrowings under the Credit Agreement to finance the Masland Acquisition................. $ 463.0
Issuance of the Notes.................................................................... 200.0
Borrowings under the Credit Agreement to pay fees and expenses incurred in establishing
the New Credit Agreement and in the Note Offering...................................... 5.5
Application of the net proceeds of the Offerings......................................... (279.9)
Application of the proceeds of the Note Offering......................................... (200.0)
-------
$ 188.6
=======
(5) Reflects borrowings under the New Credit Agreement of $915.7 million to
finance the AIH purchase price and fees and expenses incurred to establish
the New Credit Agreement, reduced by the net proceeds of the Offerings of
$258.6 million.
(6) Reflects issuance of the 10,000,000 shares at $27 per share, the reported
last sale price of the Common Stock on the New York Stock Exchange Composite
Tape on July 31, 1995, net of $11.4 million in fees and expenses and the
write-off of deferred finance fees, net of income taxes, of $2.7 million
related to the refinancing of the Prior Credit Facility.
16Offerings.
18
2122
SELECTED FINANCIAL DATA FOROF THE COMPANY
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 each of the fiscal years ended December 31, 1995,
1994 and 1993 and June 30, 1993, 1992 1991 and 19901991 have been audited by Arthur
Andersen LLP. Effective December 31, 1993, the Company changed its fiscal year
end from June 30 to December 31. The consolidated financial statements of the
Company for the sixthree months ended JulyMarch 30, 1996 and April 1, 1995 and July 2, 1994 are
unaudited; however, in the Company's opinion, they reflect all adjustments,
consisting only of normal recurring items, necessary for a fair presentation of
the financial position and results of operations offor such periods. The results
for the sixthree months ended July 1, 1995March 30, 1996 are not necessarily indicative of the
results to be expected for the full fiscal year. The selected financial data
below should be read in conjunction with the consolidated financial statements
of the Company and the notes thereto incorporated by reference in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company."
LEAR SEATING CORPORATION
SIXAS OF OR FOR THE
THREE MONTHS ENDED AS OF OR FOR THE YEAR ENDED
------------------- ------------------------------------------------------------------------
JULY-----------------------------------------------------------------------
MARCH 30, APRIL 1, JULY 2,DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
JUNE 30,1996 1995 19941995 1994 1993 1993 1992 1991
1990
----------------- -------- ------------ ------------ -------------------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND CONTENT PER VEHICLE DATA)
OPERATING DATA:
Net sales......................... $2,186.1 $1,508.9$1,405.8 $1,043.5 $4,714.4 $3,147.5 $1,950.3 $1,756.5 $1,422.7 $1,085.3
$1,067.9
Gross profit...................... 171.4 128.6120.6 76.6 403.1 263.6 170.2 152.5 115.6 101.4
104.7
Selling, general and
administrative expenses......... 50.1 38.343.3 25.8 139.0 82.6 62.7 61.9 50.1 41.6
28.2
Incentive stock and other
compensation expense............expense(1)......... -- -- -- -- 18.0 -- -- 1.3
1.4
Amortization...................... 6.4 5.77.3 3.1 19.3 11.4 9.9 9.5 8.7 13.8 13.8
-------- -------- -------- -------- -------- -------- -------- --------
Operating income.................. 114.9 84.670.0 47.7 244.8 169.6 79.6 81.1 56.8 44.7
61.3
Interest expense(1)expense(2)............... 28.5 25.024.4 14.2 75.5 46.7 45.6 47.8 55.2 61.7
61.2
Other expense, net(2)net(3)............. 5.8 4.63.1 2.1 12.0 8.1 9.2 5.4 5.8 2.2 4.1
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary items......... 80.6 55.042.5 31.4 157.3 114.8 24.8 27.9 (4.2) (19.2)
(4.0)
Income taxes...................... 34.7 27.316.7 14.4 63.1 55.0 26.9 17.8 12.9 14.0 16.6
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary items............. 45.9 27.725.8 17.0 94.2 59.8 (2.1) 10.1 (17.1) (33.2)
(20.6)
Extraordinary items...............items(4)............ -- -- 2.6 -- (11.7)11.7 -- (5.1) --5.1 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)................. $ 45.925.8 $ 27.717.0 $ 91.6 $ 59.8 $ (13.8) $ 10.1 $ (22.2) $ (33.2)
$ (20.6)
======== ======== ======== ======== ======== ======== =============== ========
Net income (loss) per share before
extraordinary items............. $ .92.43 $ .61.34 $ 1.79 $ 1.26 $ (.06) $ .25 $ (.62) $ (2.01)
$ (1.25)
Net income (loss) per share....... $ .92.43 $ .61.34 $ 1.74 $ 1.26 $ (.39) $ .25 $ (.80) $ (2.01)
$ (1.25)
Weighted average shares
outstanding (in millions)....... 49.6 45.6(5).... 60.0 49.4 52.6 47.4 35.5 40.0 27.8 16.5 16.5
BALANCE SHEET DATA:
Current assets.................... $1,257.9 $ 959.1 $ 557.2904.3 $1,207.2 $ 818.3 $ 433.6 $ 325.2 $ 282.9 $ 213.8
$ 223.2
Total assets...................... 1,855.1 1,217.23,122.2 1,797.9 3,061.3 1,715.1 1,114.3 820.2 799.9 729.7
747.6
Current liabilities............... 1,041.6 593.41,306.0 956.8 1,276.0 981.2 505.8 375.0 344.2 287.1
254.5
Long-term debt.................... 460.1 383.51,033.3 519.9 1,038.0 418.7 498.3 321.1 348.3 386.7
402.8Common stock subject to limited
redemption rights, net.......... -- -- -- -- 12.4 3.9 3.5 1.8
Stockholders' equity.............. 246.5 184.0612.5 217.1 580.0 213.6 43.2 75.1 49.4 4.4
35.3
OTHER DATA:
EBITDA(3)EBITDA(6)......................... $ 152.0103.2 $ 111.566.1 $ 336.8 $ 225.7 $ 122.2 $ 121.8 $ 91.8 $ 81.4
$ 94.3
Capital expenditures.............. $ 42.633.7 $ 35.023.6 $ 110.7 $ 103.1 $ 45.9 $ 31.6 $ 27.9 $ 20.9
$ 14.9Number of facilities(7)........... 116 82 107 79 61 48 45 40
North American content per
vehicle(4)vehicle(8)...................... $ 193274 $ 159182 $ 227 $ 169 $ 112 $ 98 $ 94 $ 84
$ 77
European content per vehicle(5)vehicle(9)... $ 90107 $ 3878 $ 102 $ 48 $ 38 $ 37 $ 21 $ 11
Ratio of EBITDA to interest
expense(2)(6)................... 4.2x 4.7x 4.5x 4.8x 2.7x 2.6x 1.7x 1.3x
Ratio of earnings to fixed
charges(10)..................... 2.5x 2.9x 2.9x 3.2x 1.5x 1.5x -- --
Fixed charges in excess of
earnings(10).................... $ 8
Inventory turnover ratio(6)....... 36.0 36.0 36.7 30.3 25.6 27.4-- $ -- $ -- $ -- $ -- $ -- $ 6.5 $ 20.7
- -------------------------
(1) Includes a one-time charge of $18.0 million, of which $14.5 million was
non-cash, for the year ended December 31, 1993 for incentive stock and
other compensation expense.
(2) Interest expense includes non-cash charges for amortization of deferred
financing fees of approximately $1.2$.8 million, $1.2$.6 million, $2.7 million, $2.4 million,
$2.6 million, $3.0 million, $3.2 million $4.1 million and $4.5$4.1 million for the sixthree
months ended JulyMarch 30, 1996 and April 1, 1995, and July 2, 1994 and for each of the years ended
December 31, 1995, 1994 and 1993, and the fiscal years ended June 30, 1993,
through June 30, 1990, respectively.
(2)1992 and 1991.
(3) Consists of foreign currency exchange gain or loss, minority interest in
net income (loss) of subsidiaries, equity in (income) loss of affiliates,
state and local taxes and other expense.
(3)(4) The extraordinary items resulted from the prepayment of debt.
(5) Weighted average shares outstanding is calculated on a fully-diluted basis.
(6) "EBITDA" is operating income plus amortizationdepreciation and depreciation.amortization. EBITDA
does not represent and should not be considered as an alternative to net
income or cash flowflows from operations as determined by generally accepted
accounting principles.
(4)(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 automotive sales
in North America divided by total North American vehicle production. "North
American vehicle production" comprises car and light truck production in
the United States, Canada and Mexico estimated by the Company from industry
sources.
(5)(9) "European content per vehicle" is the Company's net automotive sales in
Western Europe divided by total Western European vehicle production.
"Western European vehicle production" comprises car and light truck
production in Western Europe estimated by the Company from industry
sources.
(6) "Inventory turnover ratio" is cost(10) "Fixed charges" consist of goods sold divided by average
inventory. The inventory turnover ratios for the years ended December 31,
1994interest on debt, amortization of deferred
financing fees and December 31, 1993 exclude the effectsthat portion of the FSB Acquisitionrental expenses representative of
interest (deemed to be one-third of rental expenses). "Earnings" consist of
income (loss) before income taxes, fixed charges, undistributed earnings
and the NAB Acquisition, respectively.
17minority interest.
19
2223
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
Lear has expanded its netLear's sales athave grown rapidly, both internally and through acquisitions,
from approximately $159.8 million in the fiscal year ended June 30, 1983 to
approximately $4.7 billion in the year ended December 31, 1995, a compound
annual growth rate of approximately 30% during the period from July 1, 1983 to December 31, 1994
through a combination of internal growth and acquisitions.33%. As a result of this growth, the Company
has experienced substantial upfront costs for new programs and new facilities.
Such expenses consist of administrative expenses and engineering and design
expenses for new seating programs, including pre-production expenses and
inefficiencies incurred until the customer reaches normal operating levels. The
Company expenses such non-recurring pre-production expenses as they are
incurred.
The Company's performance is dependent on automotive vehicle production,
which is seasonal in nature. The third calendar quarter is historically the
weakest vehicle production quarter due to the impact of plant shutdowns for
vacation and model changeover which affect automotive production in both North
America and Europe. See Note 19 to the consolidated financial statements of the
Company incorporated by reference in this Prospectus.
In February 1994, the Company changed its fiscal year end from June 30 to
December 31, effective December 31, 1993.
The following chart shows operating results of the Company by principal
geographic area.
GEOGRAPHIC OPERATING RESULTS
SIXTHREE MONTHS ENDED YEAR ENDED
---------------------- ----------------------------------------------------
JULY----------------------- --------------------------------------------
MARCH 30, APRIL 1, JULY 2, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,DECEMBER 31,
1996 1995 1995 1994 1994 1993
1993 1992
----------------- --------- ------------ ------------ -------- --------------------
(DOLLARS IN MILLIONS)
NET SALES:
United States................ $1,001.4States and Canada............ $ 968.0 $1,805.3916.6 $ 981.2 $ 765.7 $ 597.1
Canada....................... 445.7 198.9 573.4 375.8 372.0 403.3
Europe....................... 625.0 241.2714.4 $3,108.0 $2,378.7 $1,357.0
Europe.............................. 382.9 276.5 1,325.4 572.5 403.8
432.5 268.2
Mexico and other............. 114.0 100.8other.................... 106.3 52.6 281.0 196.3 189.5
186.3 154.1
-------- --------- -------- -------- -------- ------------------ ---------- ----------
Net sales.................. $2,186.1sales......................... $1,405.8 $ 1,508.91,043.5 $4,714.4 $3,147.5 $1,950.3
$1,756.5 $1,422.7
======== ========= ======== ======== ======== ================== ========== ==========
OPERATING INCOME (LOSS):
United States................States and Canada............ $ 53.956.7 $ 44.6 $ 204.8 $ 155.6 $ 86.9
Europe.............................. 9.4 .1 26.5 4.4 (9.6)
Mexico and other.................... 3.9 3.0 13.5 9.6 20.3
Unallocated corporate expense(1).... -- -- -- -- (18.0)
-------- --------- ---------- ---------- ----------
Operating income.................. $ 70.0 $ 109.347.7 $ 61.3 $ 51.8 $ 32.0
Canada....................... 49.8 5.4 46.3 25.6 15.3 14.7
Europe....................... 2.0 2.7 4.4 (9.6) (3.9) 3.0
Mexico and other............. 9.2 6.5 10.2 20.3 17.9 7.1
Unallocated corporate
expense(1)................. -- -- (.6) (18.0) -- --
-------- --------- -------- -------- -------- --------
Operating income........... $ 114.9 $ 84.6244.8 $ 169.6 $ 79.6
$ 81.1 $ 56.8
======== ========= ======== ======== ======== ================== ========== ==========
- -------------------------
(1) Unallocated corporate expensesexpense consists of incentive stock option expense and
other one-time compensation expense.
SixThree Months Ended JulyMarch 30, 1996 Compared With Three Months Ended April 1, 1995
Compared With Six Months Ended July 2, 1994
Net sales increased by 44.9% to $2,186.1of $1,405.8 million in the quarter ended March 30, 1996 surpassed
the first six monthsquarter of 1995 by $362.3 million or 34.7%. Sales as compared to $1,508.9 millionprior
year benefited primarily from the acquisition of AI in the first six months of 1994. Sales for
the six month period ended July 1,August, 1995 benefited from incremental volume on
mature seating programsand new
business in North America and Europe, new businessAmerica.
Net sales in the United States and EuropeCanada of $916.6 million in the first
quarter of 1996 exceeded the comparable period in the prior year by $202.2
million or 28.3%. Sales in the current quarter benefited from the contribution
of $175.4 million in sales from the AI Acquisition and new Ford passenger car
and Chrysler and Ford truck programs introduced within the past twelve months.
Partially offsetting the increase in sales was a downturn in production build
schedules on mature seat programs by domestic automotive manufacturers and the
FSB Acquisitionimpact of a General Motors work stoppage in December 1994. ForMarch, 1996.
Net sales in Europe of $382.9 million increased in the first six
monthsquarter of
1996 as compared to the first quarter of 1995 FSB accounted for 9.9%by $106.4 million or 38.5%. Sales
in the quarter ended March 30, 1996 benefited from $42.7 million in sales from
the AI Acquisition, additional volume on carryover programs in Italy and
favorable exchange rate fluctuations in Sweden, Germany and Italy.
20
24
Net sales of $106.3 million in the first quarter of 1996 in the Company's
remaining geographic regions, consisting of Mexico, the Pacific Rim, South
Africa and South America, surpassed the first quarter of the Company's net sales.
18
23prior year by $53.7
million or 102.1%. Sales in the current quarter benefited from increased
Chrysler truck and General Motors passenger car activity in Mexico and from new
business operations in Australia, South America and South Africa.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of net sales) were $171.4$120.6 million and 7.8%, respectively,8.6% for the six month period ended July 1, 1995first quarter
of 1996 as compared to $128.6$76.6 million and 8.5%,
respectively, for the comparable period7.3% in the prior year.1995. Gross profit in the
first six monthscurrent quarter benefited from the acquisition of 1995 surpassed gross profit forAI, the first six months of 1994
due to increased production volumes on passenger caroverall growth in
sport utility and light truck seat programs by
domestic and foreign automotive manufacturers. The increase in gross profit was
offset by, and the lower gross margin resulted from, new program start-up
expenses in North America low profitability at FSB,and increased engineering costssales
activity on seat programs in Europe and pre-production and facility expenses associated with new foreign ventures.Mexico.
Selling, general and administrative expenses, for the six months ended July
1, 1995 decreasedincluding research and
development, as a percentage of net sales increased to 2.3% from3.1% for the quarter
ended March 30, 1996 as compared to 2.5% a year earlier. Actual expenditures and
the percentage increased in comparison to prior year due to the comparable period in the prior year. The increase in actual expenditures from
$38.3 million to $50.1 million was largely the resultinclusion of
the FSB Acquisition,
administrative supportAI's operating expenses and designincreased U.S. and development costs associated with
theEuropean engineering and
administrative expenses in support of expansion of businessexisting and expenses related to newpotential
business opportunities.
Operating income and operating margin (operating income as a percentage of
net sales) were $114.9$70.0 million and 5.3%, respectively,5.0% for the first six monthsquarter of 19951996 as compared
to $84.6$47.7 million and 5.6%, respectively,4.6% for the first six
monthsquarter of 1994. The growth in1995. For the quarter ended
March 30, 1996, operating income was primarily due to incremental
volumebenefited from the acquisition of AI, increased
market demand on new and matureongoing sport utility and light truck seat programs in
the United States, Canada and EuropeNorth America and improved performance in Mexico.at the Company's European and Mexican
operations. Partially offsetting the increase in operating income were
increased engineering and administrative support expenses, preproduction and facility
costs associated with recently opened facilities in North Americafor new seat programs to be introduced globally within the next twelve
months and losses related
to FSB's operations.the adverse impact of the General Motors work stoppage. Non-cash
depreciation and amortization charges were $37.1$33.2 million and $26.9$18.4 million for
the first halfquarter of 1996 and 1995, respectively.
Interest expense for the current and prior years,
respectively. Duringfirst quarter of 1996 increased by $10.2 million
from the six monthcomparable period ended July 1, 1995, interest expense
increased to $28.5 million as compared to $25.0 million in the six month period
ended July 2, 1994. The increase is primarily due to the additional debt
incurred to finance the FSB Acquisition in addition to slightly higher interest
rates under the Prior Credit Facility.
Primarilyprior year largely as a result of foreign currency exchange fluctuations, other
expense, includinginterest
incurred on additional debt utilized to finance the AI Acquisition.
Other expenses for the three months ended March 30, 1996, which include
state and local taxes, foreign exchange, minority interests
and equity in income of non-consolidated
affiliates and other non-operating expenses, increased in comparison to prior
year due to increased state and local taxes associated with the AI Acquisition.
Net income for the first quarter of 1996 was $25.8 million, or $.43 per
share, as compared to $17.0 million, or $.34 per share, in the prior period.
During the six months ended July 1, 1995, theyear first
quarter. The provision for income taxes in the current quarter was $34.7$16.7
million, or 43.1%an effective tax rate of pre-tax income39.3%, as compared to $27.3$14.4 million, or 49.6%an
effective tax rate of pre-tax income45.9% in the six month period ended July 2, 1994.previous year. The decreasedecline in the effective
tax rate compared to the previous period is primarily due primarily to changes in operating performance and related income
levels among the various tax jurisdictions. Earnings per share increased in 1996
by 26.5% despite the impact of the General Motors work stoppage, estimated to be
approximately $.10 per share and an increase in the number of shares outstanding
of approximately 10.6 million shares.
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Net sales of $4,714.4 million in the year ended December 31, 1995
represented the Company's fourteenth consecutive year of record sales and
increased by $1,566.9 million or 49.8% over net sales for the year ended
December 31, 1994. Net sales in the current year benefited from the acquisitions
of Automotive Industries on August 17, 1995 and the Fiat Seat Business on
December 15, 1994 which together accounted for $795.3 million of the increase.
Further contributing to the growth in sales were incremental volumes on new
seating programs in North America and increased production in Europe.
Gross profit and gross margin were $403.1 million and 8.6% in 1995 as
compared to $263.6 million and 8.4% in 1994. Gross profit in the current year
benefited from the overall increase in North American and European sales
activity, the acquisitions of AI and FSB, and production of certain new seat
programs in the United States and Mexico. Partially offsetting the increase in
gross profit were new program start-up expenses of $32.1 million versus $23.1
million in the prior year, and costs associated with new business opportunities
in the Pacific Rim, South America and South Africa.
21
25
Selling, general and administrative expenses, including research and
development, as a percentage of net sales increased to 2.9% in 1995 as compared
to 2.6% in the previous year. Actual expenditures in 1995 increased in
comparison to prior year primarily due to the inclusion of AI and FSB
engineering and administrative expenses in 1995. In addition, research and
development costs increased at the United States and European customer focused
technical centers in support of existing and potential business opportunities.
Operating income and operating margin were $244.8 million and 5.2% in the
year ended December 31, 1995 as compared to $169.6 million and 5.4% in the year
ended December 31, 1994. The increase in operating income was primarily due to
increased volumes on new and existing light truck seating programs, improved
performance at the Company's European operations and the incremental operating
income derived from acquisitions. Partially offsetting the increase in operating
income and contributing to the decline in operating margins were design and
development costs associated with the expansion of business and program start-up
expenses for new seat programs to be introduced worldwide within the next twelve
months. Also contributing to the decline in operating margin were the increased
sales in Europe caused by the FSB which had lower margins. Non-cash depreciation
and amortization charges were $92.0 million and $56.1 million for the years
ended December 31, 1995 and 1994, respectively.
Interest expense in the year ended December 31, 1995 increased in
comparison to prior year as a result of interest incurred on additional debt
utilized to finance the AI and FSB acquisitions as well as higher interest rates
in 1995 under the Company's senior credit facility.
Other expenses in 1995 increased in comparison to prior year as foreign
exchange losses incurred at the Company's North American and European
operations, along with increased state and local taxes associated with the AI
Acquisition, more than offset income derived from joint ventures accounted for
under the equity method.
Net income for the year ended December 31, 1995 was $91.6 million, or $1.74
per share, as compared to $59.8 million, or $1.26 per share in the year ended
December 31, 1994. The provision for income taxes in fiscal 1995 was $63.1
million, or an effective tax rate of 40.1%, versus $55.0 million and 47.9% for
the previous year. The decrease in rate is largely the result of changes in
operating performance and related income levels among the various tax
jurisdictions. Earnings per share increased in 1995 by 38.1% despite an increase
in the number of shares outstanding and an extraordinary loss of $2.6 million
($.05 per share) for the early retirement of debt.
United States and Canadian Operations
Net sales in the United States and Canada were $3,108.0 million and
$2,378.7 million in the years ended December 31, 1995 and 1994, respectively.
Sales in 1995 benefited from new Ford and General Motors passenger car programs,
the contribution of $248.1 million in sales from the AI Acquisition and
incremental volume on light truck seating for previously existing programs.
Operating income and operating margin were $204.8 million and 6.6% in 1995
as compared to $155.6 million and 6.5% in 1994. Operating income in 1995
increased primarily due to increased volumes at certain of the Company's car and
light-truck seating facilities, the benefits derived from the AI Acquisition and
increased productivity and cost reduction programs at existing seat and seat
component facilities. Partially offsetting this increase in operating margin
were engineering and administrative support expenses along with preproduction
costs at new business operations.
European Operations
Net sales in Europe were $1,325.4 million in the year ended December 31,
1995 and $572.5 million in the year ended December 31, 1994. Sales in the
current year benefited from $547.2 million in sales from the FSB and AI
acquisitions, incremental volume on existing programs in Sweden and England and
favorable exchange rate fluctuations in Germany and Sweden.
Operating income and operating margin were $26.5 million and 2.0% in 1995
as compared to $4.4 million and 0.8% in 1994. Operating income in 1995 benefited
from incremental volume on mature Scandinavian and
22
26
German seat programs and the benefits derived from the FSB and AI Acquisitions.
Partially offsetting the increase in operating income were engineering,
preproduction and facility costs associated with the start-up of a new seat
program in Germany.
