LEAR CORP
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Washington, D.C. 20549
Form 10-K
| (Mark One) | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2010. | ||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to . |
Commission file
number: 1-11311
(Exact name of registrant as
specified in its charter)
|
Delaware
|
13-3386776 | |
|
(State or other jurisdiction
of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
|
21557 Telegraph Road, Southfield, MI
(Address of principal executive offices) |
48033
(Zip code) |
Registrant’s telephone number, including area code:
(248) 447-1500
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange on Which Registered
|
|
|
Common Stock, par value $0.01 per share
|
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
Warrants to purchase Common Stock, par value $0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
o
No
þ
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Act during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
o
No
o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K
is not contained herein and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting
company” in Rule
12b-2
of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
As of July 3, 2010, the
aggregate market value of the registrant’s common stock,
par value $0.01 per share, held by non-affiliates of the
registrant was $3,072,697,530. The closing price of the common
stock on July 3, 2010, as reported on the New York Stock
Exchange, was $63.98 per share.
Indicate by check mark whether the
registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a
court. Yes
þ
No
o
As of February 4, 2011, the
number of shares outstanding of the registrant’s common
stock was 52,605,002 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain sections of the registrant’s Notice of Annual
Meeting of Stockholders and Proxy Statement for its Annual
Meeting of Stockholders to be held in May 2011, as described in
the Cross-Reference Sheet and Table of Contents included
herewith, are incorporated by reference into Part III of
this Report.
LEAR
CORPORATION AND SUBSIDIARIES
CROSS
REFERENCE SHEET AND TABLE OF CONTENTS
| (1) | Certain information is incorporated by reference, as indicated below, to the registrant’s Notice of Annual Meeting of Stockholders and Definitive Proxy Statement on Schedule 14A for its Annual Meeting of Stockholders to be held in May 2011 (the “Proxy Statement”). | |
| (2) | A portion of the information required is incorporated by reference to the Proxy Statement sections entitled “Election of Directors” and “Directors and Corporate Governance.” | |
| (3) | Incorporated by reference to the Proxy Statement sections entitled “Directors and Corporate Governance — Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report.” | |
| (4) | A portion of the information required is incorporated by reference to the Proxy Statement section entitled “Security Ownership of Certain Beneficial Owners, Directors and Management.” | |
| (5) | Incorporated by reference to the Proxy Statement sections entitled “Certain Relationships and Related-Party Transactions” and “Directors and Corporate Governance — Independence of Directors.” | |
| (6) | Incorporated by reference to the Proxy Statement section entitled “Fees of Independent Accountants.” |
Table of Contents
In this Report, when we use the terms the
“Company,” “Lear,” “we,”
“us” and “our,” unless otherwise indicated
or the context otherwise requires, we are referring to Lear
Corporation and its consolidated subsidiaries. A substantial
portion of the Company’s operations are conducted through
subsidiaries controlled by Lear Corporation. The Company is also
a party to various joint venture arrangements. Certain
disclosures included in this Report constitute forward-looking
statements that are subject to risks and uncertainties. See
Item 1A, “Risk Factors,” and Part II
—
Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Forward-Looking Statements.”
BUSINESS
OF THE COMPANY
General
Lear Corporation is a leading tier 1 supplier to the global
automotive industry. Our business spans all major automotive
markets, and we supply our products to virtually every major
automotive manufacturer in the world. With a manufacturing,
engineering and administrative footprint spanning 34 countries
and 200 locations, we are continuing to expand into emerging
markets as opportunities develop.
We conduct our business in two operating segments: Seating and
Electrical Power Management Systems (“EPMS”). The
seating segment includes seat systems and related components,
such as seat frames, recliner mechanisms, seat tracks, seat trim
covers, headrests and seat foam. The EPMS segment includes
electrical distribution systems for traditional powertrain
vehicles, as well as a new generation of hybrid and electric
vehicles. Key components that allow us to route electrical
signals and manage electrical power within a vehicle include:
wiring harnesses, terminals and connectors, junction boxes,
electronic control modules and wireless remote control devices,
such as key fobs.
In recent years, we have implemented a number of strategic
actions to better position our business to deliver superior
long-term shareholder value while maintaining a strong and
flexible balance sheet. We are focused on growing and improving
the competitiveness of our two core businesses: Seating and
EPMS. As a result, we have divested our interiors business and
reduced capital spending in products determined to be non-core.