Mexico and other Operations
Net sales of $281.0 million in 1995 in the Company's remaining geographic
regions, consisting of Mexico, the Pacific Rim, South Africa and South America,
increased by $84.7 million or 43.1% as compared to $196.3 million in the
comparable period in the prior year. Sales in the year ended December 31, 1995
benefited from the overall growth in Mexican sales activity, including the
production of new General Motors and Ford passenger car and truck seat programs.
Further contributing to the increase in sales was the addition of new business
operations in Australia, South Africa, Brazil and Argentina.
Operating income and operating margin were $13.5 million and 4.8% in the
year ended December 31, 1995 and $9.6 million and 4.9% in the previous year. The
increase in operating income was largely the result of the benefits derived from
increased market demand for new and ongoing seat programs in Mexico. Partially
offsetting the increase in operating income were engineering and preproduction
costs for recently opened manufacturing facilities in the Pacific Rim, South
Africa and South America.
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
representsrepresented 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 NAB Acquisition, which accounted for $421.0 million of
the increase.
Gross profit and gross margin were $263.6 million and 8.4%, respectively,
in the year ended December 31, 1994 as compared to $170.2 million and 8.7%,
respectively, in the year ended December 31, 1993. Gross profit in 1994
surpassed gross profit in 1993 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 waswere $23.1 million
of expense for engineering and preproductionpre-production costs for new facilities in the
United States, Canada and Europe, lower margin contribution in Mexico and the
$3.9 million increase in postretirementpost-retirement 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
administrative support expenses and research and development costs associated
with the expansion of domestic and foreign business and expenses related to new
business opportunities.
19
24
Operating income and operating margin were $169.6 million and 5.4%,
respectively, in the year ended December 31, 1994 and $79.6 million and 4.1%,
respectively, in the year ended December 31, 1993. The 113.1% 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 $18.0 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 the effect of the adoption of SFAS 106. Non-cash depreciation and
amortization charges were $56.1 million and $42.6 million, respectively, 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 1994 increased in relation to 1993 as
additional debt incurred to finance the NAB Acquisition and higher short-term
interest expense in Europe
23
27
offset the benefits derived from the refinancing of subordinated debt at a lower
interest rate and the Company's IPOinitial public offering of Common Stock 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
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.
United States and Canadian Operations
Net sales in the United States and Canada increased by 84.0%75.3% from $981.2$1,357.0
million in the year ended December 31, 1993 to $1,805.3$2,378.7 million for the year
ended December 31, 1994. 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,
Ford 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$155.6 million and 6.1%6.5%,
respectively, in the year ended December 31, 1994 and $61.3$86.9 million and 6.2%6.4%,
respectively, in the year ended December 31, 1993. Operating income and
operating margin in 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%, respectively, in the year ended December 31, 1994 and $25.6 million and
6.8%, respectively, 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.
20
25
European Operations
Net sales in Europe increased by 41.8% to $572.5 million for the year ended
December 31, 1994 compared to $403.8 million for the year ended December 31,
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 compared to an operating loss of $9.6 million sustained in the
year ended December 31, 1993. Operating income in 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 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%, respectively, in the year ended December 31, 1994 and $20.3 million and
10.7%, respectively, 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.
Year Ended June 30, 1993 Compared With 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%, respectively,
in the fiscal year ended June 30, 1993 and $115.6 million and 8.1%,
respectively, 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 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%,
respectively, in the fiscal year ended June 30, 1993, compared to $56.8 million
and 4.0%, respectively, 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 introduced after June 30, 1993, plant shutdown costs and non-
recurring 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.
21
26
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 non-recurring capitalization and related costs of $3.2
million associated with a capital raising transaction completed on 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 in fiscal
1993 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%,
respectively, in the fiscal year ended June 30, 1993 and $32.0 million and 5.4%,
respectively, 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 $403.3 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%,
respectively, in the fiscal year ended June 30, 1993 and $14.7 million and 3.6%,
respectively, in the fiscal year ended June 30, 1992. Operating income in the
fiscal year ended June 30, 1993 benefited 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 new 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 in
fiscal 1993 exceeded the prior year due to the addition of new operations in
Germany and Austria, the full year impact resulting from the acquisition of
facilities in Sweden and Finland and incremental volume on carryover programs in
Germany. Partially offsetting the increase in net sales were reduced vehicle
production schedules for established seating programs in Sweden and unfavorable
exchange rate fluctuations.
22
27
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
were 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 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%, respectively, in the fiscal year ended June 30, 1993 and $7.1 million and
4.6%, respectively, 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 CAPITAL RESOURCES
In connection with the AIH Acquisition,On August 17, 1995, the Company entered into a $1.5
billion secured revolving credit
agreement with Chemical Banka syndicate of financial institutions (the "Credit Agreement")
providing for borrowings in the principal amount of up to $1.5 billion.
Borrowings under the Credit Agreement have been used to finance a portion of the
AI and Masland Acquisitions, to refinance certain existing indebtedness of AI
and Masland at the time of their
24
28
acquisition by Lear, to refinance the Company's prior $500 million credit
facility and for general corporate purposes. As of March 30, 1996, after giving
pro forma effect to the Masland Acquisition, the incurrence of indebtedness
under the New Credit Agreement in connection with the Masland Acquisition
(described below) and the Note Offering and the Offerings and the application of
the net proceeds therefrom, the Company would have had $760.2 million
outstanding under the Credit Agreement ($56.1 million of which was outstanding
under letters of credit), with $1,014.8 million unused and available. In
addition the Company would have had $40.8 million of long term debt outstanding
with various governmental authorities, banks and other financial institutions as
well as $470.0 million of subordinated debt.
On June 1996, the Company entered into a second revolving credit
agreement with a syndicate of financial institutions (the "New Credit
Agreement"),. The New Credit Agreement contains substantially identical terms as
the purposeCredit Agreement and permits borrowings of which isup to finance$300 million. In connection
with the AIHMasland Acquisition, the Company borrowed the full amount permitted
under the New Credit Agreement and used the proceeds to refinance a portion ofrepay outstanding
indebtedness under the existing indebtedness
of AIH, to refinance the Company's prior $500 million credit facility (the
"Prior Credit Facility"), and for general corporate purposes, including
acquisitions.Agreement.
Borrowings under the Credit Agreement and the New Credit Agreement bear
interest at the election of the Company, at a floating rate of interest equal to
(i) the higher of Chemical Bank's prime lending rate and the federal funds rate
plus .5% or (ii) the Eurodollar Rate (as defined in the New Credit Agreement) plus a
borrowing margin of .5% to 1.0%. The applicable borrowing margin is determined
based on the satisfactionlevel of a specified financial ratio of the Company. Amounts available to
be drawn underUnder the New
Credit Agreement, will be reduced by an aggregate amount
of $650 million during the term of the New Credit Agreement, which matures on
September 30, 2001.
Borrowings under the New Credit Agreement will bear interest at floating
rates, although the CompanyLear is permitted to convert variable rate interest
obligations on up to an aggregate of $500 million in principal amount of
indebtedness into fixed rate interest obligations.
Amounts available under the Credit Agreement and the New Credit Agreement
will be reduced by an aggregate amount of $750 million prior to maturity on
September 30, 2001. The Company also hasCompany's scheduled principal payments on long-term
debt, including debt assumed in connection with the AIHMasland Acquisition, are
approximately $9.0 million, $11.5 million, $7.6 million, $5.5 million and $128.2
million for the remainder of $3.0, $12.3, $4.3, $7.31996 and $2.1 million in 1995, 1996,for the full years 1997, 1998, 1999 and
1999,2000, respectively.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. During the fiscal
year ended December 31, 1994, the Company's capital expenditures aggregated
approximately $103.1 million. The Company anticipates spending $135.0 million
for capital expenditures in 1995.
As of July 1, 1995, and after giving effect to the AIH Acquisition, the
Offerings and the application of the net proceeds therefrom, the Company would
have had $872.2 million outstanding under the New Credit Agreement ($55.1
million of which would have been outstanding under letters of credit), resulting
in approximately $627.8 million of available commitments. As of July 1, 1995,March 30, 1996, the Company had net cash and 23
28
cash equivalents of
$53.0$21.6 million. The Company's actual cash availability aton the date hereof will be
less than at July 1March 30 because of greater working capital needs during the
Company's traditionally weak thirdcurrent quarter. Nevertheless, the Company believes that cash flows from
operations together with amountsand funds available under existing credit facilities (principally the
New Credit Agreement and its current cash balances,Agreement) will be sufficient to meet its future debt service
obligations, projected capital expenditures and working capital requirements, as
well as to provide the flexibility to fund future acquisitions.
Concurrently with the Offerings, the Company is undertaking the Note
Offering, which is conditioned in its entirety upon the consummation of the
Offerings. The Offerings are not, however, conditioned upon the consummation of
the Note Offering. The Notes will be subordinated in right of payment to all
existing and future senior indebtedness of the Company, including the
indebtedness evidenced by the Credit Agreement, the New Credit Agreement and the
Senior Subordinated Notes. The Notes will rank pari passu in right of payment
with the Subordinated Notes. The net proceeds to the Company from the Note
Offering will be used to repay indebtedness outstanding under the Credit
Agreement.
The Credit Agreement and the New Credit Agreement, together with the Senior
Subordinated Notes, and
the Subordinated Notes and the Notes, impose or will impose
various restrictions and covenants on the Company, including, among other
things, financial covenants relating to the maintenance of minimum operating
profit and net worth levels and interest coverage ratios as well as restrictions
on indebtedness, guarantees, acquisitions, capital expenditures, investments,
loans, and advances, liens, dividends and other restricted payments and asset sales and issuances of stock.sales. Such
restrictions, together with the leveraged nature of the Company, could limit the
Company's ability to respond to market conditions, to provide for unanticipated
capital investments or to take advantage of business opportunities.
25
29
CAPITAL EXPENDITURES
During the year ended December 31, 1995, the Company's capital expenditures
aggregated approximately $110.7 million. For the years ended December 31, 1994
and 1993, capital expenditures of the Company were $103.1 million and $45.9
million, respectively. For 1996, the Company anticipates capital expenditures of
approximately $175.0 million, reflecting a full year of AI operations and
approximately $10.0 million relating to the Masland Division.
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 facilities in Mendon,
Michigan and Troy, 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 four Superfund sites where liability has not been
completely determined. The Company has also been identified as a PRP at four
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 four
Superfund sites. Expected liability, if any, at the four 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 the six months ended July 1, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which must be adopted by the Company recordedin 1996 and requires that
stock compensation, including compensation in the form of stock options, be
calculated using a reductionmeasure of fair value, compared with intrinsic value required
under current accounting principles. The new method may be either reflected in
stockholders' equity of $14.1 million duethe financial statements or disclosed in the notes to the devaluationstatements. The
Company expects to adopt the statement by disclosing the effects of the Mexican
peso by approximately 44%. The effect onfair
value method in the results of the Company's operations
has not been material.
24notes to its 1996 financial statements.
26
2930
SELECTED FINANCIAL DATA OF AUTOMOTIVE INDUSTRIES HOLDING, INC.MASLAND CORPORATION
The following summary consolidated financial information and other data were derived from the
consolidated financial statements of AIH.Masland. The consolidated financial
statements of AIHMasland for each of fiscal years 1995, 1994 1993, 1992 and 1991
and the nine months ended December 29, 19901993 have been
audited by Arthur AndersenPrice Waterhouse LLP. The consolidated financial statements of
AIHMasland for the sixnine months ended July
1,March 29, 1996 and March 31, 1995 and July 2, 1994 are
unaudited; however, in the opinion of AIH'sMasland's management, they reflect all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and results of operations offor such
periods. The results for the sixnine months ended July 1, 1995March 29, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year.
The selected financial data below should be read in conjunction with the
consolidated financial statements of AIHMasland and the notes thereto which are incorporated
by reference in this Prospectus and "Management's Discussion and Analysis of
Results of Operations of Automotive Industries Holding, Inc.Masland Corporation."
AUTOMOTIVE INDUSTRIES HOLDING, INC.MASLAND CORPORATION
AS OF OR FOR THE NINE MONTHS
SIXAS OF OR FOR THE FISCAL
MONTHS ENDED YEAR ENDED
ENDED
----------------- ------------------------------------------------------- ---------------------------------- ----------------------------
MARCH 29, MARCH 31, JUNE 30, JULY 1, JULY 2,
DECEMBER 31, JANUARY 1, DECEMBER 26, DECEMBER 28, DECEMBER 29,1996 1995 1995 1994 1994 1994 1992 1991 19901993
--------- --------- -------- ------- -------
------------ ---------- ------------ ------------ ------------
(DOLLARS IN MILLIONS)MILLIONS, EXCEPT CONTENT PER VEHICLE DATA)
OPERATING DATA:
Net sales..........................sales...................................... $ 377.1343.4 $ 236.8 $512.8 $348.7 $272.4 $209.5 $135.5373.8 $496.6 $ 429.9 $ 353.5
Gross profit....................... 73.0 50.6 103.9 74.9 55.5 40.7 26.8profit................................... 57.6 68.4 91.2 86.4 62.0
Selling, general and administrative expenses......................... 24.9 16.6 35.3 24.4 16.7 11.1 7.1
Amortization....................... 2.6 2.2 4.7 3.4 2.3 2.2expenses... 29.4 32.6 42.1 39.5 32.7
Amortization................................... 1.7 1.6 2.1 1.9 3.5
------- ------- ------ ------ ------ ------ ------------- -------
Operating income................... 45.5 31.8 63.9 47.1 36.5 27.4 18.1income............................... 26.5 34.2 47.0 45.0 25.8
Interest expense, net.............. 9.0 3.6 9.3 7.1net.......................... 3.0 3.4 4.2 3.7 4.3
Other (income) expense, net(1)................. 2.3 3.4 4.2 4.4 (.3)
------- ------- ------ ------- -------
Income before income taxes..................... 21.2 27.4 38.6 36.9 21.8
Income taxes................................... 9.4 12.4 17.3 15.9 8.7
------- ------- ------ ------- -------
Net income..................................... 11.8 15.0 11.8
Other expense, net.................21.3 21.0 13.1
Preferred dividend............................. -- -- -- -- -- .1 .1.5 1.4
------- ------- ------ ------ ------ ------ ------
Income before income taxes and
extraordinary items.............. 36.5 28.2 54.6 40.0 27.1 12.3 6.2
Income taxes....................... 14.6 11.4 21.9 16.0 11.0 5.4 3.1
------- -------
------ ------ ------ ------ ------
Net income before extraordinary
items............................ 21.9 16.8 32.7 24.0 16.1 6.9 3.1
Extraordinary items................ -- -- -- -- 8.3 -- --
------- ------- ------ ------ ------ ------ ------
Net income before preferred
dividend......................... 21.9 16.8 32.7 24.0 7.8 6.9 3.1
Preferred dividend................. -- -- -- -- .9 2.5 1.7
------- ------- ------ ------ ------ ------ ------
Net income.........................applicable to common stock.......... $ 21.911.8 $ 16.815.0 $ 32.721.3 $ 24.020.5 $ 6.9 $ 4.4 $ 1.411.7
======= ======= ====== ====== ====== ====== ============= =======
BALANCE SHEET DATA:
Current assets.....................assets................................. $ 205.8124.9 $ 156.4 $187.6111.6 $110.2 $ 93.0101.9 $ 63.4 $ 47.8 $ 45.399.0
Total assets....................... 611.3 461.0 567.4 338.5 233.7 216.6 212.6assets................................... 276.8 226.0 228.0 203.8 197.3
Current liabilities................ 117.6 79.7 96.2 36.0 32.7 33.4 27.6liabilities............................ 73.6 75.2 71.7 79.6 70.1
Long-term debt..................... 221.1 154.0 216.9 93.8 75.8 105.3 115.8debt................................. 70.8 40.2 37.0 31.4 50.1
Stockholders' equity............... 241.3 207.2 219.9 189.7 109.8 34.3 55.1equity........................... 98.8 82.5 88.2 68.5 60.1
OTHER DATA:
EBITDA.............................EBITDA(2)...................................... $ 60.440.2 $ 41.946.5 $ 85.862.2 $ 63.057.6 $ 48.6 $ 38.8 $ 25.637.1
Capital expenditures............... 30.8 18.6 40.5 22.4 8.9 7.8 4.3expenditures........................... 20.6 14.7 22.0 17.8 18.0
North American content per vehicle(3).......... 34 31 33 30 26
25- -------------------------
(1) Other (income) expense includes minority interest in consolidated
subsidiaries.
(2) "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 flow from operations as determined by generally accepted accounting
principles.
(3) "North American content per vehicle" is the Company's net automotive sales
in North America divided by total North American vehicle production. "North
American vehicle production" comprises car and light truck production in the
United States, Canada and Mexico estimated by the Company from industry
sources.
27
3031
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS OF AUTOMOTIVE INDUSTRIES HOLDING, INC.
SixMASLAND CORPORATION
Nine Months Ended July 1, 1995March 29, 1996 Compared with SixNine Months Ended July 2, 1994
Revenues
Revenues for the six months ended July 1,March 31, 1995
totaled $377.1Net sales decreased $30.4 million compared to $236.8or 8.1% from $373.8 million for the sixnine
months ended July 2, 1994, an increaseMarch 31, 1995 to $343.4 million for the nine months ended March
29, 1996. The net sales decrease was due to lower North American light vehicle
production and a slower than anticipated ramp up in production of $140.3the redesigned
Ford Taurus/Mercury Sable. Also, the fiscal 1995 period included approximately
$6.5 million or 59.2%. The increasein sales from the non-automotive business of H.L. Blachford, Inc.
("Blachford") which was the result of newly awarded business,
increased production on models served by AIH, particularlydivested in the light truck
segment, combined with AIH's acquisitions of Cotton and Gulfstream.
Cost of SalesMarch 1995.
Cost of sales as a percentage of revenuesnet sales increased to 80.6%from 81.7% for the
first
sixnine months ofended March 31, 1995 compared to 78.6%83.2% for the same period in 1994. The decrease
in gross margin isnine months ended March 29,
1996. This cost increase was primarily due to the resulteffect of anticipated lower margins atdecreased sales on
fixed costs combined with additional costs for several new product and program
launches, including the acquired
companiesredesigned Ford F-Series pickup and costs associated with program launches.
Selling, General & Administrativethe redesigned Ford
Taurus/Mercury Sable.
Selling, general and administrative costs increased to $24.9expenses decreased $1.3 million or 6.6% of revenues6.5%
from $19.4 million for the sixnine months ended July 1,March 31, 1995 compared to $16.6$18.1 million
or 7.0% of revenues for
the sixnine months ended July 2, 1994. Approximately $5.6
million of the increaseMarch 29, 1996. The decrease was the result of incremental costsprimarily due to lower
incentive compensation expense and cost savings associated with AIH's acquisitions. The remaining increase isthe Blachford
acquisition, which was completed in September 1994. This decrease was partially
offset by reorganization expenses related to streamlining, decentralization and
customer focus efforts.
Research, development and engineering declined from 3.5% of net sales for
the nine months ended March 31, 1995 to 3.3% of net sales for the nine months
ended March 29, 1996. Interest expense decreased from $3.4 million for the nine
months ended March 31, 1995 to $3.0 million for the nine months ended March 29,
1996, primarily due to incremental engineering and
administrative costs to support the revenue growth.
Interest Expense
Interesta decline in interest rates. Other expense decreased $1.1
million for the sixnine months ended July 1, 1995 was approximately
$9.0 million or 2.4% of revenues, an increase of $5.4 millionMarch 29, 1996 compared to the same periodnine months
ended March 31, 1995. The improvement in 1994. Approximately $2.9 millionother expense is primarily due to the
nine months ended March 31, 1995 containing the foreign exchange loss resulting
from the 50% devaluation of the increase is due to
increased borrowings to finance AIH's acquisitions. The remaining increase is
due to higher rates on floating rate indebtednessMexican peso between December 20, 1994 and increased borrowings to
finance capital expenditures.
Income TaxesMarch
31, 1995. The effective income tax rates for the first sixnine months ofended March 31,
1995 and 1994March 29, 1996 were 39.9%41.8% and 40.2%39.9%, respectively. The decrease in the
effective tax rate was due to a decrease in the state income tax rates differed fromrate in
Masland's primary state tax jurisdiction and due to changes in the federal statutory rate duedistribution
of income among Masland's various foreign and domestic tax jurisdictions.
Net cash flow provided by operating activities for the first nine months of
fiscal 1996 was $15.7 million. This was the result of net income of $11.8
million and non-cash charges of $11.2 million, primarily depreciation, offset by
an increase in non-cash working capital of $7.3 million. Significant
non-operating uses of cash were investments of $23 million in Sommer Masland
(U.K.) Ltd. and Precision Fabrics Group, Inc. ("PFG"), capital expenditures of
$20.6 million and dividends on common stock of $0.05 per share, totaling $2.0
million.
On July 31, 1995, Masland formed a joint venture, Sommer Masland (U.K.)
Ltd. by purchasing 50% of Sommer Allibert S.A.'s existing manufacturing facility
in Washington, England for approximately $8 million. This facility, which
supplies Nissan, Peugeot and Saab, has annual sales of approximately $20
million. Masland and Sommer plan to conduct their acoustic and soft-surface trim
business in the United Kingdom exclusively through the joint venture.
On September 27, 1995, Masland invested $15 million in PFG in exchange for
a 29% equity interest. In connection with the investment, Masland received an
option to acquire the remainder of PFG for 4.1 million shares of Masland. PFG
recently introduced the Precision Technology Airbag which it plans to market to
the effectsautomotive industry. PFG is presently a technology leader in the development
and manufacture of state income taxeshighly engineered lightweight fabrics for the aerospace,
medical and non-deductible expenses.computer industries.
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32
Fiscal Year Ended December 31, 1994June 30, 1995 Compared with Fiscal Year Ended JanuaryJuly 1, 1994
Revenues
Revenues for the year ended December 31, 1994Net sales increased 47.0% to $512.8$66.7 million, or 15.5%, from $348.7$429.9 million in 1993. Approximately $55.0fiscal
1994 to $496.6 million in fiscal 1995. About $33 million of the revenue
increase was
due toassociated with the incremental effects of the May 1994 acquisition of Cotton and the December 1994 acquisition of Gulfstream.Blachford. The remaining increase was
from ongoing operations resulting from new businessprimarily due to participation on several redesigned or
new platformsvehicles during fiscal 1995,
including the GM C/K PickupFord Contour/Mystique, the Lincoln Continental/Town Car and J Car (Cavalier, Sunfire)the
Toyota Avalon and Ford's Windstar mini-van and Contour/Mystique. AIH also benefited from increased
production by North American OEMs, particularlyan overall increase in industry automotive vehicle builds
during fiscal 1995. The increase in industry vehicle builds was concentrated in
the light truck segment.
AIH's content per vehicle produced in North America increased 22.7% to $31.40 in
1994 from $25.60 in 1993. AIH's European sales increased to $44.6 million as a
resultfirst half of the Cotton acquisition.
26
31
Cost of Salesfiscal 1995.
Cost of sales as a percentage of revenues,net sales increased from 79.9% in fiscal
1994 to 79.7%81.6% in 1994 from
78.5%fiscal 1995. This increase in 1993. AIH's margins were lower than 1993 levelscost of sales as a percentage of
net sales was primarily due to anticipated
lower margins associated withon the acquired businessesbusiness of
Blachford, costs incurred on several new product launches and start-upproduct mix. These
increases were partially offset by the effect of the increased sales volume on
fixed costs on new
programs.
Selling, General and Administrativethe impact of various productivity initiatives.
Selling, general and administrative expenses decreased from 5.9% of net
sales in fiscal 1994 to 5.0% of net sales in fiscal 1995. This improvement was
primarily due to the effect of the increased by $11.0sales volume on fixed costs,
decreased incentive compensation in fiscal 1995, and a nonrecurring charge of
$0.9 million but decreased to 6.9% of revenues in fiscal 1994 compared to 7.0% of revenues in 1993.
The increased costs were incurred to support the continued growth and design,
engineering and program development activities associated with future growth in
new business.
Other
Amortization expensethe vesting of certain stock options
at the date of Masland's initial public offering.
Research, development and engineering expenses increased 21.1% from $3.4$14.2
million in 1993fiscal 1994 to $4.7$17.2 million in 1994fiscal 1995, primarily due to
increased levels of activity regarding new process and product development at
Masland's Technical Center in Plymouth, Michigan and due to incremental goodwill amortization related to AIH's 1994
acquisitions.costs
associated with the acquisition of Blachford. Interest expense increased from
$7.1$3.7 million in 1993fiscal 1994 to $9.3$4.2 million in 1994.fiscal 1995 due to incremental
debt arising from the Blachford acquisition and an increase in average interest
rates. Other income and expense consists of foreign currency exchange losses in
fiscal 1994 and fiscal 1995. The increase wasloss of $1.0 million incurred in fiscal 1995
relates primarily to the result45% devaluation of additional borrowingsthe Mexican peso subsequent to
fund
AIH's 1994 acquisitions and higher interest rates on AIH's floating rate
indebtedness.December 20, 1994. The effective income tax rates were 40.1% and 40.0%, respectively,
for fiscal 1994 and 1993.fiscal
1995 were 39.0% and 41.3%, respectively. The increase in the effective rates were higher than federal statutory ratesincome
tax rate was due to decreased tax benefits recognized in fiscal 1995 compared to
fiscal 1994 associated with tax net operating loss carryforwards and other tax
credits and due to changes in the distribution of income among Masland's various
foreign and domestic tax jurisdictions.
Fiscal Year Ended July 1, 1994 Compared to the Fiscal Year Ended July 2, 1993
Net sales increased 21.6% from $353.5 million in fiscal 1993 to $429.9
million in fiscal 1994. On May 8, 1993, Masland began to consolidate the results
of Amtex, Inc., a 50% owned joint venture ("Amtex"), as a result of non-deductible goodwill amortizationentering
into a revised Joint Venture Agreement with its joint venture partner. Prior to
this date, the results of Amtex were accounted for under the equity method. Had
the results of Amtex been consolidated for all of fiscal 1993, sales for that
year would have been $369.4 million and state income taxes.
Year Ended January 1,the increase in Masland's sales for
fiscal 1994 Compared with Year Ended December 26, 1992
Revenues
Revenues for the year ended January 1, 1994 increased 28.0%would have been $60.5 million or 16.4%. This increase was due to
$348.7
million from $272.4 millionoverall increases in 1992. The increase reflects incremental business
awarded to AIH on new and redesigned vehicles, increased automotive production
and revenues from acquired businesses. AIH's revenue content per vehicle
produced in North America increased 9.4% from $23.40 in 1992 to $25.60 in 1993.
Approximately half of the revenue increase resulted from the acquisition of ASAA
International, Inc. in May 1993 and Fibercraft//DESCon Engineering, Inc. in July
1993. AIH also benefited from the continuing recovery in the North American automotive market.
Cost of Salesindustry vehicle builds during
fiscal 1994 compared to fiscal 1993, and participation on several new vehicles
during fiscal 1994, including the Chrysler Neon and the Ford Mustang.
Cost of sales as a percentage of revenues, decreasednet sales improved from 82.5% in fiscal
1993 to 78.5%79.9% in 1993 from
79.6% in 1992. Thefiscal 1994. This improvement was thea result of AIH'sMasland's
continuing efforts to improve productivity and reduce costs and the effect of
the increased sales on fixed costs. AIH's margins increased despite the costs associated with launch of
several new programs.
Selling, General and Administrativein fiscal 1994.
Selling, general and administrative expenses increased by $2.2 million, but
decreased from 6.5% of net sales in fiscal 1993 to 7.0%5.9% of revenuesnet sales in fiscal
1994. The increased costs in fiscal 1994 were primarily due to a charge to
expense of $0.9 million resulting from the immediate vesting of certain stock
options concurrent with Masland's initial public offering, the consolidation of
Amtex and to increased incentive compensation resulting from improved
profitability.
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33
Research, development and engineering expenses increased 47.9% from $9.6
million in fiscal 1993 compared to 6.1% of revenues$14.2 million in 1992. The increase isfiscal 1994, primarily due principally to
the incremental costs related to AIH's 1993 acquisitions. Costs to support the
growthMasland's Technical Center in revenuesPlymouth, Michigan becoming fully operational
during fiscal 1994 and new program development also led to an increase in selling, generalengineering personnel and administrativerelated
expenses.
Other
Amortization expense increased from $2.3 million in 1992 to $3.4 million in
1993 due to additional amortization related to AIH's 1993 acquisitions. Interest expense decreased to $7.1from $4.3 million in fiscal 1993 compared with $9.5to $3.7
million in 1992.
Thefiscal 1994 due to a decrease is due principallyin average interest rates and lower
average borrowings, partially offset by additional interest expense resulting
from the consolidation of Amtex. Earnings of Amtex prior to May 8, 1993 were
recorded under the retirementequity method of certain indebtedness withaccounting and were included in other
(income) expense, primarily accounting for the proceedschange in this balance from
income of the public offering$0.5 million for fiscal 1993 to expense of AIH's Class A Common Stock$0.4 million in August
1993.fiscal
1994. The effective income tax rates for fiscal 1993 and 1992fiscal 1994 were 40.0%39.4%
and 40.5%39.0%, respectively.
The effective tax rates were higher than federal statutory rates
as a result of non-deductible goodwill amortization and state income taxes.
2730
3234
BUSINESS OF THE COMPANY
GENERAL
Lear is the largest independent supplier of automobileautomotive interior systems in
the estimated $40 billion global automotive interior systems market and light truck seat
systemsthe
tenth largest independent automotive supplier in the world. The Company's
principal products includeinclude: finished automobile and light truck seat systems,systems;
interior trim products, such as door panels and headliners; and component
products, such as seat frames, seat covers and other seat
components.various blow molded plastic
parts. The Company's seatextensive product offerings were recently expanded through
the acquisition of Masland, a leading Tier I designer and manufacturer of
automotive floor and acoustic systems which are designed, manufactured and assembled atinterior and luggage trim components.
This acquisition, together with the Company's manufacturing facilities, are shippedAugust 1995 acquisition of Automotive
Industries, has made Lear the world's largest independent automotive supplier
with the ability to customer
assembly plants ondesign, engineer, test and deliver products for a sequential parts delivery ("SPD") basis for installation in
vehicles near the end of the assembly process. The SPD process not only enables
the Company to deliver seat systems to customers on a just-in-time ("JIT") basis
but also permits delivery in the color and order in which the products are used
in the OEM's assembly line.total
vehicle interior. The Company's present customers include 17 OEMs,24 original equipment
manufacturers ("OEMs"), the most significant of which are Ford, General Motors,
Fiat, Chrysler, Volvo, Saab, Volkswagen BMW, Saab and Mazda.BMW. As of JulyJune 1, 1995,1996, after
giving pro forma effect to the Masland Acquisition, the Company would have
employed approximately 26,00040,000 people in 1819 countries and operated 82131
manufacturing, research design,and development, product engineering testing and administration
facilities.
Lear'sThe Company has experienced substantial growth in market presence and
profitability over the last five years both as a result of internal growth as
well as acquisitions. The Company's sales have grown rapidly from approximately $159.8 million in$1.1
billion for the
fiscal year ended June 30, 19831991 to approximately $3.1$4.7 billion infor the fiscal
year ended December 31, 1994,1995, a compound annual growth rate of 38%. After giving
pro forma effect to the AI and Masland acquisitions, the Company's sales would
have been approximately 30%$5.7 billion for the year ended December 31, 1995. The
Company's operating income has grown from $44.7 million for the year ended June
30, 1991 to $244.8 million for the year ended December 31, 1995, a compound
annual growth rate of 46%.
ThisThe increase in the Company's sales which has been achieved through internal growth as well
as through acquisitions, isand the improvement in its operating
performance are attributable primarily to the Company's strategy of capitalizing
on two significant trends in the automotive industry: (i) the outsourcing of
automotive components and systems by OEMs; and (ii) the consolidation and
globalization of the OEM'sOEMs' supply base. Outsourcing of interior components and
systems has increased in response to competitive pressures on OEMs to improve
quality and reduce capital needs, costs of labor, overhead and inventory.
Consolidation among automotive industry suppliers has occurred as OEMs have more
frequently awarded long-term sole source contracts to the most capable global
suppliers. Increasingly, the criteria for selection includesinclude not only cost,
quality and responsiveness, but also certain full-service capabilities,
including design, engineering and project management support. OEMs now have
rigorous programs for evaluating and rating suppliers, which encompass quality,
cost control, reliability of delivery, new technology implementation and overall
management. Under these programs, each facility operated by a supplier is
evaluated independently. The suppliers who obtain superior ratings from an OEM
are considered for new business; those who do not may continue their existing
contracts, but are unlikely to be considered for additional business. As a
result, thesethe OEMs' new supplier policies have sharply reducedwill continue to reduce the number of
component and system suppliers. The Company believes that OEMs in North America
and Europe will continue to pursue outsourcing and supplier consolidation as a
means of cost reduction.
The principal beneficiariesCompany has positioned itself as the leading global Tier I supplier of
interior systems and components to OEMs. Tier I status typically means that the
supplier is awarded a program for a particular vehicle in the early stages of a
vehicle's design. The Tier I supplier becomes responsible for total product
management, including design, development, component sourcing, quality assurance
procedures, manufacture and delivery to the OEM's assembly plant. The OEMs
benefit from lower costs, improved quality, timely delivery and the
administrative convenience of being able to outsource complete systems to a
single supplier or a small group of suppliers.
In 1995, Lear was the leading independent supplier to the total $40 billion
global automotive interior market, with a 12% share after giving pro forma
effect to the AI and Masland acquisitions. In addition, the Company in 1995 held
a leading 34% share of the trend to outsourcing have been
independent suppliers, such as the Company, with proven design, engineering,
program management and SPD manufacturing capabilities. The Company has
demonstrated its ability to substantially reduce the cost and increase the
quality of seat systems through the coordination of design, development and
manufacturing as a Tier I supplier. As a result of
28
33
this continuing trend toward outsourcing, the Company has been awarded the
following new business which has recently begun production or is scheduled to
begin production shortly:
ACTUAL/
LOCATION OF SCHEDULED
PROGRAM LEAR FACILITY START DATE
- -------------------------------------------------- --------------------- ----------------
Ford Explorer -- Plant II......................... St. Louis, MO January 1995
Dodge Ram Pick-up Truck........................... Saltillo, Mexico March 1995
Ford Taurus/Sable................................. Atlanta, GA June 1995
Ford Taurus/Sable................................. Chicago, IL June 1995
Dodge Ram Pick-up Truck........................... St. Louis, MO July 1995
BMW -- 3 Series................................... Brits, South Africa July 1995
GMT 600 Van....................................... Wentzville, MO September 1995
BMW -- Roadster................................... Duncan, SC September 1995
VW -- Gol......................................... Sao Paulo, Brazil October 1995
GM Blazer......................................... Jakarta, Indonesia October 1995
BMW -- 3 Series................................... Wackersdorf, Germany November 1995
Holden -- VS...................................... Adelaide, Australia November 1995
The outsourced market for automobile and light truck seat systems in North
America is approximately 70% of the estimated $6.9 billion total North American seat
systems market of $6.8 billion. In 1994,and was the Company heldleading independent supplier to the estimated $5.5
billion total Western European seat
31
35
systems market, with a leading 38% share19% share. The door panel and headliner segments of the
estimated $4.8 billion outsourcedautomotive interior market are highly fragmented, contain no dominant
independent supplier and are in the early stages of the outsourcing and/or
consolidation process. The Company believes that the same competitive pressures
that contributed to the rapid expansion of its seat systems marketbusiness in North
America since 1983 will continue to encourage automakers in the North American
and a 27% shareEuropean markets to outsource more of the
estimated $6.8 billion total seat systems market. After giving pro forma effect
to the acquisition of FSB, the Company's share of the estimated $2.4 billion
European outsourced seat systems market would have been a leading 33%their door panel and its
share of the estimated $4.5 billion total seat systems market would have been
18%. The Company is also the largest supplier of seat systems and seat
components in Mexico.headliner
requirements.
The Company's North American content per vehicle has increased from $12 in
1983 to $169$227 in 1994.1995. In Western Europe, the content per vehicle has grown from
$3 in 1983 to $80$102 in 1994 after giving pro forma effect to the FSB Acquisition.
This increase has1995. These increases have resulted from the Company's
ability to capitalize on a number of industry trends including outsourcing,
greater design responsibility by Tier I suppliers and the increased
sophistication of seat systems and other interior products as OEMs add
more
advancedconvenience features and luxury items into vehicle models. STRATEGYThe increases in
content per vehicle also resulted from several recent acquisitions, including
Automotive Industries and the Fiat Seat Business. See " -- Recent Acquisitions."
In addition, the Company believes it can further increase interior content
through the development of more advanced automobile safety features, such as
side impact airbags and fully integrated seatbelts.
The Company has becomeis the successor to a significant Tier Iseat frame manufacturing business founded
in 1917 that served as a supplier by implementingto General Motors and Ford from its inception.
As a result of the expansion of the Company's business from automotive seat
systems to products for a vehicle's complete interior, the Company changed its
name to "Lear Corporation" from "Lear Seating Corporation" effective May 9,
1996.
BUSINESS STRATEGY
Lear's business objective is to expand its position as the leading
independent supplier of automotive interior systems in the world. To achieve
this objective, the Company will continue to pursue a strategy based upon the
following elements:
- Strong Relationships with the OEMs. The Company's management has
developed strong relationships with its 1724 OEM customers which allow Lear to
identify business opportunities and anticipate customer needs in the early
stages of vehicle design. Management believes that working closely with OEMs in
the early stages of designing and engineering seatvehicle interior systems gives it
a competitive advantage in securing new business. Lear maintains an excellent
reputation with the OEMs for timely delivery and customer service and for
providing world class quality at competitive prices. As a result of the
Company's service and performance record, many of the Company's facilities have
won awards from OEMs with which they do business.
- Global Presence. In 1995, more than two-thirds of total worldwide vehicle
production occurred outside of the United States and Canada. Due to
opportunities for significant cost savings and improved product quality and
consistency, OEMs have increasingly required their suppliers to manufacture
interior systems and other components in multiple geographic markets. In recent
years, the Company has aggressively expanded its operations in Western Europe
and emerging markets in South America, South Africa, the Pacific Rim and
elsewhere, giving it the capability to provide its products on a global basis to
its OEM customers. A global market presence also affords Lear some protection
against cyclical downturns in any single market. During 1995, in furtherance of
its global expansion strategy, the Company entered into three joint ventures and
expanded its wholly-owned operations into South Africa. The first joint venture
agreement was with an affiliate of Industria Espanola del Polieter, S.A., a
Spanish corporation, to supply seat systems in Brazil for the Volkswagen Gol.
The Company also entered into a joint venture agreement with TeknoSeating S.A.,
the largest independent automotive supplier in Argentina, to supply seat systems
to Volkswagen in Argentina for the Gol and the Cordoba models and with
Trambusti, a Brazilian company, to supply seat systems to Fiat in Brazil for the
Palio (Fiat's World Car), the Tempra, and several light truck models. In
addition, Lear further expanded its presence internationally by opening a
facility in South Africa to provide seat systems to BMW. In 1995, the Company's
sales outside the United States and Canada, after giving pro forma effect to the
AI and Masland acquisitions, would have grown to approximately $1.7 billion or
approximately 30% of the Company's total pro forma sales.
32
36
- Increased Interior Content. OEMs increasingly view the interior of the
vehicle as a major selling point to their customers. A major focus of Lear's
research and development efforts is to identify new interior features that make
vehicles safer and more comfortable, while continuing to appeal to consumer
preferences. For example, Lear's involvement in 1994 with Volvo and AutoLiv led
to the automotive industry's first vehicle with side-impact airbags. In
addition, Lear's proprietary Integral Restraint Seat, which will be introduced
in GM's 1997 Buick Park Avenue, offers consumers easy access to the vehicle's
rear seat as well as improved seat comfort and safety. The development of these
and other safety and comfort features has received high quality
ratings from virtually every OEM with whom it does business.been, and management believes will
continue to be, an important factor in the Company's future growth.
- 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 advanced technicalfour research and development centers (in Southfield,
Michigan, Rochester Hills, Michigan, Plymouth, Michigan and Turin, Italy) where
it develops and tests current and future products to determine compliance with
safety standards, quality and durability, response to environmental conditions
and user wear and tear. The Company also has state-of-the-art acoustics testing,
instrumentation and data analysis capabilities. At its 1216 customer-dedicated
product engineering centers, specific program applications are developed and
tested. Benchmarking studies are also conducted to aid in developing innovative
seatinterior design features. The Company has recentlyalso made substantial investments to
upgrade its advanced computer-aided engineering ("CAE") and computer aidedcomputer-aided
design/computer-aided manufacturing ("CAD/CAM") systems. SuchSeveral tools asrecently
added to electronically create a product and evaluate its performance include
advanced design modellingmodeling software, dynamic
29
34 crash simulation, linear and
non-linear finite element analysis and solids modellingmodeling. Lear's "Best-in-Class"
testing program incorporates the use of a state-of-the-art programmable vehicle
model, which allows the Company to evaluate the actual feel and ergonomic
implications of various interior products. In addition, the Company has
developed a program management process to ensure that customers' expectations
are among several tools recently addedmet. The proprietary "Visions" program allows Lear to electronically createmanage all aspects of
product development. The process ensures that employees, customers and suppliers
of the Company work as a seat and evaluate its performance.team to deliver high quality, cost-effective products
on a timely basis.
- Lean Manufacturing Philosophy. Lear's "lean manufacturing" philosophy
seeks to eliminate waste and inefficiency in its own operations and in those of
its customers and suppliers. The Company believes that it provides superior
quality seatingautomotive interior products at lower costs than the OEMs. The Company, whoseAll of the
Company's seat system facilities and many of its other manufacturing facilities
are linked by computer directly to those of itsthe Company's suppliers and
customers, receivescustomers. These facilities receive components from itstheir suppliers on a JIT
basis, and delivers seatdeliver interior systems and components to its customers on a sequential
JIT basis, which provides products to an OEM's manufacturing facility in the
color and order in which the products are used. ThisThe process minimizes
inventories and fixed costs for both the Company and its customers and enables
the Company to deliver products on as little as 90 minutes' notice. For the year
ended December 31, 1994,1995, the Company's overall annual inventory turnover rate
was 3630 times and up to 150200 times in the case of certain of the Company's JIT
plants. The Company also minimizes fixed costs by using existing suppliers to
the OEMs and the OEMs themselves for certain components. In cases where one of
the Company's seating manufacturing facilities is underutilized, the Company is
able to redistribute products to increase facility utilization.
- Global Presence. By expanding its operations outside the United
States, Lear has sought to provide its products on a global basis to its
OEM customers. Due to significant cost savings and improved product quality
and consistency, OEMs have increasingly required their suppliers to
manufacture seat systems and other components in multiple geographic
markets. By expanding its operations outside the United States, Lear
provides its products on a global basis to its OEM customers. A global
market presence also affords Lear some protection against cyclical
downturns in any single market. For the six months ended July 1, 1995,
approximately 54% of the Company's sales were outside the United States. In
furtherance of its global expansion strategy, on June 28, 1995 the Company
entered into a joint venture agreement with an affiliate of Industria
Espanola del Polieter, S.A. ("INESPO"), a Spanish corporation, to supply
seat systems to Volkswagen in Brazil.
- Growth Through Strategic Acquisitions. Strategic acquisitions have been,
and the Companymanagement believes will continue to be, an important element in itsthe
Company's growth worldwide and in its efforts to capitalize on the automotive
industryoutsourcing
and supplier consolidation trends. These acquisitions complement Lear's existing capabilities
and provide new growth opportunities. The Company's recent acquisitions have
expanded its OEM customer base and worldwide presence and enhanced its
relationships with existing customers. The AIH Acquisition hasAI and Masland acquisitions also
givenprovide the Company a significant presence in the non-seating segmentsegments of the
automobile and light truck interior market. The Company believes that these
markets hold significant growth potential for Lear because currently there is no
dominant independent supplier of these products and they are in the early stages
of the outsourcing and consolidation process that has contributed to the
expansion of the seat systems industry since the early 1980's. In 1995, after
giving pro forma effect to the AI and Masland acquisitions, the Company's sales
of non-seating systems and components would have been approximately $1.4
billion, or approximately 25% of the Company's total pro forma sales. The
Company will continue to consider strategic acquisitions that expand its global
presence, improve its technological capabilities or enhance customer
relationships.
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37
RECENT ACQUISITIONS
To supplement its internal growth and implement its business strategy, the
Company has made sixseveral strategic acquisitions since 1990. The following is a
summary of theserecent major acquisitions:
AIH Acquisition.
In August 1995, AIHIMasland Acquisition
Corp., a wholly-owned subsidiary of Lear,
acquired all of the outstanding common stock of AIH and subsequently merged with
and into AIH. The Company is acquiring Masland for an aggregate purchase price for the AIH Acquisition was $926.4of $459.6
million (including the assumption of $282.3 million of AIH'sMasland's existing indebtedness, net of
cash and cash equivalents, of $64.7 million and the payment of fees and expenses
of $18.4 million)$10 million in connection with the acquisition). These funds were provided
by borrowings under the New Credit Agreement.
AIH isIn 1995, Masland held a
leading designer and manufacturer38% share of high quality interior trim
systems and blow molded products principally forthe estimated $1 billion North American floor and European
automobileacoustic
systems market. Masland is also a major supplier of interior and luggage
compartment trim components and other acoustical products which are designed to
minimize noise and vibration for passenger cars and light truck manufacturers. AIH's interior trim products include
complete door panel assemblies, seatbackstrucks. Masland
supplies the North American operations of Ford, Chrysler, General Motors, Honda,
Isuzu, Mazda, Mitsubishi, Nissan, Subaru and inserts, armrests, consolesToyota, as well as the European
operations of Nissan, Peugeot and headliners. Blow molded products include windshield washer reservoirs, fuel tank
shieldsSaab. Masland has had a continuous
relationship with Ford, its largest customer, since 1922. For its fiscal year
ended June 30, 1995, Masland had net sales, EBITDA, operating income and radiator coolant overflow reservoirs. AIH sales increased from
$209.5net
income of $496.6 million, in 1991$62.2 million, $47.0 million and $21.3 million,
respectively.