These strategic actions allowed our global business units to
better leverage their scale and low-cost capabilities to improve
overall operating efficiency and align our product offerings
with the increasing customer trend toward global platforms.
We believe that the initiatives implemented over the last few
years will continue to add value for our stakeholders. Specific
elements of the strategy to date have been:
| • | Focus on Core Capabilities, Selective Vertical Integration and Investments in Technology | |
| • | Leverage Global Presence/Scale and Expand Low-Cost Footprint | |
| • | Enhance and Diversify Strong Customer Relationships, Primarily through Operating Performance |
We believe that it is important to have capabilities that are
aligned with our major customers’ global product strategy
and to leverage our expanding design, engineering and
manufacturing footprint in low-cost regions. We are one of the
few suppliers in each of our product segments that are able to
serve customers with design, development, engineering,
integration and production capabilities in all
automotive-producing regions of the world and in every major
market, including North America, South America, Europe and Asia.
We currently support our global operations with more than 100
manufacturing and engineering facilities located in 20 low-cost
countries including China, India, Mexico, Morocco, the
Philippines, Russia, Thailand and Vietnam. Our expansion plans
are focused on emerging markets. Asia, in particular, continues
to present significant growth opportunities, as major global
automotive manufacturers implement production expansion plans
and local automotive manufacturers aggressively expand their
operations to meet expected growth in long-term demand in this
region. Our expansion in Asia has been accomplished through
wholly owned subsidiaries, as well as a series of joint ventures
with our customers
and/or
local
suppliers. As of December 31, 2010, we had 19 joint
ventures located throughout Asia, as well as five in
3
Table of Contents
North America, three in Europe and Africa and one with
operations in all three regions. In addition to helping us grow
our business in new markets, these joint ventures have helped us
to expand our product offerings and broaden our customer base.
Key trends affecting our business include:
| • | Sustained recovery in mature markets, particularly North America, which is expected to continue based on recent industry sales rates below historical market replacement rates; | |
| • | Continued growth in emerging markets; | |
| • | Globalization of the automotive industry, including automotive manufacturers’ increasing utilization of global vehicle platforms; | |
| • | Growth in the compact car segment, with 75% of projected growth in industry production over the next five years coming from these vehicles, reflecting increasing fuel economy and affordability concerns; | |
| • | Increasing demand for more features and functionality in vehicles, driving an increase in traditional electrical distribution systems; and | |
| • | Emergence of alternative powertrains, including electric, hybrid-electric and other technologies, driving growth in high-power electrical systems and components. |
We believe that our strong market presence will allow us to
capitalize on mature market recoveries, while our global
engineering and manufacturing capabilities will provide
customers with options to support global vehicle platforms.
As a part of our focus on investing in technology, we have
developed independent brand and marketing strategies for our
product segments and focused our efforts in three principal
areas: (i) where we have a competitive advantage, such as
our flexible seat architectures, our industry-leading
ProTec
®
products, including our self-aligning head restraints, and our
leading electrical technology, including our solid state
junction boxes, (ii) where we perceive that there is a
significant market opportunity, such as electrical products for
the hybrid and electric vehicle market, and (iii) where we
can enhance the next generation of more fuel efficient and
environmentally friendly vehicles, such as our lightweight,
low-mass alternative materials and products, including
SoyFoam
tm
and Dynamic Environmental Comfort
System
tm
.
History
Lear was founded in Detroit in 1917 as American Metal Products,
a manufacturer of seating assemblies and other components for
the automotive and aircraft industries. Through a management-led
buyout in 1988, Lear Corporation established itself as a
privately-held seat assembly operation for the North American
automobile market with annual sales of approximately
$900 million. We completed an initial public offering in
1994 and developed into a global supplier through organic growth
and a series of acquisitions.