In addition to $512.8 million in 1994, resulting in a compound annual
growth ratethe experience and expertise of approximately 35%.
30
35
TheMasland's management team,
the Company believes that the AIHMasland Acquisition will provide Lear with several
strategic benefits, including the following:
- Market Share.Total Interior Systems. The AIHMasland Acquisition has made Learenhances Lear's ability
to provide a total interior system. Before the largest
independent Tier I supplieracquisition, the Company
had manufacturing capabilities in three of seat andthe five principal automotive
interior system segments. The Masland Acquisition gives Lear
manufacturing capabilities and a leading market position in a fourth
segment, floor and acoustic systems, leaving instrument panels as the
only segment in the approximately $22 billion North American and European total
light vehicle interior market. Althoughwhich the Company has manufactured
certain interior components for several years, the AIH Acquisition
affords Leardoes not have a significant presence in the non-seating and
non-instrument panel segments of the interior market, which account
for approximately 47% of the total interior market. A substantial
portion of this market is still provided in-house by OEMs and the
outsourced market is much more fragmented than the seat systems
market, thereby providing the Company with significant growth
opportunities as outsourcing continues and supplier consolidations
increase as OEMs require global supplier relationships.
- OEM Relationships.manufacturing
capability. Management believes that the ability to offer integrateda total
interior systemssystem provides Lear with a competitive advantage as OEMs
continue to reduce their supplier base while demanding improved quality
and additional Tier I services. In this
regard, OEMs are asking their lead interior suppliers to fill the
role of "Systems Integrator" to manage the design, purchasing and
supply ofIntegrating the total automobile interior. Asinterior for a
result of the AIH
Acquisition, Lear is well-positionedmodel through one supplier provides several benefits to fill this role.an OEM, including
(i) cost reduction, (ii) shorter product development cycles, (iii)
improved interior appearance through better fitting components and color,
grain and material matching and (iv) greater ability to focus on core
competencies.
- Growth Opportunities. Lear's market leadership, expertise and established
relationships with European OEMs (Fiat, Opel, Volvo, Saab and Saab) shouldBMW) will
provide AIHMasland with additional access to the European market. In
addition, Lear's entry into global automotive growth areas,
worldwide, particularly
in South America and the Asian PacificAsia-Pacific region, provideaffords further growth
opportunities for AIH.Masland.
- AIH Management.Margin Improvements. Operating margins in the floor and acoustic systems
market are generally higher than those in the seating market.
Historically, Masland's operating margins have been higher than the
Company's and should, therefore, improve the Company's consolidated
operating margin. The AIH Acquisitionadditional cash flows provided from operations
would be available for debt reduction or reinvestment in new growth
opportunities worldwide. In addition, the Company believes that
additional savings will providebe realized through purchasing, engineering,
manufacturing and administration consolidation.
- Technology. Masland provides the Company with access to leading-edge
technology. Its 33,000 square foot Technical Center in Plymouth, Michigan
provides complete full service acoustics testing, design, product
engineering, systems integration and program management. Masland's
acoustics lab offers state-of-the-art instrumentation, testing, and
data-analysis capabilities. It also owns one of the experiencefew
proprietary-design dynamometers capable of precision acoustics testing of
front, rear, and expertisefour wheel drive vehicles. Together with its
custom-designed reverberation room, computer controlled data gathering
and analysis capabilities, Masland provides precisely controlled
laboratory conditions for sophisticated interior and exterior noise,
vibration, and harshness (NVH) testing of AIH's strong management team. AIH isparts, materials, and systems,
including powertrain, exhaust, and suspension components. Masland also
owns a stand-alone entity29%
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38
interest in PFG, which has patented a process to sew and initially will be operated as such. The AIHfold an
ultralight fabric into airbags which are 60% lighter than the current
airbags used in the automotive industry.
AI Acquisition
also givesIn August 1995, the Company acquired all the outstanding common stock of
AI, a leading designer and manufacturer of high quality interior systems and
blow molded plastic parts to automobile and light truck manufacturers. Prior to
the AI Acquisition, Lear had participated primarily in the seat system segment
of the interior market, which comprises approximately 47% of the total combined
North American and Western European interior markets. By providing the Company
with substantial manufacturing capabilities in door panels and headliners, the
AI Acquisition made Lear the largest independent Tier I supplier of automotive
interior systems in the North American and Western European light vehicle
interior market. Management believes that OEMs will increasingly ask their lead
suppliers to fill the role of "Systems Integrator" to manage the design,
purchase and supply of the total vehicle interior. As a result of the AI
Acquisition, as well as the Masland Acquisition, Lear is well-positioned to fill
this role. The aggregate purchase price for the AI Acquisition was $885.0
million (including the assumption of $250.5 million of AI's existing
indebtedness and fees and expenses of $18.1 million). These funds were provided
by borrowings under the Credit Agreement.
Prior to its acquisition by Lear, Automotive Industries itself augmented
its substantial internal growth with selected strategic acquisitions. The
acquisitions allowed AI to expand its interior trim systems product capabilities
and substantially increased AI's ability to provide advanced design, engineering
and program management services to its customers. At the same time, these
acquisitions increased AI's global presence and provided AI access to AIH's comprehensive
program management system that tracks each program's status,
predicting lead timenew
customers and cost variances for each product change
requested.new technologies. As a division of Lear, AI continues to consider
strategic acquisitions as a means to further growth.
FSB Acquisition.Acquisition
On December 15, 1994, the Company, through its wholly-owned subsidiary,
Lear Seating Italia Holdings, S.r.L., purchased from Gilardini S.p.A. ("Gilardini"), a
subsidiary of Fiat, all of the shares of SEPI S.p.A. ("SEPI"),acquired the primary automotive seat
systems supplier to Fiat. SEPIFiat 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's Italian vehicle production undercertain related businesses (the "Fiat Seat
Business" or 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 interests
in seat systems and seat covers businesses in Poland, Spain and Turkey. Lear
also anticipates acquiring interests in proposed South American joint ventures
which plan to supply automotive seat systems to Fiat or its affiliates in Brazil
and Argentina."FSB"). Lear and Fiat also entered into a long-term supply
agreement for the production of substantiallyLear to produce all outsourced automotive seat systems for Fiat
Auto and affiliated companies worldwide. The FSB Acquisitionacquisition of the Fiat Seat Business
not only established Lear as the market leader in automotive seat systems in
Europe, but, combined with its leading position in North America, made Lear the
largest automotive seat systems manufacturer in the world. In addition, it gave
the Company additional access to rapidly expanding markets in South America and Eastern Europe.
31
36has
resulted in the formation of new joint ventures which will supply automotive
seat systems to Fiat or its affiliates in Brazil and Argentina.
NAB Acquisition.Acquisition
On November 1, 1993, Lear significantly strengthened its position in the
North American automotive seating market by purchasing the North American seat
cover and seat systemsystems business (the "NAB") of Ford.Ford Motor Company. The NAB
consists of an integrated United States and Mexican operation which produces
seat covers for approximately 80% of Ford's North American vehicle production
(as well as for several independent suppliers) and manufactures seat systems for
certain Ford models. The NAB
Acquisition included the machinery, equipment, real property and other assets
used in the operations of the NAB as well as all of the issued and outstanding
capital stock of Favesa S.A. de C.V., a maquiladora operation located in Juarez,
Mexico.
Prior to the NAB Acquisition, the Company outsourced a
significant portion of its seat cover requirements. The expansion of the
Company's seat cover business has provided Lear with better control over the
costs and quality of one of the critical components of a seat system. In
addition, by virtue of the NAB Acquisition, the Company was able to enhance its
relationship with one of its largest OEM customer,customers, entering into a five year
supply agreement with Ford covering models for which the NAB had produced seat
covers and seat systems at the time of the acquisition. The Company also assumed
during the term of the supply agreement primary engineering responsibility for a
substantial portion of Ford's car models, providing Lear with greater
involvement in the planning and design of seat systems and related products for
future light vehicle models.
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39
Scandinavian Acquisitions.Acquisitions
In 1991 and 1992, the Company acquired the seat systems businesses of Saab
in Sweden and Finland and of Volvo in Sweden for an aggregate purchase price of
approximately $14 million.Sweden. In connection with each of these
acquisitions, the Company entered into long-term relationships with the
respective OEMs.
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.
The market forsystems and seat components. With the acquisitions of Automotive Industries and
Masland, the Company has expanded its product offerings and can now manufacture
and supply its customers with floor 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.headliners and door panels. The
Company was positioned
to take advantagealso produces a variety 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 yearsblow molded products and its demonstrated
ability to supplyother automotive
components such as fluid reservoirs, fuel tank shields, exterior airdams, front
grille assemblies, engine covers, battery trays/covers and manage total seat systems. The Companyinsulators. Lear
believes that its
position inas OEMs continue to seek ways to improve vehicle quality while
simultaneously reducing the seat systems marketcosts of the various vehicle components, they will
improveincreasingly look to suppliers such as seatsLear with advanced features
become an increasingly important criterionthe capability to test, design,
engineer and deliver products for distinguishing between competinga complete vehicle models.interior.
The following is the approximate composition by product category of the
Company's net sales in the year ended December 31, 1994,1995, after giving pro forma
effect to the AI and Masland acquisitions: seat systems, 78%; seat
covers, 12%; seat frames, 8%;$3.7 billion; floor and
seat components, 2%.acoustic systems, $450 million; door panels, $350 million; headliners, $100
million; and other component products, $1.1 billion.
- Seat Systems.SEAT SYSTEMS. The seat systems business consists of the design,
engineering, manufacture,
assembly and supply of entire seating requirements for a vehicle or assembly plant.
Seat systems typically represent approximately 50% of the cost of the total
automotive interior. The Company produces seat systems for automobiles and light
trucks that are fully finished and ready to be installed in a vehicle. As OEMs continueSeat
systems are fully assembled seats, designed to view seat systemsachieve maximum passenger comfort
by adding a wide range of manual and power features such 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.lumbar supports,
cushion and back bolsters and leg and thigh supports.
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.seats, and
side impact air bags.
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 32
37
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,next
six years, which it expects will lead to an increase in outsourcing opportunities in the
future. Such business includesIn addition, with the Ford
Taurus/Mercury Sable,AI and Masland acquisitions, the Ford Explorer,Company believes
it has significant cross-selling opportunities across both customers and vehicle
platforms and is well-positioned to expand its position as the Ford Contour/Mercury Mystique,leading
independent supplier of automotive interior systems in the Dodge Ram Pick-up Truck,world.
- FLOOR AND ACOUSTIC SYSTEMS. Floor systems consist both of carpet and
vinyl products, molded to fit precisely the Chevrolet Cavalier/Pontiac Sunfire,front and rear passenger
compartments of cars and trucks, and accessory mats. While carpet floors are
used predominately in passenger cars and trucks, vinyl floors, because of their
better wear and washability characteristics, are used primarily in commercial
and fleet vehicles. The Company, through its Masland Division, is the Ford
Windstar Minivan, all Jaguar modelslargest
supplier of vinyl floor systems in North America, and the GM Opel Omega.only supplier of both
carpet and vinyl floor systems. Recently, Masland developed Maslite(TM), a
lightweight material which has replaced vinyl accessory mats on selected
applications. Maslite(TM) is a superior product with improved performance with
the additional significant advantage of 40% less weight than vinyl.
The automotive floor system is multi-purpose. Its performance is based on
the correct selection of materials to achieve an attractive, quiet, comfortable
and durable interior compartment. Automotive carpet
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40
requirements are more stringent than the requirements for carpet used in homes
and offices. For example, automotive carpet must provide higher resistance to
fading and improved resistance to wear despite being lighter in weight than
carpet found in homes and offices. The Masland Division's significant experience
has enabled it to meet these specialized needs. Carpet floor systems generally
consist of tufted carpet to which a specifically engineered thermoplastic
backcoating has been added. This backcoating, when heated, enables the Company
to mold the carpet to fit precisely the interior of the vehicle. Additional
insulation materials are added to provide noise, heat and vibration resistance.
Floor systems are complex products which are based on sophisticated designs and
use specialized design materials to achieve the desired visual, acoustic and
heat management requirements in the automotive interior.
The Masland Division's primary acoustic product, after floor systems, is
the dash insulator. The dash insulator attaches to the vehicle's sheet metal
firewall, separating the passenger compartment from the engine compartment, and
is the primary component for preventing engine noise and heat from entering the
passenger compartment. The Masland Division's ability to produce both the dash
insulator and the floor system enables the Company to accelerate the design
process and supply an integrated system. The Company believes that OEMs,
recognizing the cost and quality advantages of producing the dash insulator and
the floor system as an integrated system, will increasingly seek suppliers to
coordinate the design, development and manufacture of the entire floor and
acoustic system.
Floor and acoustic systems accounted for approximately 81% of Masland's
total revenues in 1995 when it held a leading 38% share in the estimated $1
billion North American floor and acoustic systems market. In addition, the
Masland Division participates in the European floor system market through its
joint venture with Sommer-Allibert S.A.
- Seat Covers.DOOR PANELS. Door panels consist of several component parts that are
attached to a base molded substrate by various methods. Specific components
include vinyl- or cloth-covered appliques, armrests, radio speaker grilles, map
pocket compartments and carpet and sound reducing insulation. Upon assembly,
each component must fit precisely, with a minimum of misalignment or gap, and
must match the color of the base substrate.
In 1995, after giving pro forma effect to the AI Acquisition, the Company
would have held a leading 16% share of the estimated $1.6 billion North American
door panel market. Management believes that this leadership position has been
obtained by offering OEMs the widest variety of manufacturing processes for door
panel production. In Western Europe, the Company held a small position in the
door panel market. These markets are highly fragmented and just beginning to
experience the outsourcing and/or consolidation trends that have characterized
the seat systems market since the 1980's. With its global scope, technological
expertise and established customer relationships, Lear believes that it is
well-positioned to benefit from these positive industry dynamics.
- HEADLINERS. The Company designs and manufactures headliners which consist
of the headliner substrate, covering material, visors, overhead consoles, grab
handles, coat hooks, lighting, wiring and insulators. As with door panels, upon
assembly each component must fit precisely and must match the color of the base
substrate. With its sophisticated design and engineering capabilities, the
Company believes it is able to supply headliners with enhanced quality and lower
costs than OEMs could internally achieve. Through its manufacturing
capabilities, the Company also believes that it is one of the most
process-diverse suppliers of headliners in North America.
The headliner market is highly fragmented, with no dominant independent
supplier. As OEMs continue to seek ways to improve vehicle quality and
simultaneously reduce costs, the Company believes that headliners will
increasingly be outsourced to suppliers such as Lear, providing the Company with
significant growth opportunities.
- COMPONENT PRODUCTS. In addition to the interior systems and other
products described above, the Company is able to supply a variety of interior
trim and other automobile components as well as blow molded plastic parts.
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41
Lear produces seat covers atfor integration into its Fairhaven, Michiganown seat systems and Saltillo, Mexico facilities, which deliverfor
delivery to external customers. The Company's major external customers for seat
covers primarily toare other independent seat systems suppliers as well as the OEMs. The
Company plants. In addition, pursuant to the NAB Acquisition, the Company
acquired a portion of Ford's North America seat cover business and is currently producing approximately 80% of the seat covers for Ford's
North American vehicles. The
Company's major external customers for seat covers are Ford and other
independent seat system suppliers. The expansion of the Company's seat cover business
allows the Company better control over the costs and quality of one of the
critical components of a seat system. Typically, seat covers comprise
approximately 30% of the aggregate cost of a seat system.
- Seat Frames.
Lear produces steel and aluminum seat frames for passenger cars and light
and medium trucks. Seat frames are primarily manufactured using precision
stamped, tubular steel and aluminum components joined together by highly
automated, state-of-the-art welding and assembly techniques. The manufacture of
seat frames must meet strict 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 usedfor use in the manufacture of
assembled seating systems.
- Seat Components. The Company, designs and manufactures plastic storage
armrests for inclusion in seat systems atthrough 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 decorative, painted and assembled injection molded
components at the Mendon facility that are used in automotive vehicle interiors.
MANUFACTURING
AllAI Division, produces a variety of the Company's plants use 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 1980's 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 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 customer's 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.
Seat and component assembly techniques fall into two major categories,
traditional assembly methods (in which fabric is affixed to a frame using
Velcro, wire or other material) and more advanced bonding processes. There are
two bonding techniques employed by the Company, the Company's patented SureBond
process, a technique in which fabric is affixed to the underlying foam padding
using adhesives, and the Company's
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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. Approximately one-third of the Company's seats are manufactured
using the SureBond process.
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 in modules, then tested and packaged for shipment.
The Company operates a specially designed trailer fleet that accommodates the
off-loading of vehicle seats at the assembly plant.
The Company obtains steel, aluminum and foam chemicals used in its seat
frames from various producers under various supply arrangements. Leather, fabric
and purchased components generally are acquired from suppliers. The principal
raw materials used in the production of polyurethane foam are polyol (poly
oxyalkylene) and TDI (toluene discyanate). These materials are supplied under
various arrangements with major chemical companies and are readily available.
Leather, fabric and purchased components are generally purchased from various
suppliers under contractual arrangements generally lasting no longer than one
year. Some of the purchased components are obtained through the Company's own
customers.
CUSTOMERS
The Company currently serves the worldwide automobile and light truck
market, which produces over 50 million vehicles annually. The outsourced market
for automobile and light truck seat systems in North America currently
represents approximately 70% of the total North American market for these
products which is 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 require OEMs in the North
American and the European markets to outsource more of their seating
requirements. The Company's OEM customers currently include Ford, General
Motors, Fiat, Chrysler, Volvo, Volkswagen, BMW, Saab, Mazda, Jaguar, Audi,
Subaru, Isuzu, Suzuki, Daimler-Benz, Renault and Peugeot.
In the past six years, in the course of retooling and reconfiguring plants
for new models and model changeovers, OEMs have eliminated production of seat
systems and components from certain of their facilities, thereby committing
themselves to purchasing these products 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 seating 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 reduction to its customers
through design improvements and its "Champion Programs," whereby individual
members of management are responsible for working with a specific vendor to
aggressively reduce costs.
The Company receives blanket purchase orders from its customers that
normally cover annual requirements for seats to be supplied for a particular car
model. Such purchase orders typically extend over the life of
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the model, which is generally four to seven years, and do not require the
purchase by the customer of any minimum number of seats. Although such purchase
orders may be terminated at any time, the Company does not believe that any of
its customers have terminated a material purchase order prior to the end of the
life of a model. The primary risk to the Company is that an OEM will produce
fewer units of a model than anticipated. 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 established models. The Company's seat systems
sales for the twelve months ended December 31, 1994 broke down into the
following vehicle categories: 42% light truck and sport utility, 18% mid-size,
13% luxury, 11% full-size, 9% sport vehicles and 7% compact vehicles. The
following table indicates the vehicles for which the Company or its affiliates
produces seat systems and the locations of such production:
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UNITED STATES AND CANADA
FORD: GENERAL MOTORS: BMW:
Ford Crown Victoria Buick LeSabre 3 Series
Ford Explorer Buick Park Avenue
Ford F-Series Pick-up Truck Buick Regal CAMI - GENERAL MOTORS/SUZUKI:
Ford Mustang GT & LX Chevrolet Cavalier Geo Metro
Ford Probe Chevrolet Corvette Geo Tracker
Ford Ranger Supercab/STX Chevrolet Lumina Suzuki Sidekick
Ford Taurus Chevrolet Monte Carlo Suzuki Swift
Ford Taurus SHO Chevrolet Tahoe/GMC Yukon
Ford Thunderbird SC Chevrolet C/K Pick-up Truck CHRYSLER:
Ford Windstar Minivan Chevrolet Kodiak Dodge Dakota Pick-up Truck
Mercury Sable Chevrolet/GMC G-Van Dodge Ram Pick-up Truck
Mercury Cougar XR7 GMC Pick-up Truck Dodge Viper
Mercury Grand Marquis Chevrolet/GMC Suburban
Mazda Navajo GMC Top Kick FUJI/ISUZU:
Pontiac Bonneville Isuzu Rodeo
Pontiac Sunfire Subaru Legacy
HONDA:
Passport
EUROPE
FIAT: ALFA ROMEO: JAGUAR:
Barchetta Alfa 145/146 XJS
Coupe 500 Alfa 155 X300
Croma Alfa 164
X230 Coupe LANCIA:
Punto Spider Dedra
Tempra Delta
Tipo CHRYSLER: Thema
Uno Eurostar Minivan Y11
X230 Kappa
VOLVO:
GENERAL MOTORS - OPEL: 800 Series VOLKSWAGEN:
Astra 900 Series Transporter T4
Corsa
Omega SAAB:
Vectra Saab 900
Saab 9000
MEXICO
BMW: CHRYSLER: VOLKSWAGEN:
3 Series Dodge Ram Pick-up Truck Golf
5 Series Jetta
7 Series GENERAL MOTORS: Derby
Chevrolet Cavalier GPA Minivan
FORD: C/K Pick-up Truck
Ford Contour Opel Corsa
Ford Escort Pontiac Sunfire
Ford F-Series
Mercury Mystique
Mercury Tracer
OTHER
GENERAL MOTORS - HOLDEN (AUSTRALIA): VOLVO (THAILAND): GENERAL MOTORS - OPEL
VS 800 Series (INDONESIA):
900 Series 330 Blazer
BMW (SOUTH AFRICA): Optima
3 Series Vectra
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As a result 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, Rochester Hills, 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 cooperate and 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
offset any 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
1994. After giving effect to the AIH Acquisition and the FSB Acquisition, sales
to Ford and General Motors will continue to represent a substantial portion of
the Company's total sales.
MARKETING AND SALES
The Company markets its products by maintaining strong relationships with
its customers. Throughout its 78-year history, customers have benefitted from
the Company's strong technical and product development capabilities, reliable
delivery of high quality products, strong customer service, innovative new
products and a competitive cost structure. Close personal communication with
automobile manufacturers on both corporate and plant levels is 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 process closer to
the customer, and instilling a philosophy of "cooperative autonomy", the Company
is more responsive to, and has strengthened its relationship with, its
customers. Automobile manufacturers have increasingly reduced their number of
suppliers as part of their move to purchase systems rather than discrete
components. This trend favors suppliers, like the Company, with established ties
to automobile manufacturers and the demonstrated ability to adapt to the new
competitive environment in the automotive industry.
The Company's sales are originated almost entirely by its sales staff. This
marketing effort is augmented by design and manufacturing engineers who work
closely with automobile manufacturers from the preliminary design to the
manufacture and supply of a seating system. Manufacturers have increasingly
looked to suppliers like the Company to assume responsibility for product
innovations, to shorten the development cycle of new models, decrease tooling
investment and labor costs, reduce the number of costly design changes in the
early phases of production and improve seat comfort and functionality. Once the
Company is engaged to develop the design for the seating of a specific car
model, it is also generally engaged to supply the automobile with seating when
the car goes into production. The Company has responded to this trend by
improving its engineering and technical capabilities and investing in 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
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engineering sites in close proximity to several of its OEM customers to enhance
customer relationships and design activity.