In 2005, we initiated a multi-year operational restructuring
strategy to (i) eliminate excess capacity and lower our
operating costs, (ii) streamline our organizational
structure and reposition our business for improved long-term
profitability and (iii) better align our manufacturing
footprint with the changing needs of our customers. In light of
industry conditions and customer announcements, we expanded this
strategy, and through the end of 2010, we incurred pretax costs
of $809 million, including related manufacturing
inefficiency charges of $73 million, in connection with
these activities. This resulted in the closure of 44
manufacturing and 11 administrative facilities and a current
footprint with more than 80% of our component facilities and
more than 90% of our related employment in 20 low-cost
countries. Our
just-in-time
(“JIT”) facilities are necessarily located near our
customers’ assembly plants. We expect elevated
restructuring actions and related investments to continue in
2011 and to curtail thereafter. For further information, see
Note 5, “Restructuring,” to the consolidated
financial statements included in this Report.
Global industry production levels increased from
53.4 million units in 1999 to 68.7 million units in
2007. Since that time, the global automotive industry has
undergone major restructuring and consolidation in response to
overcapacity, uncompetitive labor agreements, narrow profit
margins, excess debt and the necessary realignment of resources
from mature markets to emerging markets. In 2008 and continuing
into 2009, the global economic
4
Table of Contents
downturn and associated decline in automotive production
(particularly in North America and Europe) represented a
‘turning point’ for the industry. This included
bankruptcy filings for Chrysler on April 30, 2009 and
General Motors on June 1, 2009. While Lear’s total
restructuring efforts from 2005 through 2009 resulted in a
cumulative improvement of approximately $400 million in our
annual on-going operating costs, it did not offset the financial
impact of unprecedented volume reductions in our mature markets
in 2009.
During this recent downturn, industry production in North
America and Europe experienced the steepest
peak-to-trough
declines in history. In North America, industry production
declined 50% — from a peak of 17.2 million units
in 2000 to a trough of 8.6 million units in 2009. In
Europe, industry production declined over 20% — from a
peak of 20.2 million units in 2007 to a trough of
15.6 million units in 2009.
In 2009, following a comprehensive evaluation of our strategic
and financial options, we concluded that voluntarily filing for
bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code (“Chapter 11”) was necessary in
order to re-align our capital structure and position our
business for long-term success. On July 7, 2009, Lear and
certain of its U.S. and Canadian subsidiaries filed
petitions for relief under Chapter 11 with the bankruptcy
court. On November 9, 2009, our plan of reorganization
became effective, and we emerged from Chapter 11 bankruptcy
proceedings. For further information on the bankruptcy
proceedings, see Note 2, “Reorganization under
Chapter 11,” to the consolidated financial statements
included in this Report. As a result of our financial
restructuring, we finished 2009 with approximately
$1.6 billion of cash and $972 million of total debt on
our balance sheet, providing us with financial flexibility to
invest in our business and execute our strategic objectives
going forward.
In March 2010, we issued $350 million in aggregate
principal amount at maturity of senior unsecured notes due 2018
with a coupon rate of 7.875% and a yield to maturity of 8.00%
and $350 million in aggregate principal amount at maturity
of senior unsecured notes due 2020 with a coupon rate of 8.125%
and a yield to maturity of 8.25%. The net proceeds from the
issuance of the notes, together with existing cash on hand, were
used to repay in full an aggregate amount of $925 million
of term loans provided under our first and second lien credit
agreements.
Since our emergence from Chapter 11 bankruptcy proceedings,
Lear’s corporate credit rating has continued to improve as
judged by credit industry professionals.
2010
Developments
Our sales are driven by the number of vehicles produced by the
automotive manufacturers, which is ultimately dependent on
consumer and fleet demand for automotive vehicles, and our level
of content on specific vehicle platforms. In 2010, our average
content per vehicle produced in North America and Europe was
$340 and $285, respectively. In Asia, where we are pursuing a
strategy of aggressive expansion of our sales and operations, we
had net sales of $1.9 billion in 2010, as compared to
$1.3 billion in 2009. Our sales are well diversified
geographically. In 2010, approximately 42% of our sales were
generated in Europe, 34% in North America, 16% in Asia and 8% in
the rest of the world. General Motors, Ford and BMW are our
three largest customers globally. In addition, Daimler, Fiat
(excluding Chrysler), Hyundai, PSA, Renault-Nissan and VW each
represented 3% or more of our 2010 net sales. We supply and
have expertise in all vehicle segments of the automotive market.
Our sales content tends to be higher on those vehicle platforms
and segments which offer more features and functionality. The
popularity of particular vehicle platforms and segments varies
over time and by regional market. We expect to continue to win
new business on vehicle platforms and segments in line with
market trends. We believe that there are opportunities in the
trends toward hybrid and electric vehicles and increasing
consumer demand for additional features and functionality in
vehicles.
Our customers typically award contracts several years before
actual production is scheduled to start. Each year, the
automotive manufacturers introduce new vehicles, update existing
models and discontinue certain models and, recently, even
complete brands. In this process, we may be selected as the
supplier on a new model, we may continue as the supplier on an
updated model or we may lose a new or updated model to a
competitor. Our sales backlog reflects anticipated net sales
from formally awarded new and open replacement programs, less
lost and discontinued programs. We measure our sales backlog
based on contracts to be executed in the next three years. This
measure excludes sales at our non-consolidated joint ventures
and does not reflect customer-imposed price reductions on newly
awarded or existing programs. As of January 2010, our sales
backlog was $1.4 billion, of which
5
Table of Contents
$300 million related to programs starting in 2010. As of
January 2011, our sales backlog is $2.2 billion, of which
$900 million relates to programs starting in 2011. Our
current sales backlog assumes volumes based on the independent
industry projections of IHS Automotive as of October 15,
2010, and a Euro exchange rate $1.33 / Euro. This
sales backlog is generally subject to a number of risks and
uncertainties, including vehicle production volumes on new and
replacement programs and foreign exchange rates, as well as the
timing of production launches and changes in customer
development plans. For additional information regarding risks
that may affect our sales backlog, see Part II —
Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Forward-Looking Statements.”
Details on auto production in certain key regions for 2010 and
2009 are provided below. The
year-over-year
North American increase of 39% in 2010 is substantial; however,
the 2010 volume of 11.9 million units remains significantly
below the 15.0 million units produced as recently as 2007.
The
year-over-year
European increase of 12% in 2010 reflects, in part, the
subsidized new car purchase programs adopted by several
countries in the European Union in 2009. Brazil, Russia, India
and China continued to demonstrate strong volume increases. The
largest country represented in the rest of world category is
Japan, where we have a relatively small presence. Global vehicle
production in 2010 of 71.5 million units exceeded the
previous record of 68.7 million units in 2007. Actual
results are impacted by the specific mix of products within each
market.
| 2010 | 2009 | % Change | ||||||||||
| (In thousands of units) | ||||||||||||
|
North America
|
11,908.9 | 8,558.2 | 39 | % | ||||||||
|
Europe
|
17,446.1 | 15,599.7 | 12 | |||||||||
|
Brazil
|
3,155.5 | 2,924.4 | 8 | |||||||||
|
Russia
|
1,285.6 | 657.9 | 95 | |||||||||
|
India
|
3,161.7 | 2,403.5 | 32 | |||||||||
|
China
|
14,506.7 | 11,121.3 | 30 | |||||||||
|
Rest of world
|
20,083.8 | 16,149.0 | 24 | |||||||||
|
Total
|
71,548.3 | 57,414.0 | 25 | % | ||||||||
Available
Information on our Website
Our website address is
http://www.lear.com.
We make available on our website, free of charge, the periodic
reports that we file with or furnish to the Securities and
Exchange Commission (“SEC”), as well as all amendments
to these reports, as soon as reasonably practicable after such
reports are filed with or furnished to the SEC. We also make
available on our website or in printed form upon request, free
of charge, our Corporate Governance Guidelines, Code of Business
Conduct and Ethics (which includes specific provisions for our
executive officers), charters for the standing committees of our
Board of Directors and other information related to the Company.
We are not including the information contained on our website as
a part of, or incorporating it by reference into, this Report.
The public may read and copy any materials that we file with the
SEC at the SEC’s Public Reference Room at
100 F Street, N.E., Washington D.C. 20549. The public
may obtain information about the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet site
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information related to issuers that file electronically
with the SEC.
Seating
Segment
Lear is a recognized global leader in complete automotive seat
systems, as well as in certain individual component parts. The
seating segment consists of the design, manufacture, assembly
and supply of vehicle seating requirements. We produce seat
systems for automobiles and light trucks that are fully
assembled and ready for installation. In all cases, seat systems
are designed and engineered for specific vehicle models or
platforms. We have developed modular seat architectures for both
front and rear seats, whereby we utilize pre-developed, modular
design concepts to build a program-specific seat, incorporating
the latest performance requirements and safety
6
Table of Contents
technology, in a shorter period of time, thereby assisting our
customers in achieving a faster
time-to-market
and lower cost. Our seat systems can be designed to achieve
maximum passenger comfort by adding a wide range of manual and
power features, such as lumbar supports, cushion and back
bolsters and leg supports.