TECHNOLOGY
The Company conducts advanced product design and development at its
technical centers in Southfield, Michigan and Turin, Italy. After the FSB
Acquisition, Lear transferred its European technical facility from Rietberg,
Germany to Turin, Italy. At the technical centers, the Company tests its
products to determine compliance with applicable safety standards, the products'
quality and durability, response to environmental conditions and user wear and
tear. In the past, the Company has developed a number of designs for innovative
seat features which it has patented, including ergonomic features such as
adjustable lumbar supports and bolster systems and adjustable thigh supports. In
addition, the Company incorporates many convenience, comfort and safety features
into its seat designs, including storage armrests, rear seat fold down panels,
integrated restraint systems and child restraint seats. The Company has invested
to further upgrade its CAE and CAD/CAM systems, including investments in
three-dimensional color graphics, customer telecommunications and direct
interface with customer CAD systems. Research and development costs incurred in
connection with the development of new products and manufacturing methods (not
including additional research and development costs paid for by the customer)
amounted to approximately $16.2 million, $21.9 million and $16.2 million for the
six months ended July 1, 1995 and for the years ended December 31, 1994 and
1993, respectively.
The Company uses its patented SureBond process (the patent for which has
approximately 8 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 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
of its 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
The Company 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. In connection with the FSB
Acquisition, 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
affiliate, and seat covers for certain of the Company's Italian subsidiaries. As
part of the Company's effort to procure business in the Far East, the Company
holds a 49% interest in Lear Seating Thailand Corporation. The Company also
participates in joint ventures with NHK Spring Co., Ltd of Japan and certain
other foreign automotive component suppliers.
EMPLOYEES
As of July 1, 1995, the Company employed approximately 6,700 persons in the
United States, 11,000 in Mexico, 2,700 in Canada, 1,400 in Germany, 2,100 in
Italy, 1,300 in Sweden, 300 in the United Kingdom, 300 in Poland, 100 in Austria
and 100 in France. Of these, approximately 3,650 were salaried employees and the
balance were paid on an hourly basis. Approximately 20,000 of the Company's
employees are members of unions. The Company has experienced some labor disputes
at its plants, none of which have 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.
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FACILITIES
As of July 1, 1995, the Company's operations were conducted through 82
facilities, including six facilities operated by the Company's less than
majority-owned affiliates, in 18 countries employing 26,000 people worldwide.
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 SPD
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.
BUSINESS OF AUTOMOTIVE INDUSTRIES HOLDING, INC.
GENERAL
AIH is a designer and manufacturer of high-quality interior trim systems
and blow molded products principally for North American and European car and
light truck manufacturers. AIH's interior trim
products, include complete door
panel assemblies, seatbacks and inserts, armrests, consoles, and headliners.
Blow molded products include windshield washer reservoirs, fuel tank shields and
radiator coolant overflow reservoirs. AIH's products are sold to almost every
major automotive OEM including Ford, General Motors, Chrysler, Honda, Diamond
Star (Mitsubishi), Mazda, Subaru, Izuzu, Nissan and Toyota and, with the
Plastifol acquisition, Mercedes, Volkswagen, BMW and Jaguar.
Since 1987, AIH has achieved substantial internal growth. This growth has
been augmented by selected strategic acquisitions, including Plasta Fiber
Industries, Inc. ("PFI") in February 1992, Cellasto Plastics Corporation
("Cellasto") in July 1992, ASAA International, Inc. ("ASAA") in May 1993,
Fibercraft//DESCon Engineering, Inc., ("Fibercraft") in July 1993, Cotton in May
1994, Gulfstream in December, 1994 and Plastifol in July 1995. In addition, in
January 1994 AIH completed its acquisition of an initial forty percent interest
in Interiores Automotrices Summa, S.A. de C.V. ("IASSA"). These acquisitions
have allowed AIH to expand its interior trim systems and blow molded products
capabilities and have substantially increased AIH's ability to provide advanced
design, engineering and program management services to customers. At the same
time, they have increased AIH's global presence and have provided AIH access to
new customers and new technologies.
AIH STRATEGY
AIH's business objective is to expand its position as a leading supplier of
interior trim systems and blow molded products to North American and European
OEMs. To achieve this objective, AIH has pursued, and as a subsidiary of Lear
will continue to pursue, a strategy based upon the following elements:
High Quality Products. AIH emphasizes the importance of product quality to
all of its employees, utilizes technologically advanced machinery and production
techniques, incorporates raw materials that conform to AIH's stringent quality
standards, and uses advanced testing equipment and methods.
Low Delivered Cost. AIH strives to achieve low delivered costs to its
customers through its emphasis on quality, as evidenced by its near-zero
customer reject rate, and its responsiveness to customer needs, including its
reliable and timely delivery. AIH's in-house scrap reject rate of less than
one-half of one percent and the resulting savings from reduced scrap and rework
exemplifies AIH's ability to control its costs. In addition, AIH has located its
plants in areas with high-quality and relatively low-cost labor, and has
equipped its facilities with technologically advanced, cost-effective machinery.
Long-Term Customer Relationships. Because of the long lead times required
to obtain contracts and the reduction of in-house technical staff by OEMs, AIH
has sought to develop long-term relationships with customers by working closely
with them throughout all phases of new product development and subsequent
production. In particular, AIH seeks to continue to develop its relationship and
reputation with customers by continually exceeding their expectations in every
phase of AIH's operations.
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Focus on Complex, Value-Added Products. AIH focuses its efforts on a
"systems" approach to developing its products. These integrated systems, rather
than individual components, produce greater value for the customer since certain
services such as designpillars, cowl panels, scuff plates, trunk liners, quarter
panels and engineering and subassembly are provided more cost
efficiently by AIH.
Provide Complete Services from Initial Design to Manufacturing. AIH has
responded to OEMs' needs for full service from their suppliers. With the
acquisition of Fibercraft, AIH has enhanced its capabilities to provide
cost-effective integrated development services from the initial styling of
components through the manufacturing process.
Strategic Acquisitions. AIH is continually seeking to acquire businesses to
complement and expand its interior trim systems and blow molded products systems
capabilities. Such opportunities should continue to present themselves as OEMs
continue to rationalize their supplier base toward larger more global suppliers.
AIH PRODUCTS
AIH produces interior trim systems and componentsspare tire covers, as well as blow molded plastic parts principally for North American and European car and light truck
manufacturers. AIH's primary interior trim systems and blow molded products are
described below:
Interior Trim Systems Blow Molded Products
- --------------------- --------------------
- - Complete door panel assemblies - Seatbacks
- - Armrests and consoles - Windshield washer
- - Custom injection molded interior reservoirs
trim including "A," "B" and "C" - Fuel tank shields
pillars, cowl panels, scuff plates, - Coolant reservoirs
trunk liners and quarter panels - Front grille assemblies
- - Sun visors - HVAC ducts
- - Headliners and package trays - Interior insulators
- - Appliques and bolsters - Hood insulators
- - Load floors - Engine shrouds
- - Spare tire covers - Air intake ducts
- Exterior air dams
- Vapor canisters
Interior Trim Systems. The core technologies used in AIH's interior trim
systems include injection molding, low-pressure injection molding, rotational
molding and urethane foaming, compression molding of Wood-Stock(TM) (a
proprietary process that combines polypropylene and wood flour), glass
reinforced urethane and a proprietary headliner process. One element of AIH's
strategy is to focus on more complex, value-added products, such as
door panel
systemsfluid reservoirs, vapor canisters and armrests. AIH delivers these integrated systems at attractive prices
to the customer because certain services such as design and engineering and
sub-assembly are provided more cost efficiently by AIH.
Door panel systems and armrests represent AIH's most complex products. A
door panel consists of several component parts that are attached to a base
molded substrate by various methods. Specific components include vinyl- or
cloth-covered appliques, armrests, radio speaker grilles, map pocket
compartments or carpet and sound reducing insulation. Upon assembly, each
component must fit precisely, with a minimum of misalignment or gap, and must
match the color of the base substrate. Armrests are produced by either
rotational molding or injection molding of a vinyl covering and are then
combined with an insert and filled with a resilient polyurethane foam to produce
the finished product.
There has been a rapid evolution in AIH's product mix over the last four
years, particularly considering AIH's rapid revenue growth over the same period.
In fiscal 1987, approximately 36% of AIH's revenues were derived from component
value-added assemblies such as door panel systems and armrests. For the year
ended December 31, 1994, approximately 50% of AIH's revenues are derived from
value-added assemblies.
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Blow Molded Products. AIH produces a variety of blow molded products.duct systems. In contrast to AIH'sAI's interior
systemstrim products, blow molded products require little assembly. However, the
manufacturing process for such parts demands considerable expertise in order to
consistently produce high-quality products. Blow molded parts are produced by
extruding a shaped parison or tube of plastic material and then clamping a mold
around the parison. High pressure air is introduced into the tube causing the
hot plastic to take the shape of the surrounding mold. The part is removed from
the mold after cooling and finished by trimming, drilling and other operations.
MANUFACTURING
All of the Company's facilities use JIT manufacturing techniques and most
of the Company's seating related products and many of the Company's other
interior products 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, Canada. 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 were next
applied to the Company's growing seat systems business and have now evolved into
sequential parts delivery ("SPD") principles. The Company's seating plants are
typically no more than 30 minutes or 20 miles from its customers' assembly
plants and manufacture seats for delivery to the customers' facilities 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, constant computer
and other communication is maintained between personnel at the Company's plants
and personnel at the customers' plants to keep production current with the
customers' demand.
Seat assembly techniques fall into two major categories, traditional
assembly methods (in which fabric is affixed to a frame using Velcro, wire or
other material) and more advanced bonding processes. The Company's principal
bonding technique involves its patented SureBond(TM) process, a technique in
which fabric is affixed to the underlying foam padding using adhesives. The
SureBond(TM) process has several major advantages when compared to traditional
methods, including design flexibility, increased quality and lower cost. The
SureBond(TM) process, unlike alternative bonding processes, results in a more
comfortable seat in which air can circulate freely. The SureBond(TM) 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(TM)
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process is not capital intensive when compared to competing bonding
technologies. Approximately one-third of the Company's seats are manufactured
using the SureBond(TM) process.
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 in modules, then tested and packaged for shipment.
The Company operates a specially designed trailer fleet that accommodates the
off-loading of vehicle seats at the customer's assembly plant.
The Company's AI Division uses numerous molding, bonding, trimming and
finishing manufacturing processes. The wide variety of manufacturing processes
helps to satisfy customers' different cost and functionality specifications.
AI's ability and experience in producing interior products for such a vast array
of applications enhances the Company's ability to provide total interior
solutions to OEMs globally. The AI Division employs many of the same JIT
principles used at the Company's seat facilities.
The core technologies used in the AI Division's interior trim systems
include injection molding, low-pressure injection molding, rotational molding
and urethane foaming, compression molding of Wood-Stock(TM) (a proprietary
process that combines polypropylene and wood flour), glass reinforced urethane
and a proprietary headliner process. One element of the AI Division's strategy
is to focus on more complex, value-added products such as door panels and
armrests. The AI Division delivers these integrated systems at attractive prices
to the customer because certain services such as design and engineering and
sub-assembly are provided more cost efficiently by AI.
The combined pressures of cost reduction and fuel economy enhancement have
caused automotive manufacturers to concentrate their efforts on developing and
employing lower cost, lighter materials. As a result, plastic content in cars
and light trucks has grown significantly. Increasingly, automobile content
requires large plastic injection molded assemblies for both the interior and
exterior. Plastics are now commonly used in such nonstructural components as
interior and exterior trim, door panels, instrument panels, grilles, bumpers,
duct systems, tail lightstaillights and fluid reservoirs.
Increasingly, automobile content requires large plastic injection molded
assemblies for both the interior and exterior. For interior trim applications,
substitution of plastics for other materials is largely complete, and little
growth through substitution is expected. However, further advances in injection
molding technologies are improving the performance and appearance of parts
molded in reinforced thermoplastics.
Product Requirements. AIH's products must conformThe Masland Division produces carpet at its largest plant in Carlisle,
Pennsylvania. Smaller "focused" factories are dedicated to specific groups of
customers and are strategically located near their production facilities. This
proximity improves responsiveness to Masland customers and speeds product
delivery to customer assembly lines, which is done on a JIT basis. Masland's
manufacturing operations are complemented by its research and development
efforts, which have led to the increasingly
exacting standards set bydevelopment of a number of proprietary products,
such as their EcoPlus(TM) recycling process as well as Maslite(TM), a
lightweight proprietary material used in the North Americanproduction of accessory mats.
The Company obtains steel, aluminum and European OEMs. Product color,
weatherabilityfoam chemicals used in its seat
systems from several producers under various supply arrangements. These
materials are supplied under various arrangements and durability are critical to AIH's success in developingreadily available.
Leather, fabric and certain purchased components are generally purchased from
various suppliers under contractual arrangements usually lasting no longer than
one year. Some of the plastic automotive parts business; AIH's plants have been favorably rated by
Ford, Chrysler, GM, Diamond Star, Isuzu, Mazda, Honda, Nissan, Roverpurchased components are obtained through the Company's
own customers. The principal purchased components for interior trim systems are
polyethylene and Jaguar
with respect to their near-zero defect level in these areas. Because of AIH's
servicepolypropylene resins which are generally purchased under long-
term agreements and quality record, near-zero customer reject rate,are available from multiple suppliers.
CUSTOMERS
Lear serves the worldwide automobile and its production
reject rate of less than one-half of one percent, the OEMs have awarded high
quality ratings to AIH.
AIH CUSTOMERS
AIH supplies its products primarily tolight truck market, which produces
approximately 50 million vehicles annually. The Company's OEM customers
currently include Ford, General Motors, Fiat, Chrysler, Volvo, Saab, Opel,
Jaguar, Volkswagen, Audi, BMW, Rover, Honda USA, Daimler-Benz, Mitsubishi,
Mazda, Toyota, Subaru, Nissan, Isuzu, Peugeot, Porsche, Renault, and Chrysler,
but has increased its business with Diamond Star (Mitsubishi), Honda, Isuzu,
Rover, Mazda, Nissan, Mercedes, BMW, Volkswagen, and Jaguar. ForSuzuki.
During the year ended December 31, 1994,1995, after giving pro forma effect to the AI
and Masland acquisitions, Ford and General
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Motors, the two largest automobile and Chryslerlight truck manufacturers in the world,
would have accounted for approximately 45%, 17%36% and 12%31%, respectively, of AIH'sthe
Company's net sales. AIH'sFor additional information regarding customers, foreign and
domestic operations and sales, see Note 17, "Geographic Segment Data," to the
consolidated financial statements of the Company incorporated by reference in
this Prospectus.
In the past six years, in the course of retooling and reconfiguring plants
for new models and model changeovers, OEMs have eliminated seating production
from certain of their facilities, thereby committing themselves to purchasing
seat systems and components from outside suppliers. During this period, the
Company became a supplier of these products for a significant number of new
models, many on a JIT basis.
The purchase of seat systems on a JIT basis has allowed the Company's
customers to realize a competitive advantage as a result of (i) a reduction in
labor costs since suppliers like the Company generally enjoy lower direct labor
and benefit 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 seat production plant space for
expansion of other OEM manufacturing operations and (iv) a reduction in
transaction costs by utilizing a limited number of sophisticated system
suppliers instead of numerous individual component suppliers. In addition, the
Company offers improved quality and on-going cost reductions to its customers
through continuous, Company-initiated design improvements. The Company believes
that such cost reductions will lead OEMs to outsource an increasing portion of
their seating requirements in the future and provide the Company with
significant growth opportunities.
The Company's sales of value-added assemblies and component systems have
increased as a result of the OEMs' decision by most OEMs to reduce their internal
engineering and design resources. In recent years, AIHthe Company has significantly
increased its capacity to provide complete engineering and design services to
support its product line. Because assembled parts such as door panels, floor and
acoustic systems, armrests and consoles need to be designed at an early stage in
the development of new automobiles or model revisions, AIHthe Company is
increasingly given the opportunity to participate earlier in the product
planning process. This has resulted in opportunities to add value by furnishing
engineering and design services and managing the sub-assembly process for the
manufacturer, as well as providing the broader range of parts that are required
for the assembly.
AIH'sThe Company has implemented a program of dedicated teams consisting of
interior trim and seat system personnel who are able to meet all of a customer's
interior needs. These teams provide a single interface for Lear's customers typically awardand
avoid duplication of sales and engineering efforts. As innovative designs are
developed which integrate components into a single unit, the potential to
provide the Company's customers with additional cost and time savings should
significantly increase. With the acquisition of Masland, the Company intends to
integrate floor and acoustic systems into its existing marketing strategy.
The Company receives blanket purchase orders from its customers that
normally cover partsannual requirements for products to be supplied for a particular
carvehicle model. Such purchase orderssupply relationships typically extend over the life of the
model, which is generally four to seven years. Even
thoughyears, and do not require the purchase
by the customer of any minimum number of products. Although such purchase orders generally
may be terminated at any time, AIHthe Company does not believe that any of its
customers hashave terminated a material purchase order prior to the end of the life
of a model. The primary risk to AIHthe Company is that an OEM will produce fewer
units of a model than anticipated. In addition, AIH competes
for new business to supply parts for successor models and therefore runs the
risk that the OEM will not select AIH to produce parts on a successor model. In
order to reduce its reliance on any one
model, AIHthe Company produces partsinterior systems and components for a broad
cross-section of both new and more matureestablished models.
AIH has been
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chosen as a supplier on a varietyThe Company's sales for the year ended December 31, 1995 were comprised of
generally successful carthe following vehicle categories: 41% light truck; 23% mid-size; 15% compact and
light truck
models.other; 12% luxury/sport; and 9% full-size. The following table presents an
overview of the major vehicle models for which AIH producesthe Company or its affiliates
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produce seat systems, floor and acoustic systems, interior trim products or
other components and blow molded products:the locations of such production:
UNITED STATES AND CANADA
BMW: FORD (CONT): GENERAL MOTORS (CONT):
3 Series Ford Windstar Minivan GMC Sonoma
Z3 Lincoln Continental GMC Top Kick
SUZUKI: Lincoln Mark VIII Oldsmobile 88
Geo Metro Lincoln Town Car Oldsmobile Achieva
Geo Tracker Mercury Cougar Oldsmobile Aurora
Suzuki Sidekick Mercury Grand Marquis Oldsmobile Ciera
Suzuki Swift Mercury Mystique Oldsmobile Cutlass Supreme
CHRYSLER: Mercury Sable Oldsmobile Eurosport
Chrysler Cirrus Mercury Tracer Oldsmobile Silhouette
Chrysler Concorde Mercury Villager Pontiac Bonneville
Chrysler LeBaron SUBARU/ISUZU: Pontiac Firebird
Chrysler LHS Isuzu Rodeo Pontiac Grand Am
Chrysler Sebring Subaru Legacy Pontiac Grand Prix
Chrysler Town & Country GENERAL MOTORS: Pontiac Sunfire
Dodge Avenger Buick Century Pontiac Transport
Dodge Caravan Buick LeSabre Prizm
Dodge Dakota Pick-up Truck Buick Park Avenue Saturn SC
Dodge Intrepid Buick Regal Saturn SL
Dodge Neon Buick Riviera HONDA:
Dodge Ram Pick-up Truck Buick Skylark Accord
Dodge Ram Van Cadillac DeVille/Concours Civic
Dodge Ram Wagon Cadillac Eldorado Passport
Dodge Viper Chevrolet Astro MAZDA:
Eagle Talon Chevrolet Beretta 626
Jeep Cherokee Chevrolet Blazer B2000
Jeep Grand Cherokee Chevrolet C/K Pick-up Truck MX6
Jeep Wrangler Chevrolet Camaro MITSUBISHI:
Plymouth Neon Chevrolet Cavalier Eclipse
Plymouth Voyager Chevrolet Corsica Gallant
FORD: Chevrolet Corvette NISSAN:
Ford Aerostar Chevrolet Kodiak Altima
Ford Bronco Chevrolet Lumina/Van King Cab Pick-up Truck
Ford Contour Chevrolet Monte Carlo Quest
Ford Crown Victoria Chevrolet Express Sentra
Ford Econoline/Club Wagon Chevrolet/GMC Suburban TOYOTA:
Ford Escort Chevrolet S Pick-up Truck Avalon
Ford Explorer Chevrolet Tahoe/GMC Yukon Camry
Ford F-Series Pick-up Truck GMC 10-30,15-35 Corolla
Ford Mustang GMC C/K Pick-up Truck Tacoma Pick-up Truck
Ford Probe GMC Savana
Ford Ranger GMC Safari
Ford Taurus
Ford Taurus SHO
Ford Thunderbird
MEXICO
BMW: FORD: GENERAL MOTORS (CONT.):
3 Series Ford Contour Opel Corsa
CHRYSLER: Ford Escort Pontiac Sunfire
Chrysler Cirrus Ford F-Series NISSAN:
Dodge Neon Ford Ghia Pick-up
Dodge Ram Mercury Mystique Tsuru
JX Convertible Mercury Tracer VOLKSWAGEN:
Plymouth Neon GENERAL MOTORS: Golf
Chevrolet Cavalier Jetta
Chevrolet C/K Pick-up Truck Derby
Chevrolet Tahoe/GMC Yukon GPA Minivan
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FORD: GENERAL MOTORS: CHRYSLER:
F-Series Truck Buick LeSabre Dodge Caravan
Ford Escort Buick Park Avenue Dodge Dakota
Ford Explorer Buick Regal Plymouth Voyager
Ford Ranger Cadillac DeVille
Ford Taurus Chevrolet Corsica DIAMOND STAR:
Ford Contour Chevrolet Beretta Eagle Talon
Ford Econoline Chevrolet Cavalier Mitsubishi Eclipse
Ford Windstar Chevrolet Lumina Plymouth Laser
Ford Bronco Chevrolet C/K Pick-Up Truck
Ford Thunderbird Oldsmobile CutlassEUROPE
ALFA ROMEO: OPEL: ROVER (CONT):
Alfa 145/146 Astra 400/Saloon
Alfa 155 Corsa/Van 600
Alfa 164 Omega 800
Coupe Vectra Discovery
Spider HONDA: Ford Fiesta Oldsmobile Delta 88Land Rover
AUDI: Accord Ford Scorpio Oldsmobile 98Maestro
A Series Civic Ford Mondeo Pontiac Bonneville
Mercury Cougar Pontiac Grand Prix MAZDA:
Mercury Mondeo Pontiac Sunfire G26
Mercury Mystique MX6
Mercury Sable Probe
Mercury Tracer Protege
NISSAN:
King Cab Pick-Up Truck
TOYOTA:
Camry
EUROPE
Metro
B Series JAGUAR: MGA
BMW: ROVER: MERCEDES:XK8 Mini
3 Series DiscoveryX300 R3
5 Series X330 Range Rover
CHRYSLER: MAN: SAAB:
Voyager Eurostar Heavy Truck Saab 900
DINA: LANCIA: Saab 900 Cabriolet
Heavy Truck Dedra Saab 9000
FIAT: Delta TOYOTA:
126 Kappa Carina
500 Thema Corolla
Barchetta Y11 VOLVO:
Brava/Bravo MERCEDES: 800 Series
Coupe 500 200 Series RX3
JAGUAR: RX8 Theta
J40 Range Rover
XJS900 Series
Croma C-Class VOLKSWAGEN:
Ducato X230 E-Class Golf
Punto S-Class Passat
GolfTempra PORSCHE: Taro
Tipo 911 Transit
Uno 986 Boxster Transporter T4
FORD: RENAULT: T-4 Multivan
Escort Cabrio Viento
Fiesta ROVER:
Mondeo 200/New 400
Scorpio
OTHER
FIAT (SOUTH AMERICA): GENERAL MOTORS -- BMW (SOUTH AFRICA):
Brava/Bravo HOLDEN (AUSTRALIA): 3 Series
Duno Acclaim PEUGEOT (ARGENTINA):
Fiorino Berlina 306
Palio Caprice 405
Tempra Commodore 504
Tipo Statesman VOLKSWAGEN (SOUTH AMERICA):
Uno OPEL (INDONESIA): Combi
FORD (ARGENTINA): S-10 Blazer Gol
Ranger Polo
Saveiro
VOLVO (THAILAND):
800 Series
900 Series
Because of the economic benefits inherent in outsourcing to suppliers such
as Lear and the costs associated with reversing a decision to purchase seat
systems and other interior systems and components from an outside supplier, the
Company believes that automotive manufacturers' level of commitment to
purchasing seating and other interior systems and components from outside
suppliers, particularly on a JIT basis, will increase. However, under the
contracts currently in effect in the United States and Canada between each of
General Motors, Ford and Chrysler with the UAW and the CAW, in order for any of
such manufacturers to
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Based on its ability46
obtain components that it currently produces itself from external sources, it
must first notify the UAW or the CAW of such intention. If the UAW or the CAW
objects to service itsthe proposed outsourcing, some agreement will have to be reached
between the UAW or the CAW and the OEM. Factors that will normally be taken into
account by the UAW, the CAW and the OEM customers' needs effectively, AIH
believes itinclude whether the proposed new
supplier is technologically more advanced than the OEM, whether cost benefits
exist and whether the OEM will be able to maintainreassign 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, Rochester Hills, Michigan, Wentzville, Missouri 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 collective bargaining agreements between the UAW and the CAW and each
of General Motors, Ford and Chrysler expire in September 1996 and are presently
being renegotiated. Among other items, wage, benefit and outsourcing levels are
anticipated to be issues in such negotiations. There can be no assurance as to
the outcome of such negotiations.
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.
MARKETING AND SALES
Lear markets its products by maintaining strong relationships with its
customers fostered during its 79-year history through extensive 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
is organized into seven 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 the number of
their suppliers as part of a strategy of purchasing systems rather than
individual components. This process favors suppliers like Lear with established
ties to OEMs and the demonstrated ability to adapt to the new competitive
environment in the automotive industry.
The Company's sales are originated almost entirely by its sales staff. This
marketing effort is augmented by design and manufacturing engineers who work
closely with automobile manufacturers from the preliminary design to the
manufacture and supply of interior systems or expand its position on most existing
models, while also expanding intocomponents. Manufacturers have
increasingly looked to suppliers like the Company to assume responsibility for
introducing product innovation, shortening the development cycle of new models,
as further consolidationdecreasing tooling investment and labor costs, reducing the number of costly
design changes in the OEM supplier base occurs. For example, AIH has been selected as a major supplierearly phases of production and improving interior comfort
and functionality. Once the Company is engaged to develop the design for the
1995interior system or component of a specific vehicle model, changeovers of the Ford Explorer, Ford Ranger, Ford
Taurus/Sable, Ford F-Series Truck, Oldsmobile N-Car and Chrysler Mini-van.
AIH believes that the expanding presence of foreign manufacturers in North
America represents an attractive growth opportunity over the next decade. AIH is
currently supplying products for Diamond Star, Honda, Isuzu, Mazda and Nissan.
AIH believes that it is favorably positionedalso generally
engaged to increasesupply these items when the vehicle goes into production. The Company
has devoted substantial resources toward improving its business with the
foreign manufacturersengineering and technical
capabilities and developing technical centers in the United States becauseand in
Europe. The Company has also developed full-scope engineering capabilities,
including all aspects of AIH's superior reputationsafety and functional testing, acoustics testing and
comfort assessment. In addition, the Company has established several engineering
sites in close proximity to its OEM customers to enhance customer relationships
and design activity. Finally, the Company has implemented a program of dedicated
teams consisting of interior trim and seat system personnel who are able to meet
all of a customer's interior needs. These teams provide a single interface for
quality, reliabilityLear's customers and lower delivered cost.
AIH MARKETING AND SALES
Salesavoid duplication of AIH's products to OEMs are made directly by AIH's sales and engineering force, headquarteredefforts.
43
47
TECHNOLOGY
The Company conducts advanced product design development at its technical
centers in Southfield, Michigan, Rochester Hills, Michigan.Michigan, Plymouth, Michigan
and Turin, Italy and at 16 worldwide product engineering centers. 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. The Company also has
state-of-the-art acoustics testing, instrumentation and data analysis
capabilities.
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 interior industry. Research and development costs incurred in
connection with the development of new products and manufacturing methods, to
the extent not recoverable from the customer, are charged to operations as
incurred. Such costs amounted to approximately $53.3 million, $21.9 million, and
$16.2 million for the years ended December 31, 1995, 1994 and 1993.
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 (belt systems integrated into seats), side impact
air bags 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.
Lear uses its patented SureBond(TM) process (the patent for which has
approximately 8 years remaining) in bonding seat cover materials to the foam
pads used in certain of its seats. The SureBond(TM) 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.
Through its AI Division, the salesCompany has virtually all technologies and
manufacturing processes available for interior trim and under-the-hood
applications. The manufacturing processes include, among other things, high and
low pressure injection molding, vacuum forming, blow molding, soft foam molding,
heat staking, water jet cutting, vibration welding, ultrasonic welding, and
robotic painting. This wide range of capabilities allows the Company to assist
its customers in selecting the technologies that are the most cost effective for
each application. Combined with its design and engineering office, AIH servicescapabilities and its
state-of-the-art technical center, AI provides comprehensive support to its OEM
customers from product development to production.
The Masland Acquisition also provides the Company with access to
leading-edge technology. The Masland Division owns one of the few
proprietary-design dynamometers capable of precision acoustics testing of front,
rear and managesfour-wheel drive vehicles. Together with its continuing programscustom-designed
reverberation room, computer-controlled data acquisition and analysis
capabilities provide precisely controlled laboratory testing conditions for
sophisticated interior and exterior noise, vibration and harshness (NVH) testing
of productparts, materials and systems, including powertrain, exhaust and suspension
components. Through its Masland Division, the Company also owns a 29% interest
in PFG, which has patented a process to sew and fold an ultralight fabric into
airbags which are 60% lighter than the current airbags used in the automotive
industry. As this new airbag fits into a shirt pocket when folded, it is
adaptable to side restraint systems (door panels and seats) as well as
headliners.
The Company holds a number of mechanical and design improvementpatents covering its
products and development. AIH's sales
and engineering force consistshas 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 approximately 250 individuals, including
several who are located periodically at various OEMs' officesseating
manufacturers.
JOINT VENTURES AND MINORITY INTERESTS
The Company pursues attractive joint ventures in order to facilitate the
developmentexchange of new programs.
AIH operatestechnical information, expand its product offerings, and broaden its
customer base. Several of the Company's recent
44
48
acquisitions, including Masland and Automotive Industries, have provided the
Company with strategic joint ventures. With the Masland Acquisition, Lear
acquired an interest in PFG, Sommer Masland (U.K.) Ltd. and Amtex. Sommer
Masland helped to expand Masland's geographical presence in Europe and
strengthened its relationship with several existing customers, including Nissan,
Peugeot and Saab. The Amtex joint venture established a highly competitive, fragmented environment,relationship with
onlyHayashi Telempu Co., Ltd., the joint venture partner and a few injectionleading Japanese
automotive interior trim supplier. The AI Acquisition included a 40% interest in
Industrias Automotrices Summa, S.A. de C.V., as well as a 33% interest in
Guildford Kast Plastifol Ltd., both of which produce interior trim parts for
automobiles.
The following is a list of the Company's principal joint ventures and
blow molders generating salesminority-owned affiliates:
PERCENTAGE
LOCATION PRODUCT OWNERSHIP
---------- ---------------- ----------
Amtex* U.S.A. Interior trim 50%
General Seating of America, Inc. U.S.A. Seat systems 35
General Seating of Canada, Ltd. Canada Seat systems 35
Guildford Kast Plastifol Ltd. England Interior trim 33
Industrias Automotrices Summa, S.A. de C.V. Mexico Interior trim 40
Industrias Cousin Freres Spain Seat components 49
Lear Inespo Comercial, Industrial Ltda.* Brazil Seat systems 50
Lear Seating Thailand Thailand Seat systems 49
and components
Markol Automotiv Yan Sanayi Ve Ticart Turkey Seat systems 35
Precision Fabrics Group, Inc. U.S.A. Fabrics 29
Probel S.A. Brazil Seat components 31
Sommer Masland (U.K.) Ltd. England Interior trim 50
Teknoseating S.A.* Argentina Seat systems 50
- -------------------------
* Consolidated entities.
COMPETITION
Lear is one of the two primary suppliers in excessthe 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's primary independent competitors in the other segments of $100 million. The
number of AIH's competitors is expected to decrease due to the
supplier
consolidation resulting from changing OEM policies. AIH's major competitorsautomotive interior market include Davidson Interior Trim (a division of
Textron), UT Automotive (a subsidiary of United Technologies), Prince
Corporation, The Becker Group, Collins & Aikman Corp. Automotive Division (a
division of Collins & Aikman Corporation), JPS Automotive Products Corporation,
a subsidiary of Foamex International, the Magee Carpet Company and GM
and Ford internal operations, plus a large
number of smaller operations. AIH principallyThe Company also competes for new business both atwith the beginningOEMs' in-house
seat system and automotive interior 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 development of new models and upon the redesign of existing models by its major
customers. New model development generally begins two to four years prior to the
marketing of such models to the public. Once a producer has been designated to
supply parts to a new program, an OEM will generally continue to purchase those
parts from the designated producer for the life of the program. Competitivekey factors in the market for AIH's products include product quality, customer
service, product mix, new product innovation, cost and timely delivery. AIH
believes that the implementation of its business strategy allowsallow it to compete effectively in the market for its products.
AIH is well positioned to succeed in this highly competitive supplier
environment. AIH's size (equal to or larger than many of its competitors),
quality and customer service orientation, manufacturing expertise and
technological leadership all contribute to AIH's successsuccessfully in the automotive supplyinterior
market.
SEASONALITY
Lear's principal operations are directly related to the automotive
industry. AIHConsequently, 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. After giving pro forma effect to the AI and Masland
acquisitions, net sales for the year ended December 31, 1995 by calendar quarter
broke down as follows: first quarter, 24%; second quarter, 26%; third quarter,
23%; and fourth quarter, 27%.
45
49
See Note 18, "Quarterly Financial Data," of the notes to the Company's
consolidated financial statements incorporated by reference in this Prospectus.
EMPLOYEES
As of December 31, 1994, AIHJune 1, 1996, after giving pro forma effect to the Masland
Acquisition, the Company would have employed approximately 18,700 persons in the
United States and Canada, 12,100 in Mexico and 7,900 in Europe. Of these, about
6,200 were salaried employees and the balance were paid on an hourly basis.
Approximately 25,500 of the Company's employees are members of unions. The
Company has collective bargaining agreements with several unions including: the
UAW; the Canadian Auto Workers (the "CAW"); 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; and the AFL-CIO. Each of the Company's
unionized 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 approximately 7,500 employees. AIH
believes that its future success will depend in parta materially adverse effect on its abilityoperations. The Company has
been able to continue
to recruit, retainresolve all such labor disputes and motivate qualified personnel at all levels of AIH. AIH
has instituted a large number of employee programs to increase employee morale
and expand the employees' participation in AIH's business. While most of AIH's
employees are not unionized, AIH has approximately 625 hourly employees
represented by labor unions. AIH has not experienced any work stoppages and
considersbelieves its relations with its
employees are generally good.
LITIGATION
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. 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 is subject to various laws, regulations and ordinances which
govern activities such as discharges to the air and water, as well as handling
and disposal practices for solid and hazardous wastes, and which impose costs
and damages associated with spills, disposal or other releases of hazardous
substances. The Company believes that it is in substantial compliance with such
requirements. Management does not believe that it will incur compliance costs
pursuant to such requirements that would have a material adverse effect on the
Company's consolidated financial position or future results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Environmental Matters."
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 four Superfund sites where liability has not been
determined. The Company has also been identified as a PRP at four additional
sites. Management believes that the Company is, or may be, good.
43responsible for less
than one percent, if any, of total costs at the four Superfund sites. Expected
liability, if any, at the four 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.
PROPERTIES
The Company's operations are conducted through 131 facilities, including
111 manufacturing facilities, 16 product engineering centers and 4 research and
development centers, in 19 countries and one Crown Colony employing
approximately 40,000 people worldwide. The Company's management is headquartered
in Southfield, Michigan.
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 many of its facilities to provide for
efficient JIT manufacturing of its products. No facility is materially
underutilized. Of the 131 facilities, 70 are owned and 61 are leased with
expiration dates ranging from 1996 through 2005. Management believes
46
4850
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 summarizes the locations of the Company's facilities,
including those acquired in connection with the Masland Acquisition:
ARGENTINA GERMANY POLAND UNITED STATES (CONTINUED)
Buenos Aires Ebersberg Myslowice Grand Rapids, MI
Eisenach Tychy Marlette, MI
AUSTRALIA Gustavsburg Marshall, MI
Adelaide Munich SOUTH AFRICA Mendon, MI
Brooklyn Plattling Brits Mequon, MI
Quakenbruck Midland, MI
AUSTRIA Rietberg SPAIN Plymouth, MI
Koflach Pamplona Rochester Hills, MI
HONG KONG Romulus, MI
BRAZIL Wanchai SWEDEN Southfield, MI
Belo Horizante Bengtsfors Troy, MI
Sao Paolo INDIA Trollhattan Warren, MI
Holol Bridgeton, MO
CANADA THAILAND Wentzville, MO
Ajax INDONESIA Bangkok Bowling Green, OH
Kitchener Jakarta Fremont, OH
Maple TURKEY Huron, OH
Mississauga ITALY Bursa Lorain, OH
Oakville Bruino Lordstown, OH
St. Thomas Caivano UNITED STATES Sidney, OH
Whitby Cassino Manteca, CA Warren, OH
Woodstock Grugliasco Atlanta, GA Carlisle, PA
Melfi West Chicago, IL Lewistown, PA
ENGLAND Novara Frankfort, IN Duncan, SC
Abington Orbassano Greencastle, IN Morristown, TN
Coventry Pozzilli Hammond, IN El Paso, TX
Lancashire Louisville, KY Lebanon, VA
Nottingham MEXICO Madisonville, KY Luray, VA
Tipton Cuautitlan Allen Park, MI Strasburg, VA
Washington Hermosillo Clawson, MI Winchester, VA
La Cuesta Dearborn, MI Janesville, WI
FRANCE Naucalpan Detroit, MI Sheboygan, WI
Meaux Puebla Fair Haven, MI
Paris Ramos Arizpe Fenton, MI
Rio Bravo Flint, MI
Saltillo
San Lorenzo
Tlahuac
Toluca
47
51
MANAGEMENT
Set forth below is certain information concerning the executive officers of
the Company.
YEARS WITH
THE COMPANY,
PREDECESSOR OR
NAME AGE POSITION OR PREDECESSORACQUIRED COMPANY
- ------------------------- --- ------------------------------------------------ ----------------------------------------------------------- ----------------
Kenneth L. Way........... 5657 Chairman of the Board and Chief Executive 2930
Officer
Robert E. Rossiter....... 4950 President, Chief Operating Officer and 25
Director 24 of the Company
James H. Vandenberghe.... 4546 Executive Vice President, and Chief Financial 2223
Officer and Director of the Company
James A. Hollars......... 5051 Senior Vice President and President -- 22
InternationalBMW 23
Division of the Company
Barthold H. Hoemann...... 56Roger Alan Jackson....... 50 Senior Vice President -- Human Resources and 1
Corporate Relations
Robert Lawrie............ 51 Senior Vice President -- Global Mergers, --
Acquisitions and Strategic Alliances
Frank J. Preston......... 53 Senior Vice President and President -- Ford 141
Masland Division of the Company
Frederick F. Sommer...... 52 Senior Vice President and President -- --5
Automotive Industries Division of the Company
Donald J. Stebbins....... 37 Vice President, Treasurer and Assistant 3
Secretary of the Company
Joseph F. McCarthy....... 51 Vice President, Secretary and General Counsel of 1
the Company
Gerald G. Harris......... 6162 Vice President and President -- GM Division 34
of 33 the Company
Terrence E. O'Rourke..... 4849 Vice President and President -- Chrysler 1Ford Division 2
of the Company
Randal T. Murphy......... 60Joseph F. McCarthy....... 52 Vice President, Secretary and President -- BMW DivisionGeneral Counsel 2
of 15 the Company
Richard N. Hodgson....... 47Donald J. Stebbins....... 38 Vice President, Treasurer and President -- Components 13
DivisionAssistant 4
Secretary of the Company
Set forth below is a description of the business experience of each
executive officer of the Company.
Kenneth L. Way. Mr. Way was elected to and has held the position of
Chairman of the Board and Chief Executive Officer of the Company since 1988.
Prior to this he served as Corporate Vice President, Automotive Group of Lear
Siegler, Inc. ("LSI") since October 1984. During the previous six years, Mr. Way
was President of LSI's General Seating Division. Prior to this, he was President
of LSI's Metal Products Division in Detroit for three years. Other positions
held by Mr. Way during his 2930 years at Lear include Manufacturing Manager of the
Metal Products Division and Manager of Production Control for the Automotive
Division in Detroit. Mr. Way also serves as a director of Hayes Wheels
International, Inc.
Robert E. Rossiter. Mr. Rossiter became President of the Company in 1984
and a Director and the Chief Operating Officer of the Company in 1988. He joined
LSI in 1971 in the Material Control Department atof the Automotive Division, then
joined the Metal Products Division of LSI as Production Control Manager, and
subsequently moved into sales and sales management. In 1979, he joined the
General Seating Division as Vice President of Sales and worked in that position,
as well as Vice President of Operations, until 1984.
James H. Vandenberghe. Mr. Vandenberghe is currently Executive Vice
President, and Chief Financial Officer and Director of the Company. He was appointed
Executive Vice President of the Company in 1993 and became a director in
November 1995. Mr. Vandenberghe also served as a director of the Company from
1988 until the merger of Lear Holdings Corporation ("Holdings"), Lear's former
parent, into Lear. Mr. Vandenberghe previously served as Senior Vice President
- -- Finance, Secretary and Chief Financial Officer of the Company since 1988. He was appointed Executive Vice
President of the Company in 1993. He joined LSI's Automotive Division in 1973 as
a financial analyst and was promoted to positions at the Metal Products Division
and the Automotive Group office, and in 1978 was named the Vice President --
Finance for the Plastics Division. In 1983, Mr. Vandenberghe was appointed Vice
President -- Finance for General Seating Division. Prior to 1988, Mr.
Vandenberghe had been responsible for project management, United States
operations, and international operations of the Company.
James A. Hollars. Mr. Hollars is currently Senior Vice President and
President -- InternationalBMW Division of the Company. He was promotedappointed to this position in
November 1995. Prior to serving in this position, he was Senior Vice President
and President -- International Operations of the Company since November 1994.
Previously he served as Senior Vice President -- International Operations of the
Company since 1993 and Vice President -- International uponsince the sale of
44
49 LSI's
Power Equipment Division to Lucas Industries in 1988.
48
52
Mr. Hollars joined LSI's Metal Products Division in 1973 as the Manufacturing
Manager and later served as Vice President -- Manufacturing for No-Sag Spring
Division. In 1979, he was named President of the Foam Products Division and was
subsequently promoted to President at the Anchorlok Division in 1985 and the
Power Equipment Division in 1986.
Barthold H. Hoemann.Roger Alan Jackson. Mr. Hoemann isJackson was elected Senior Vice President -- Human
Resources and Corporate Relations in October 1995. Previously, he served as Vice
President -- Human Resources for Allen Bradley, a wholly-owned subsidiary of
Rockwell International. Mr. Jackson was employed by Rockwell International or
its subsidiaries from December 1977 to September 1995.
Robert Lawrie. Mr. Lawrie was elected Senior Vice President -- Global
Mergers, Acquisitions and Strategic Alliances in June 1996. Prior to joining the
Company, Mr. Lawrie served as Vice President and Special Counsel to the Chairman
of Magna International Inc. since July 1992. Prior to his tenure with Magna
International, Inc., Mr. Lawrie held positions as an International Consultant to
Consolidated Hydro Inc. in 1992 and as Senior Vice President, General Counsel
and Secretary of Abitibi-Price Inc., an international paper manufacturer, from
January 1991 to July 1992. From 1988 to 1991, Mr. Lawrie was the managing
partner of the Los Angeles office of Broad Schulz Larson & Wineberg, a law firm.
Frank J. Preston. Dr. Preston was elected Senior Vice President and
President -- Ford Division of the Company. He was promoted to that position in 1995. Prior to
serving in this position he was President -- FordMasland Division of the Company since
1994. Mr. Hoemann previouslyupon consummation of the Masland
Acquisition. Prior to the Masland Acquisition, he served as Senior Vice President -- North American
JIT Operations of the CompanyMasland
since 1993,January 1995 and Chief Executive Officer of Masland since January 1996.
During 1995, Dr. Preston also served as Vice President-Component Operations
for the Company in 1992 and 1993 and as ViceChief Operating Officer of Masland.
Prior to joining Masland, Dr. Preston held various positions with Textron, most
recently President and General Manager of the Company's subsidiary, Lear Plastics Corporation, in 1991 and 1992. Mr.
Hoemann has over 30 years experience as a senior manager and officer in
manufacturing companies such as the AC Spark Plug Division of General Motors and
the Plastics and Peerless Divisions of LSI.Textron Automotive Interiors.
Frederick F. Sommer. Mr. Sommer was elected Senior Vice President and
President -- Automotive Industries Division of the Company upon consummation of
the AIHAI Acquisition. Prior to the AIHAI Acquisition, he served as President of AIHAI
since November 1991 and Chief Executive Officer of AIHAI since May 1994. From March
1992 to May 1994, Mr. Sommer served as Chief Operating Officer of AIH.AI. Mr. Sommer
also served as Executive Vice President of AIHAI from October 1990 until November
1991. Prior thereto, he served as Vice President -- Manufacturing and Purchasing
of the U.S. subsidiary of Nissan from January 1987 until October 1990.
Donald J. Stebbins.Gerald G. Harris. Mr. Stebbins is currentlyHarris was elected Vice President Treasurer and Assistant SecretaryPresident -- GM
Division of the Company since November 1994. Mr. Harris previously served as
Vice President and General Manager -- GM Operations since March 1994. Previously
Mr. Harris served as Director -- Ford Business Unit from March 1992 to March
1994, Director of Sales from August 1990 to March 1992 and Sales Manager from
January 1989 to August 1990. Prior to 1989, Mr. Harris held various managerial
positions with the Company.