We have been pursuing a selective vertical integration strategy
to enhance growth, improve quality, increase profitability and
defend our current market position in JIT seat assembly. We
produce components for seat assemblies, such as seat frames,
recliner mechanisms, seat tracks, seat trim covers, headrests
and seat foam. In this regard, we have expanded our cut and sew
operations in low-cost markets, entered the fabric business
(acquisition of New
Trend
tm
),
developed leather finishing and marketing capability
(introduction of
Aventino
tm
premium leather), expanded our precision engineered seat
mechanism expertise and increased our foam capability
(acquisition of Renosol Seating, L.L.C.).
Our product strategy is to develop standardized seat structures
and mechanisms that can be adapted to multiple segments to
minimize investment costs. We have modular seat designs that
allow for
sub-assemblies
to be produced in any region of the world. We have improved our
basic seat structure and mechanism designs, which will provide
cost competitive entry level seats to our customers to support
export from emerging markets to North America and Europe.
As a result of our innovative product design and technology
capabilities, we are a leader in the design of seats with
enhanced safety and convenience features. For example, our
ProTec
®
PLuS Self-Aligning Head Restraint is an advancement in seat
safety features. By integrating the head restraint with the
lumbar support, the occupant’s head is supported earlier
and for a longer period of time in a rear-impact collision,
potentially reducing the risk of injury. We also supply ECO and
EVO lightweight seat structures which have been designed to
accommodate our customers’ needs for all market segments,
from emerging to mature, and incorporate our ultra lightweight
seat adjustment mechanisms. To address the increasing focus on
craftsmanship, we have developed concave seat contours that
eliminate wrinkles and provide improved styling. We are also
satisfying our customers’ growing demand for reconfigurable
and lightweight seats with our thin profile rear seat and our
stadium slide seat system. For example, General Motors’
full-size sport utility vehicles and full-size pickup trucks use
our reconfigurable seat technology, and General Motors’
full-size sport utility vehicles, as well as the Ford Explorer,
use our thin profile rear seat technology for their third row
seats. Additionally, our
LeanProfile
tm
seats incorporate the next generation of low-mass, high-function
and environmentally friendly features, and our Dynamic
Environmental Comfort
System
tm
can offer weight reductions of 30% — 40%, as compared
to current foam seat designs, and utilizes environmentally
friendly materials, which reduce carbon dioxide emissions. Our
seating products also reflect our environmental focus. For
example, in addition to our Dynamic Environmental Comfort
System
tm
,
our
SoyFoam
tm
seats, which are used in the Ford Mustang, are up to 24%
renewable, as compared to nonrenewable, petroleum-based foam
seats.
Superior quality and customer service continue to be areas of
competitive advantage for our seating business. Lear presently
ranks as the highest quality major seat manufacturer in the
annual J.D. Power and Associates Seat Quality and Satisfaction
Study
sm
and has held that distinction for nine out of the last ten years.
Our seat assembly facilities use lean manufacturing techniques,
and products are delivered to the automotive manufacturers on a
JIT basis, matching our customers’ exact build
specifications for a particular day and shift, thereby reducing
inventory levels. These facilities are typically located
adjacent to or near our customers’ manufacturing and
assembly sites. Our seat components, including recliner
mechanisms, seat tracks and seat trim covers, are manufactured
in batches, typically utilizing facilities in low-cost regions.
The principal raw materials used in our seat systems, including
steel, foam chemicals and leather hides, are generally available
and obtained from multiple suppliers under various types of
supply agreements. Fabric, foam, seat frames, recliner
mechanisms, seat tracks and certain other components are either
manufactured internally or purchased from multiple suppliers
under various types of supply agreements. The majority of the
steel used in our products is comprised of components that are
integrated into a seat system, such as seat frames, recliner
mechanisms, seat tracks and other mechanical components.