He joinedTerrence E. O'Rourke. Mr. O'Rourke was elected Vice President and President
- -- Ford Division of the Company in June 1992 from
Bankers Trust Company, New York whereNovember 1995. Prior to serving in this
position, he was Vice President for four years.and President -- Chrysler Division of the
Company since November 1994. Previously, Mr. O'Rourke served as Director --
Strategic Planning since October 1994. Prior to his tenure at Bankers Trustjoining Lear, Mr. O'Rourke was
employed by Ford Motor Company he held positions at Citibank,
N.A.as Supply Manager -- Climate Control Department
from 1992 and The First National Bank of Chicago.Procurement Operations Manager from 1988.
Joseph F. McCarthy. Mr. McCarthy was elected Vice President, Secretary and
General Counsel of the Company in April 1994. Prior to joining the Company, Mr.
McCarthy served as Vice President -- Legal and Secretary for both Hayes Wheels
International, Inc. and Kelsey-Hayes Company. Prior to joining Hayes Wheels
International, Inc. and Kelsey-Hayes Company, Mr. McCarthy was a partner in the
law firm of Kreckman & McCarthy from 1973 to 1983.
Gerald G. Harris.Donald J. Stebbins. Mr. HarrisStebbins is currently Vice President, Treasurer and
President -- GM DivisionAssistant Secretary of the Company. He joined the Company in June 1992 from
Bankers Trust Company, New York where he was promoted to this position in 1995.a Vice President for four years.
Prior to serving in
this position,his tenure at Bankers Trust Company, he was President -- GM Divisionheld positions at Citibank,
N.A. and The First National Bank of the Company since November
1994. Mr. Harris previously served as Vice President and General Manager -- GM
Operations since March 1994. Previously Mr. Harris served as Director -- Ford
Business Unit from March 1992 to March 1994, Director of Sales from August 1990
to March 1992 and Sales Manager from January 1989 to August 1990.
Terrence E. O'Rourke. Mr. O'Rourke is Vice President and President --
Chrysler Division of the Company. Prior to serving in this position, he was
President -- Chrysler Division of the Company since November 1994. Previously,
Mr. O'Rourke served as Director -- Strategic Planning since October 1994. Prior
to joining Lear, Mr. O'Rourke was employed by Ford Motor Company as Supply
Manager -- Climate Control Department from 1992 and Procurement Operations
Manager from 1988.
Randal T. Murphy. Mr. Murphy is Vice President and President -- BMW
Division of the Company. He was promoted to this position in November 1994.
Prior to serving in this position, he was Vice President and General Manager --
Chrysler/BMW Operations since March 1994. Previously he served as Director --
JIT Operations from 1993 and Vice President -- Product Engineering from 1980.
Richard N. Hodgson. Mr. Hodgson is Vice President and President --
Components Division of the Company. He was promoted to this position in November
1994. Prior to serving in this position, he was Vice President -- Components
Operations since April 1993. Previously he served as Plant Manager for Lear's
subsidiary, Lear Seating Canada Ltd., from 1982.
45Chicago.
49
5053
SELLING STOCKHOLDERS
The following table and accompanying footnotes set forth certain
information regarding beneficial ownership of the Company's Common Stock by the
Selling Stockholders as of July 15, 1995June 1, 1996 prior to the Offerings and as adjusted
to reflect the sale of 10,000,0007,500,000 shares of Common Stock by the Company and
5,000,0007,500,000 shares of Common Stock by the Selling Stockholders in the Offerings:
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- -----------------------------------
NUMBER OF NUMBER OF
SHARES SHARES OF SHARES
OF COMMON STOCK COMMON STOCK OF COMMON STOCK
OWNED PERCENTAGE OF BEING OWNED PERCENTAGE OF
BENEFICIALLY COMMON STOCK(3) OFFERED(4) BENEFICIALLY(4) COMMON STOCK(3)(4)
--------------- --------------- ------------ --------------- ------------------
Lehman Funds(1)........... 25,958,724 56.3% 4,125,000 21,833,724 38.9%16,471,224 29.1% 6,186,370 10,284,854 16.0%
FIMA Finance Management
Inc.(2)................. 5,510,044 11.9 875,000 4,635,044 8.33,497,544 6.2 1,313,630 2,183,914 3.4
- -------------------------
(1) The number of shares beneficially owned by the Lehman Funds includes
9,324,0515,916,258 shares of Common Stock owned by Lehman Brothers Merchant Banking
Portfolio Partnership L.P. and 6,337,5844,021,298 shares of Common Stock owned by
Lehman Brothers Capital Partners II, L.P. (each located at Three World
Financial Center, New York, New York 10285); 2,563,4401,626,544 shares of Common
Stock owned by Lehman Brothers Offshore Investment Partnership L.P. and
7,733,6494,907,124 shares of Common Stock owned by Lehman Brothers Offshore
Investment Partnership-Japan L.P. (each located at Clarendon House, Church
Street, Hamilton HMCX, Bermuda). LB I Group Inc. and Lehman Brothers
Holdings Inc. are the general partners of Lehman Brothers Merchant Banking
Portfolio Partnership L.P. and Lehman Brothers Capital Partners II, L.P.,
respectively, and Lehman Brothers Offshore Partners Ltd. is the general
partner of Lehman Brothers Offshore Investment Partnership-Japan L.P. and
Lehman Brothers Offshore Investment Partnership L.P. Each such general
partner may be deemed to own beneficially the shares directly owned by the
entity of which it is the general partner. LB I Group Inc. and Lehman
Brothers Offshore Partners Ltd. are wholly-owned subsidiaries of Lehman
Brothers Holdings Inc. Each of the partnerships may be deemed to share with
Lehman Brothers Holdings Inc. the power to vote and the power to dispose of
the shares owned by such partnership. The address of Lehman Brothers
Holdings Inc. is Three World Financial Center, New York, New York 10285.
(2) FIMA Finance Management Inc. ("FIMA") is a wholly-owned subsidiary of EXOR
Group S.A. ("EXOR Group"), formerly (formerly IFINT, S.A.). EXOR Group, a Luxembourg
corporation, is the international investment holding company of IFI,
S.p.A., the parent company of the Agnelli Group. The address of FIMA is
WickhamsWickham's Cay, Road Town, Tortola, British Virgin Islands.
(3) Assumes that none of the Options, pursuant to which 4,371,452a maximum of 5,885,480
shares are issuable, are exercised.
(4) The Lehman Funds have collectively, and FIMA has, granted to the
Underwriters'Underwriters an option to purchase up to an aggregate of 1,855,0001,855,910 and
395,000394,090 additional shares of Common Stock, respectively, exercisable solely
to cover over-allotments. See "Underwriting." The data set forth in the
table assume that the Underwriters' over-allotment option is not exercised.
In 1988, FIMA first acquired an ownership interest in the Company by
purchasing 6,435,000 shares of Common Stock of the Company. In 1991, FIMA and
the Lehman Funds acquired an aggregate of 14,999,985 additional shares from the
Company for an aggregate purchase price of $75.0 million and certain additional
shares of Common Stock from certain other stockholders (the "1991 Common Stock
Acquisitions"Acquisition"). In 1992, the Company sold an additional $20.0 million worth of
Common Stock to the Lehman Funds and FIMA (the "1992 Common Stock Acquisition").
In connection with the 1991 Common Stock Acquisition, the 1992 Common Stock
Acquisition, the offeringsoffering of the Senior Subordinated Notes, the NAB Acquisition,
the offeringsoffering of the Subordinated Notes, the IPO,initial public offering of the
AIHCompany's Common Stock in April 1994, the AI Acquisition, the 1995 Stock
Offering and the Offerings, Lehman Brothers, an affiliate of the Lehman Funds,
has received compensation from the Company comprising underwriting fees,
discounts and commissions and financial advisory fees. In addition, Lehman
Commercial Paper Inc., an affiliate of the Lehman Funds, has from time to time
been a lender under the Company's credit facilities and has received customary
fees in such capacity.
4650
5154
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, par value $0.01 per share, and 15,000,000 shares of Preferred
Stock,preferred
stock, par value $0.01 per share.share ("Preferred Stock").
COMMON STOCK
As of July 15, 1995,June 1, 1996, there were 46,132,36456,650,532 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Cumulative voting is not
permitted. Subject to preferences of any Preferred Stock that may be issued in
the future, the holders of Common Stock are entitled to receive such dividends
as may be declared by the Board of Directors. The Company is currently
restricted under the terms of the Credit Agreement, the New Credit Agreement and of
the Indentures governing the Senior Subordinated Notes and the 8 1/4% Subordinated
Notes, and will be restricted under the Indenture governing the Notes, from
paying dividends to holders of Common Stock. See "Description of Certain
Indebtedness." In the event of a liquidation,
dissolution or winding up of the Company, and subject to preferences of any
Preferred Stock that may be issued in the future, the Common Stock is entitled
to receive pro rata all of the assets of the Company available for distribution
to its stockholders. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
the closing of the Offerings will be fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 15,000,000 shares
of Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rates, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, which may be superior to those of the Common Stock,
without further vote or action by the stockholders. Although it presently has no
intention to do so, the Board of Directors, without stockholder approval, can
issue Preferred Stock with rights that could adversely affect the Common Stock.
The issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company. There will be no shares of
Preferred Stock outstanding upon the closing of the Offerings and the Company
has no present plans to issue any Preferred Stock.
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
The Lehman Funds, FIMA and certain current and former officers and
employees of the Company are parties to thea Stockholders and Registration Rights
Agreement dated September 28, 1991, as amended (the "Stockholders Agreement"),
which contains certain provisions as torestrictions on the voting and transfer of Common Stock held by
those stockholders.
Under the Stockholdersstockholders and Registration Rights Agreement, the parties
thereto who hold Common Stock have the followinggrants such stockholders certain registration rights.
On or
prior to September 28, 1996, the holders of at least 20% of the fully diluted
shares of Common Stock held by parties to the Stockholders and Registration
Rights Agreement that have not been transferred pursuant to an effective
registration statement or an exemption from the registration requirements of the
Securities Act and that continue to bear a legend referencing such agreement
("Registrable Securities") may require the Company, subjectSubject to certain conditions, to effect the registration under the Securities Act of not less than
15% of the Registrable Securities. After September 28, 1996, the holders of at
least 10% of the Registrable Securities may require the Company, subject to
certain conditions, to effect the registration of not less than 10% of the
Registrable Securities. Upon receipt of a valid registration request,exceptions, the Company is required to notify other partiespay all expenses
incurred in connection with up to a maximum of four valid registration requests
made by the stockholders party to the Stockholders and Registration
RightsAgreement. If any requested
registration is in the form of an underwritten offering, the Stockholders
Agreement of such request, and those parties may, subject to certain
conditions, requirerequires the Company to include anydesignate Lehman Brothers Inc. as the managing
underwriter of their Registrable Securities
in any registration statement filed pursuant to such request.the offering. Unless the holders of the Common Stock making a
registration request otherwise consent in writing, no other person, other than a
holder of Common Stock who is a party to the Stockholders and Registration Rights Agreement and who
requests that its shares be included in such registration and, in the case of an
underwritten offering, the Company, would be permitted to offer any securities
pursuant to such registration.
47
52
Subject to certain exceptions, the Company is required to pay all expenses
incurred in connection with up to a maximum of four valid registration requests
and, if any requested registration is in the form of an underwritten offering,
the Stockholders and Registration Rights Agreement requires the Company to
designate Lehman Brothers Inc. as the managing underwriter of the offering.
In addition to the demand registration rights summarized above, the parties
to the Stockholders and Registration Rights Agreement also may, subject to certain limitations, require
the Company to register their shares of Common Stock whenever the Company
registers any of its equity securities under the Securities Act, whether for
sale for its own account or not. The Stockholders
and Registration Rights Agreement provides for, in the
case of underwritten offerings, certain registration priorities in the event
that the managing underwriter advises the Company that the number of shares of
Common Stock proposed to be included in any registration under the Securities
Act exceeds the largest number of shares which can be sold without having an
adverse effect on the offering. In addition, the Company and the other parties
to the Stockholders and Registration Rights Agreement are subject to certain holdback provisions
51
55
during the registration and sale of shares of Common Stock. Under the
Stockholders and Registration Rights Agreement, the Company has agreed to indemnify selling stockholders
against certain liabilities.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND
RESTATED BY-LAWS
The by-laws of the Company provide that the Company shall indemnify each
officer and director of the Company to the fullest extent permitted by
applicable law. The Restated Certificate of Incorporation also provides that, to
the fullest extent permitted by the Delaware General Corporation Law, the
directors of the Company shall be indemnified by the Company and shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director.
Certain provisions of the Company's Restated Certificate of Incorporation
and by-laws may have the effect of preventing, discouraging or delaying any
change in control of the Company and may maintain the incumbency of the Board of
Directors and management. The authorization of undesignated Preferred Stock will
make it possible for the Board of Directors to issue Preferred Stock withoutwith voting
or other rights or preferences that could impede the success of any attempt to
change control of the Company. The Company's Restated Certificate of
Incorporation provides that the Board of Directors of the Company will be
divided into three classes serving staggered three-year terms. Directors can be
removed from office only for Cause (as defined below) and only by the
affirmative vote of the holders of a majority of the then-outstanding shares of
capital stock entitled to vote generally in an election of directors. Vacancies
on the Board of Directors may be filedfilled only by the remaining directors and not
by the stockholders. "Cause" is defined as the willful and continuous failure
substantially to perform one's duties to the Company or the willful engaging in
gross misconduct materially and demonstrably injurious to the Company.
The by-laws provide that special meetings of stockholders may be called by
the chairman, the president, any vice president, the secretary or any assistant
secretary of the Company and must be called by any such officer at the request
in writing of a majority of the Board of Directors or at the request in writing
of stockholders owning at least a majority of the capital stock of the Company
issued and outstanding and entitled to vote. The by-laws establish an advance
notice procedure for the nomination, other than by or at the direction of the
Board of Directors, of candidates for election as directors as well as for other
stockholder proposals to be considered at annual meetings of stockholders. In
general, notice of intent to nominate a director must be received by the
secretary of the Company not less than 60 nor more than 90 days prior to the
date of the annual meeting, and must contain certain specified information
concerning the person to be nominated. Notice of intent to raise business at
such meeting must be received by the secretary of the Company not less than 120
nor more than 150 days prior to the first anniversary of the date of the
Company's consent solicitation or proxy statement released in connection with
the previous year's meeting.
DELAWARE ANTI-TAKEOVER LAW
Upon the closing of the Offerings, The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Anti-Takeover Law") regulating corporate
takeovers. The
48
53 Anti-Takeover Law prevents certain Delaware corporations,
including those whose securities are listed on the New York Stock Exchange, from
engaging, under certain circumstances, in a "business combination" (which
includes a merger or sale of more than 10% of the corporation's assets) with any
"interested stockholder" (a stockholder who acquired 15% or more of a
corporation's outstanding voting stock without the prior approval of the
corporation's board of directors) for three years following the date that such
stockholder became an "interested stockholder." The current stockholders of the
Company willmay not, by virtue of their current holdings, be deemed to be
"interested stockholders" under this statute. A Delaware corporation may "opt
out" of the Anti-Takeover Law with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares. The Company has not "opted
out" of the provisions of the Anti-Takeover Law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is The Bank
of New York, located in New York, New York.
LISTING
The Common Stock is listed on the New York Stock Exchange under the symbol
LEA.
4952
5456
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
holder that is not a "U.S. person" (a "non-U.S. holder"). A "U.S. person" is a
person or entity that, for U.S. federal income tax purposes, is a citizen or
resident of the United States, a corporation or partnership created or organized
in the United States or under the laws of the United States or of any political
subdivision thereof, or an estate or trust whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source. An
individual will be deemed to be a resident of the United States for U.S. federal
income tax purposes if: (1) such individual is a lawful permanent resident of
the United States at any time during the taxable year; (2) such individual makes
an election to be treated as a resident pursuant to the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"); or (3) such individual
is present in the United States for an aggregate of 183 days or more during the
calendar year. In addition, an individual will be presumed to be a resident of
the United States for U.S. federal income tax purposes if such individual is
present in the United States on at least 31 days in the current calendar year
and for an aggregate of 183 days during the three-year period ending with the
current calendar year (counting, for such purposes all of the days present in
the United States during the current year, one-third of the days present during
the immediately preceding year and one-sixth of the days present during the
second preceding year). This presumption of residence may be rebutted if it is
established that such individual has a "tax home" in a foreign country and a
"closer connection" to such foreign country than to the United States, with such
terms being defined in the Code. Furthermore, the determination of residence
under the Code may be rebutted by application of an applicable tax treaty or
convention between the United States and an appropriate foreign country that may
also treat such individual as a tax resident of such country. A special
definition of U.S. resident applies for U.S. federal estate tax purposes.
Resident aliens are subject to U.S. federal tax as if they were U.S. citizens.
This discussion is based on Code and administrative and judicial
interpretations as of the date hereof, all of which may be changed either
retroactively or prospectively. This discussion does not address all the aspects
of U.S. federal income and estate taxation that may be relevant to non-U.S.
holders in light of their particular circumstances, nor does it address tax
consequences under the laws of any U.S. state, municipality or other taxing
jurisdiction or under the laws of any jurisdiction other than the United States.
Prospective holders should consult their own tax advisors about the
particular U.S. federal tax consequences to them of holding and disposing of
Common Stock, as well as any tax consequences that may arise under the laws of
any state, local or foreign taxing jurisdiction.
DIVIDENDS
In the event that dividends are paid to a non-U.S. holders,holder, such dividends
will be subject to United States federal withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Under current
U.S. Treasury regulations, dividends paid to an address outside the United
States are presumed to be paid to a resident of the country of address for
purposes of the withholding tax. Under the current interpretation of U.S.
Treasury regulations, the same presumption generally applies to determine the
applicability of a reduced rate of withholding under a U.S. tax treaty.treaty (the
"address system"). Thus, non-U.S. holders receiving dividends at addresses
outside the United States generally are not yet required to file tax forms to
obtain the benefit of an applicable treaty rate. If there is excess withholding
on a person eligible for a treaty benefit, the person can file for a refund with
the U.S. Internal Revenue Service (the "IRS").
Under U.S. Treasury regulations which were recently proposed in 1984 and which have
not yet been put into effect, the address system for claiming treaty benefits
would be eliminated for payments made after December 31, 1997. Rather, to claim
the benefits of a tax treaty pursuant to these proposed regulations, a non-U.S.
holder of Common Stock would have to file certain forms accompanied by
statements from a competent authority of the treaty country attesting to the
holder's eligibility to claim treaty benefits.
50
55
Generally, upon the filing of a Form 4224 with the Company, there is no
withholding tax on dividends that are effectively connected with the non-U.S.
holder's conduct of a trade or business within the United
53
57
States. Instead, the effectively connected dividends are subject to the U.S.
federal income tax on net income applicable to U.S. persons. Effectively
connected dividends received by a foreign corporation may be subject to an
additional "branch profits tax" at a 30% rate (or a lower rate under an
applicable income tax treaty) when such dividends are deemed repatriated from
the United States.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock unless (i) the
gain is effectively connected with the conduct of a trade or business of the
non-U.S. holder in the United States, (ii) in the case of a non-U.S. holder who
is an individual and holds the Common Stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year of the
disposition and either (x) has a "tax home" in the United States (as specially
defined for U.S. federal income tax purposes) or (y) maintains an office or
other fixed place of business in the United States and the income from the sale
of the stock is attributable to such office or other fixed place of business,
(iii) in the case of a non-resident individual who is a partner in a foreign
partnership holding the Common Stock, such non-resident individual is present in
the United SatesStates for 183 or more days in the taxable year of the disposition or
the gain is effectively connected with a trade or business conducted by such
partnership in the United States, (iv) the non-U.S. holder is subject to tax
pursuant to the provisions of U.S. tax law applicable to certain U.S.
expatriates or (v) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes. The Company is not currently, has
not been and does not anticipate becoming a "U.S. real property holding
corporation" for U.S. federal income tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each non-U.S. holder the
amount of dividends paid to, and the tax withheld with respect to such holder,
regardless of whether tax was actually withheld. That information may also be
made available to the tax authorities of the country in which the non-U.S.
holder resides.
United States federal backup withholding (which generally is withholding
imposed at the rate of 31% on certain payments to persons not otherwise exempt
who fail to furnish certain identifying information to the IRS) will generally
not apply to dividends paid to a non-U.S. holder that are subject to withholding
at the 30% rate (or would be so subject but for a reduced rate under an
applicable treaty). In addition, the payor of dividends may rely on the payee's
foreign address in determining that the payee is exempt from backup withholding,
unless the payor has knowledge that the payee is a U.S. person. However, U.S.
Treasury regulations that were recently proposed would, if adopted in their
present form, eliminate this address system and require a payee to furnish
certain documentation to the payor so as to be able to claim such exemption from
backup withholding.
The backup withholding and information reporting requirements also apply to
the gross proceeds paid to a non-U.S. holder upon the disposition of Common
Stock by or through a U.S. office of a U.S. or foreign broker, unless the holder
certifies to the broker under penalty of perjury as to its name, address and
status as a non-U.S. holder or the holder otherwise establishes an exemption.
Information reporting requirements (but not backup withholding) will apply to a
payment of the proceeds of a disposition of Common Stock by or through a foreign
office of (i) a U.S. broker, (ii) a foreign broker 50% or more of whose gross
income for certain periods is effectively connected with the conduct of a trade
or business in the United States or (iii) a foreign broker that is a "controlled
foreign corporation" for U.S. federal income tax purposes, unless the broker has
documentary evidence in its records that the holder is a non-U.S. holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Neither backup withholding nor information reporting will generally
apply to a payment of the proceeds of a disposition of Common Stock by or
through a foreign office of a foreign broker not subject to the preceding
sentence.
Any amounts withheld under the backup withholding rules will be refunded or
credited against the non-U.S. holder's United States federal income tax
liability, provided that required information is furnished to the IRS.
5154
5658
The backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to the Common Stock is
subject to change.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is neither a
citizen nor a resident of the United States for federal estate tax purposes at
the date of death will be included in such individual estate's for U.S. federal
estate tax purposes and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise. Estates of nonresident aliens
are generally allowed a statutory credit that is the equivalent of an exclusion
of $60,000 of assets from the estate for U.S. estate tax purposes. Estate tax
treaties may permit a larger credit. A special definition of U.S. resident
applies for U.S. federal estate purposes.
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the U.S.
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement, the underwriters named below (the "U.S. Underwriters"),
for whom Lehman Brothers Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Morgan Stanley & Co. Incorporated, PaineWebber Incorporated and
Schroder Wertheim & Co. Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Stockholders, and the Company and the Selling Stockholders have agreed
to sell to each U.S. Underwriter, the aggregate number of shares of Common Stock
set forth opposite the name of each such U.S. Underwriter below:
NUMBER OF
U.S. UNDERWRITERS SHARES
------------------------------------------------------------------- --------------------------------------------------------------------------- ----------
Lehman Brothers Inc. ...........................................................................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Morgan Stanley & Co. Incorporated..................................Incorporated.................................
PaineWebber Incorporated...........................................Incorporated..........................................
Schroder Wertheim & Co. Incorporated...............................
---------
Total.........................................................
========Incorporated..............................
----------
Total........................................................
==========
Under the terms of, and subject to the conditions contained in, the
International Underwriting Agreement, the form of which is filed as an exhibit
to the Registration Statement, the managers named below of the concurrent
offering of the Common Stock outside the United States and Canada (the
"International Managers" and together with the U.S. Underwriters, the
"Underwriters"), for whom Lehman Brothers International (Europe), Donaldson,
Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. International
Limited, PaineWebber International (U.K.) Ltd. and J. Henry Schroder & Co.
Limited are acting as lead managers (the "Lead Managers"), have severally agreed
to purchase from the Company and
55
59
the Selling Stockholders, and the Company and the Selling Stockholders have
agreed to sell to each International Manager, the aggregate number of shares of
Common Stock set forth opposite the name of each such International Manager
below:
NUMBER OF
INTERNATIONAL MANAGERS SHARES
------------------------------------------------------------------- ---------
Lehman Brothers International (Europe).............................
Donaldson, Lufkin & Jenrette Securities Corporation................
Morgan Stanley & Co. International Limited.........................
PaineWebber International (U.K.) Ltd. .............................
J. Henry Schroder & Co. Limited....................................
---------
Total.........................................................
=================
The U.S. Underwriting Agreement and the International Underwriting
Agreement (collectively, the "Underwriting Agreements") provide that the
obligations of the U.S. Underwriters and the International Managers to purchase
shares of Common Stock are subject to certain conditions, and that if any of the
52
57
foregoing shares of Common Stock are purchased by the U.S. Underwriters pursuant
to the U.S. Underwriting Agreement or by the International Managers pursuant to
the International Underwriting Agreement, all the shares of Common Stock agreed
to be purchased by either the U.S. Underwriters or the International Managers,
as the case may be, pursuant to the respective Underwriting Agreements must be
so purchased. The offering price and underwriting discounts and commissions for
the U.S. Offering and the International Offering are identical. The closing of
the U.S. Offering is a condition to the closing of the International Offering,
and the closing of the International Offering is a condition to the closing of
the U.S. Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain selected dealers (who may include the U.S.
Underwriters and the International Managers) at such public offering price less
a selling concession not in excess of $ per share. The selected dealers may
reallow a concession not in excess of $ per share to certain brokers and
dealers. After the public offering, the public offering price, the concession to
select dealers and reallowance may be changed by the U.S. Underwriters and the
International Managers.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the U.S. Underwriters and the International Managers may be required to
make in respect thereof.
The Selling Stockholders have granted to the U.S. Underwriters and the
International Managers an option to purchase up to an aggregate of 1,800,000 and
450,000 additional shares of Common Stock, respectively, exercisable solely to
cover over-allotments, at the offering price to the public less the underwriting
discounts and commissions shown on the cover page of this Prospectus. All of the
shares of Common Stock sold upon any exercise of this over-allotment option will
be sold by the Selling Stockholders. Such option may be exercised at any time
until 30 days after the date of the U.S. Underwriting Agreement and the
International Underwriting Agreement, respectively. To the extent that the
option is exercised, each U.S. Underwriter or International Manager, as the case
may be, will be committed, subject to certain conditions, to purchase a number
of the additional shares of Common Stock proportionate to such U.S.
Underwriter's or International Manager's initial commitment as indicated in the
preceding tables.
The Company, the Selling Stockholders and certain existing stockholders,
including all of the executive officers of the Company, have agreed that they
will not, subject to certain limited exceptions, for a period of 12090 days from
the date of this Prospectus, directly or indirectly, offer, sell or otherwise
dispose of any shares of
56
60
Common Stock or any securities convertible into or exchangeable or exercisable
for any such shares without the prior written consent of the Representatives.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers pursuant to which
each U.S. Underwriter has agreed that, as part of the distribution of the shares
of Common Stock offered in the U.S. Offering, (i) it is not purchasing any such
shares for the account of anyone other than a U.S. personPerson (as defined below) and
(ii) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus relating
to the U.S. Offering outside the United States or Canada or to anyone other than
a U.S. person.Person. In addition, pursuant to such agreement each International
Manager has agreed that, as part of the distribution of the shares of Common
Stock offered in the International Offering, (i) it is not purchasing any such
shares for the account of a U.S. Person and (ii) it has not offered or sold, and
will not offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the International Offering in
the United States or Canada or to any U.S. Person. Each International Manager
has also agreed that it will offer to sell shares only in compliance with all
relevant requirements of any applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement Between U.S. Underwriters and International Managers, including (i)
certain purchases and sales between the U.S. Underwriters and the International
Managers, (ii) certain offers, sales, resales, deliveries or distributions to or
through investment advisors or
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58 other persons exercising investment discretion,
(iii) purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Manager or by an International Manager who is also acting as a
U.S. Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers. As used herein, (a) the term "United
States" means the United States of America (including the District of Columbia)
and its territories, its possessions and other areas subject to its
jurisdiction, and (b) the term "U.S. Person" means any resident or national of
the United States or Canada or its provinces, any corporation, partnership or
other entity created or organized in or under the laws of the United States or
Canada or its provinces, or any estate or trust the income of which is subject
to United States or Canadian income taxation regardless of the source of its
income (other than the foreign branch of any U.S. Person), and includes any
United States or Canadian branch of a Personperson other than a U.S. Person.
The Company and eachEach International Manager has represented and agreed that (i) haveit has not
offered or sold and prior to the date six months after the date of issue of the
shares of Common Stock will not offer or sell in the United Kingdom, by means of any document, any shares of Common Stock other thanto
persons in the United Kingdom except to persons whose ordinary business it is to
buyactivities
involve them in acquiring, holding, managing or sell shares or debentures, whether asdisposing of investments (as
principal or agent (except underagent) for the purposes of their businesses or otherwise in
circumstances which dohave not constituteresulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Companies Act 1985);Public Offers of
Securities Regulations 1995; (ii) haveit has complied and will comply with all
applicable provisions of the Financial Services Act 1986 (the "1986 Act") with
respect to anything done by it in relation to the shares of Common Stock in,
from or otherwise involving the United Kingdom; and (iii) haveit has only issued or
passed on, and will only issue orand pass on to any person in the United Kingdom,
any investment advertisement (within the meaning of the 1986 Act) relating to
the shares of Common Stock if that person falls within Article 9(3)11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988.1995.
The shares of Common Stock may not be offered or sold directly or
indirectly in Hong Kong by means of this document or any other offering material
or document other than to persons whose ordinary business it is to buy or sell
shares or debentures, whether as principal or as agent. Unless permitted to do
so by the securities laws of Hong Kong, no person may issue or cause to be
issued in Hong Kong this document or any amendment or supplement thereto or any
other information, advertisement or document relating to the shares of Common
Stock other than with respect to shares of Common Stock intended to be disposed
of to persons outside Hong Kong or to persons whose business involves the
acquisition, disposal or holding of securities, whether as principal or as
agent.
57
61
The shares of Common Stock have not been registered under the Securities
and Exchange Law of Japan and are not being offered and may not be offered or
sold directly or indirectly in Japan or to residents of Japan, except pursuant
to applicable Japanese laws and regulations.
No action has been taken or will be taken in any jurisdiction by the
Company or the International Managers that would permit a public offering of the
shares offered pursuant to the Offerings in any jurisdiction where action for
that purpose is required, other than the United States.States and Canada and its
provinces. Persons into whose possession this Prospectus comes are required by
the companyCompany and the International Managers to inform themselves about and to
observe any restrictions as to the offering of the shares offered pursuant to
the Offerings and the distribution of this Prospectus.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page hereof.
Prior to the Offerings, the Lehman Funds, each an affiliate of Lehman
Brothers and Lehman Brothers International (Europe), beneficially own, in the
aggregate, approximately 56%29% of the outstanding Common Stock of the Company
(assuming no outstanding Options are exercised). Therefore, the underwriting
arrangements for the Offerings will comply with the requirements of Schedule E
to the Bylaws of the National Association of Securities Dealers, Inc. ("NASD")
regarding an NASD member firm's participation in distributing its affiliate's
securities. In accordance with Schedule E, the Underwriters will not make sales
of shares of Common Stock offered hereby to customers' discretionary accounts
without the prior specific written approval of such customers.
The Lehman Funds will receive a portion of the proceeds from the Offerings.
FiveOne of the tennine members of the Company'sLear's Board of Directors is presently are employed by
Lehman Brothers orBrothers. In addition, two members of Lear's Board of Directors are
principals of The Cypress Group L.L.C., a company that provideshas provided consulting
services to Lehman Brothers with respect to the management of the equity
investments of the Lehman Funds. Lehman Brothers has from time to time provided
investment banking, financial advisory and other services to the Company, for
which services it has received fees.
54
59
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Winston & Strawn, Chicago, Illinois.New York, New York. Certain
legal matters in connection with the Offerings will be passed upon for the U.S.
Underwriters and the International Managers by Cravath, Swaine & Moore, New
York, New York. Cravath, Swaine & Moore has performed, and continues to perform,
services for the Lehman Funds from time to time.
EXPERTS
The audited financial statements and schedulesschedule of the Company incorporated
by reference into thethis Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon authority of said firm as
experts in giving said reports.
The audited financial statements of the Fiat Seat BusinessAI incorporated by reference into thethis
Prospectus have been audited by Arthur Andersen & Co.,
s.a.s.,LLP, independent public
accountants, as indicated in their reportsreport with respect thereto, and are included
herein in reliance upon authority of said firm as experts in giving said reports.
55report.
The audited financial statements of Masland incorporated by reference into
this Prospectus have been audited by Price Waterhouse LLP, as indicated in their
report with respect hereto, and are included herein in reliance upon authority
of said firm as experts in giving said report.
58
60
[LEAR LOGO]
[Lear Seating62
[INSIDE BACK COVER]
LEAR CORPORATION LOGO [framed by flags of the countries in which the
Company operates.]
Lear Corporation is the world's largest independent automotive supplier of
seat andautomotive interior systems --- with 32,000
quality-dedicated, customer-focused40,000 quality - dedicated, customer -
focused people throughout 107through 131 facilities in 1819 countries around the globe.]
LEAR TOTAL SYSTEMS CAPABILITIES
[Diagram of
Lear Total Systems Capabilities]Capabilities
[A picture of the interior of an automobile depicting the automotive
interior products listed below which the Company produces]
Trunk Liners Spare Tire Covers
Load Floors Fuel Tank Shields
Package Trays Seat Systems
Seat Backs Quarter Panels
C-Pillars Arm Rests
Appliques/Bolsters Scuff Plates
Headliners Door Panels
B-Pillars SEAT COMPONENTS
Headrests - Frames
Sunvisors - Covers
A-Pillars - Foam
Cowl Panels - Hardware
HVAC Ducts Consoles
Hood Insulators Interior Insulators
Engine Shrounds Air Intake Ducts
Coolant Reservoirs Vapor Canisters
Grille Assemblies Windshield Washer Reservoirs
Exterior Air Dams
61
------------------------------------------------------
------------------------------------------------------63
----------------------------------------------------
----------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE U.S. UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
Page
-----
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 911
Cautionary Statements for Purposes of
the "Safe Harbor" Provisions of the
Private Securities Litigation Reform
Act of 1995......................... 12
Use of Proceeds....................... 1113
Common Stock Price Range and
Dividends........................... 1113
Capitalization........................ 1214
Pro Forma Financial Data.............. 1315
Selected Financial Data forof the
Company............................. 1719
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Company........ 1820
Selected Financial Data for Automotive
Industries Holding, Inc. ........... 25of Masland
Corporation......................... 27
Management's Discussion and Analysis
of Results of Operations of Automotive Industries Holding,
Inc. ............................... 26Masland
Corporation......................... 28
Business of the Company............... 28
Business of Automotive Industries
Holding, Inc. ...................... 3931
Management............................ 4448
Selling Stockholders.................. 4650
Description of Capital Stock.......... 4751
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 5053
Underwriting.......................... 5255
Legal Matters......................... 5558
Experts............................... 5558
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
----------------------------------------------------------------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
15,000,000 SHARES
[LOGO]LEAR CORP. LOGO
COMMON STOCK
---------------------------
PROSPECTUS
, 19951996
---------------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
PAINEWEBBER INCORPORATED
SCHRODER WERTHEIM & CO.
------------------------------------------------------
----------------------------------------------------------------------------------------------------------
----------------------------------------------------
62
Information contained herein is subject to completion or amendment.64
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE PAGE FOR INTERNATIONAL OFFERING]
Subject to Completion, dated August 4, 1995SUBJECT TO COMPLETION, DATED JUNE 12, 1996
PROSPECTUS
15,000,000 Shares
[LEAR LOGO]LEAR CORP. LOGO
COMMON STOCK
---------------------------
Of the 15,000,000 shares of Common Stock ("Common Stock") of Lear
Seating
Corporation ("Lear" or the "Company") being offered hereby, 10,000,0007,500,000 shares are
being offered by the Company and 5,000,0007,500,000 shares are being offered by certain
stockholders of the Company (the "Selling Stockholders"). See "Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Stockholders. Of the 15,000,000 shares of Common
Stock being offered hereby, 3,000,000 shares are being offered initially outside
the United States and Canada by the International Managers (the "International
Offering") and 12,000,000 shares are being offered initially in the United
States and Canada by the U.S. Underwriters (the "U.S. Offering" and, together
with the International Offering, the "Offerings"). The public offering price and
underwriting discounts and commissions per share are identical for both
Offerings. See "Underwriting." Concurrently with the Offerings, the Company is
undertaking a public offering (the "Note Offering") of $200 million principal
amount of subordinated notes due , 2006. The Offerings are not
conditioned upon the consummation of the Note Offering.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "LEA." On July 31, 1995,June 11, 1996, the reported last sale price of the Common
Stock on the New York Stock Exchange Composite Tape was $27$38 1/2 per share.
SEE "RISK FACTORS" COMMENCING ON PAGE 911 HEREIN FOR CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------=======================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- -------------------------------------------------------------------------------------------------------
Per Share.............................. $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $ $
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------=======================================================================================================
(1) Lear and the Selling Stockholders have agreed to indemnify the International
Managers, the U.S. Underwriters and certain other persons against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by Lear estimated at $ .
(3) The Selling Stockholders have granted the International Managers and the
U.S. Underwriters a 30-day option to purchase up to an aggregate of
2,250,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $ ,
$ and $ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
International Managers subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
International Managers and to certain further conditions. It is expected that
delivery of certificates for shares will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1995.1996.
---------------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INTERNATIONAL
PAINEWEBBER INTERNATIONAL
SCHRODERS
, 19951996
6365
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE INTERNATIONAL
MANAGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------------------
TABLE OF CONTENTS
Page
-----
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 911
Cautionary Statements for Purposes of
the "Safe Harbor" Provisions of the
Private Securities Litigation Reform
Act of 1995......................... 12
Use of Proceeds....................... 1113
Common Stock Price Range and
Dividends........................... 1113
Capitalization........................ 1214
Pro Forma Financial Data.............. 1315
Selected Financial Data forof the
Company............................. 1719
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Company........ 1820
Selected Financial Data for Automotive
Industries Holding, Inc. ........... 25of Masland
Corporation......................... 27
Management's Discussion and Analysis
of Results of Operations of Automotive Industries Holding,
Inc. ............................... 26Masland
Corporation......................... 28
Business of the Company............... 28
Business of Automotive Industries
Holding, Inc. ...................... 3931
Management............................ 4448
Selling Stockholders.................. 4650
Description of Capital Stock.......... 4751
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 5053
Underwriting.......................... 5255
Legal Matters......................... 5558
Experts............................... 5558
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
15,000,000 SHARES
[LEAR LOGO]LEAR CORP. LOGO
COMMON STOCK
---------------------------
PROSPECTUS
, 19951996
---------------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INTERNATIONAL
PAINEWEBBER INTERNATIONAL
SCHRODERS
------------------------------------------------------
------------------------------------------------------
6466
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses payable by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby (other than underwriting discounts and commissions). All
of such expenses, except the S.E.C. filing fee and the NASD filing fee, are
estimated.
S.E.C.SEC filing fee.............................................. $159,860fee................................................. $229,425
NASD filing fee................................................ 30,500
Blue sky fees and expenses..................................... *
Legal fees and expenses........................................ *
Accounting fees and expenses................................... *
Printing and engraving......................................... *
Listing fees................................................... *
Miscellaneous.................................................. *
--------
Total..................................................... $ *
========
- -------------------------
* To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is a Delaware corporation. Reference is made to Section 145
of the Delaware General Corporation Law, as amended (the "GCL"), which provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
or is or was serving at its request in such capacity of another corporation or
business organization against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
person's conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of a corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) that such officer or director
actually and reasonably incurred.
Reference is also made to Section 102(b)(7) of the GCL, which permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the GCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The certificate of incorporation of the Registrant provides for the
elimination of personal liability of a director for breach of fiduciary duty as
permitted by Section 102(b)(7) of the GCL and the by-laws of the Registrant
provide that the Registrant shall indemnify its directors and officers to the
full extent permitted by Section 145 of the GCL.
The Registrant has directors and officers liability insurance that insures
the directors and officers of the Registrants against certain liabilities. In
addition, Lehman Brothers Inc. has agreed to indemnify Jeffrey P. Hughes, David P. Spalding, James
A. Stern Eliot Fried and Alan Washkowitz, each being a director of the
II-1
65 Registrant and an
officer or former officer of Lehman Brothers Inc., in connection with their
service as directors of the Registrant.
II-1
67
The Underwriting Agreements provide for indemnification by each of the U.S.
Underwriters and each of the International Managers, as the case may be, of
directors and officers of Lear against certain liabilities, including
liabilities under the Securities Act of 1933, under certain circumstances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A list of exhibits is set forth on the Index to Exhibits.
ITEM 17. UNDERTAKINGS
1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
2. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(b) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrants' annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
6668
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Southfield, State of Michigan on August 4, 1995.June 12, 1996.
LEAR SEATING CORPORATION
By: /s/ KENNETH L. WAY
--------------------------------------------------------------------------
Kenneth L. Way
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below this Registration Statement hereby severally constitutes and
appoints Kenneth L. Way, Robert E. Rossiter and James H. Vandenberghe, and each
of them singly, ourhis true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, to sign for him or her and in his or
her name, place and stead in any and all capacities indicated below, the
Registration Statement on Form S-3 filed herewith, and any and all pre-effective
and post-effective amendments to said Registration Statement (including any
related registration statement filed under Rule 462), and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary fully to all intents and purposes as
he or she might or could do in person thereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his or her
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
NAME TITLE DATE
- ------------------------------------- ----------------------------- ---------------------------------------------------- -------------
/s/ KENNETH L. WAY Chairman of the Board and August 4, 1995Chief June 12, 1996
- ------------------------------------- Chief Executive Officer
Kenneth L. Way (Principal Executive Officer)
/s/ ROBERT E. ROSSITER President, Chief Operating August 4, 1995Officer June 12, 1996
- ------------------------------------- Officer and Director
Robert E. Rossiter
/s/ JAMES H. VANDENBERGHE Executive Vice President, August 4, 1995June 12, 1996
- ------------------------------------- and Chief Financial Officer and
James H. Vandenberghe Director (Principal Financial and
Principal Accounting Officer)
/s/ LARRY W. MCCURDY Director August 4, 1995June 12, 1996
- -------------------------------------
Larry W. McCurdy
/s/ GIAN ANDREA BOTTA Director August 4, 1995June 12, 1996
- -------------------------------------
Gian Andrea Botta
/s/ ELIOT FRIED Director August 4, 1995
- -------------------------------------
Eliot Fried
/s/ ROBERT W. SHOWER Director August 4, 1995
- -------------------------------------
Robert W. Shower
II-3
6769
NAME TITLE DATE
- ------------------------------------- ----------------------------- ---------------------------------------------------- -------------
/s/ JEFFREY P. HUGHESROBERT W. SHOWER Director August 4, 1995June 12, 1996
- -------------------------------------
Jeffrey P. HughesRobert W. Shower
/s/ DAVID P. SPALDING Director August 4, 1995June 12, 1996
- -------------------------------------
David P. Spalding
/s/ JAMES A. STERN Director August 4, 1995June 12, 1996
- -------------------------------------
James A. Stern
/s/ ALAN WASHKOWITZ Director August 4, 1995June 12, 1996
- -------------------------------------
Alan Washkowitz
II-4
6870
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBER EXHIBIT NUMBERED PAGE
- -------------- ---------------------------------------------------------------- -------------
** 1.1*1.1 -- Form of U.S. Underwriting Agreement. *
** 1.2--
*1.2 -- Form of International Underwriting Agreement. *--
2.1 -- Agreement and Plan of Merger, dated as of July 16, 1995,May 23, 1996, among *--
Lear, AIHIPA Acquisition Corp. and Automotive Industries Holding,
Inc. ("AIH") (incorporated by reference to Exhibit (c)(1) to
Lear's Schedule 14D-1 and 13D filed with the Commission on July
20, 1995).
** 5.1Masland.
*5.1 -- Opinion of Winston & Strawn, special counsel to LearLear. --
12.1 -- Statement Regarding Computation of Ratios. --
23.1 -- Consent of Arthur Andersen LLP, filed herewith.
**LLP. --
23.2 -- Consent of Arthur Andersen LLP with respect to AIHAI Financial *--
Statements.
23.3*23.3 -- Consent of Arthur Andersen & Co., s.a.s.Price Waterhouse LLP, with respect to FSBthe Masland --
Financial Statements, filed herewith.
**23.4Statements.
*23.4 -- Consent of Winston & Strawn (included in Exhibit 5.1) *. --
24.1 -- Powers of Attorney included(included on the signature pages hereto. *
27.1page hereof). -- Financial Data Schedule (incorporated by reference to Exhibit *
27.1 to Lear's Quarterly Report on Form 10-Q filed August 4,
1995).
99.1 -- Amended and Restated Stockholders and Registration Rights *--
Agreement dated as of September 27, 1991 by and among Lear, 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 Investorscertain management investors (incorporated by reference to
Exhibit 2.2 to Holdings'Lear Holdings Corporation's Current Report on
Form 8-K dated September 24, 1991).
99.2 -- 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'Lear Holdings Corporation's Current
Report on Form 8-K dated September 24, 1991).
99.3 -- Amendment to Amended and Restated Stockholders and Registration *--
Rights Agreement (incorporated by reference to Exhibit 10.24 to
Lear's Transition Report on Form 10-K filed March 31, 1994).
99.4 -- Waiver to Amended and Restated Stockholders and Registration --
Rights Agreement dated August 15, 1995 (incorporated by
reference to Exhibit 10.2499.4 to Lear's Transition ReportRegistration Statement on
Form 10-K filed March 31, 1994)S-3 (33-61583).
*99.5 -- Waiver to Amended and Restated Stockholders and Registration
Rights Agreement dated June , 1996.
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*** To be filed by amendmentAmendment.