Therefore, our exposure to changes in steel prices is primarily
indirect, through these purchased components. We utilize a
combination of short-term and long-term supply contracts to
purchase key components. We generally retain the right to
terminate these agreements if our supplier does not remain
competitive in terms of cost, quality, delivery, technology or
customer support.
7
Table of Contents
Financial
Summary
A summary of revenues from external customers and other
financial information for our seating segment is shown below.
For additional information regarding Lear’s total sales and
long-lived assets by geographic area, as well as customer
concentrations, see Note 14, “Segment Reporting,”
to the consolidated financial statements included in this
Report. The top five customers of this segment are: General
Motors, Ford, BMW, Fiat and Volkswagen.
|
2010
|
2009 (1) |
2008
|
||||||||||||||||||
| Successor | Combined | Successor | Predecessor | Predecessor | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Revenues from external customers
|
$ | 9,395.3 | $ | 7,812.9 | $ | 1,251.1 | $ | 6,561.8 | $ | 10,726.9 | ||||||||||
|
Segment
earnings
(2)
|
655.0 | 237.3 | 52.4 | 184.9 | 386.7 | |||||||||||||||
|
Depreciation and amortization
|
145.7 | 156.5 | 24.9 | 131.6 | 176.2 | |||||||||||||||
|
Capital expenditures
|
114.2 | 65.5 | 19.0 | 46.5 | 106.3 | |||||||||||||||
|
Total assets
|
3,491.1 | 3,182.9 | 3,182.9 | N/A | 3,349.5 | |||||||||||||||
| (1) | As discussed in Note 1, “Basis of Presentation,” to the consolidated financial statements included in this Report, in connection with the Company’s emergence from Chapter 11 bankruptcy proceedings on November 9, 2009, the Company adopted fresh-start accounting on November 7, 2009. As a result, financial data presented for periods prior to November 7, 2009, is identified as “Predecessor” information, and financial data presented for periods subsequent to November 7, 2009, is identified as “Successor” information. For purposes of this table, 2009 Successor amounts and 2009 Predecessor amounts have been combined to enhance comparability between periods. | |
| (2) | As discussed in Note 14, “Segment Reporting,” segment earnings represents pretax income (loss) before goodwill impairment charges, interest expense, other (income) expense, reorganization items and fresh-start accounting adjustments and equity in net (income) loss of affiliates. |
Competition
We are one of only two primary independent suppliers with global
scale and the capability to design, develop, manufacture and
deliver complete seat systems and components to every automotive
market in the world. Based on independent market studies and
management estimates, we believe that we hold a #2 position
globally on the basis of revenue with strong positions in all
major markets. We estimate the global seat systems market to be
approximately $50 billion in 2010. We believe that we are
also among the leading suppliers of various components produced
for complete seat systems.
Our primary independent competitor globally is Johnson Controls,
Inc. Other competitors in this segment include Faurecia S.A.,
Toyota Boshoku Corporation, TS Tech Co., Ltd. and Magna
International Inc., which have varying market presence depending
on the region, country or automotive manufacturer. Peugeot S.A.,
Toyota Motor Corporation and Honda Motor Co. Ltd. hold equity
ownership positions in Faurecia S.A., Toyota Boshoku Corporation
and TS Tech Co., Ltd., respectively. Other automotive
manufacturers maintain a presence in the seat systems market
through wholly owned companies or in-house operations. In seat
components, we compete with the seat systems suppliers
identified above, as well as certain regional suppliers that
specialize in particular components.
Technology
We maintain
state-of-the-art
testing, instrumentation and data analysis capabilities. We own
industry-leading seat validation test centers featuring
crashworthiness, durability and full acoustic and sound quality
testing capabilities. Together with computer-controlled data
acquisition and analysis capabilities, these centers provide
precisely controlled laboratory conditions for sophisticated
testing of parts, materials and systems.
In addition, we incorporate many convenience, comfort and safety
features into our designs, including advanced whiplash
prevention concepts, integrated restraint seat systems (3-point
and 4-point integrated belt systems), side impact airbags and
integrated child restraint seats. We also invest in our
computer-aided engineering
8
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design and computer-aided manufacturing systems. Recent
enhancements to these systems include advanced acoustic modeling
and analysis capabilities and the enhancement of our research
and design website, which is used for global customer
telecommunications, technology communications, collaboration and
the direct exchange of digital assets.
For additional factors that may impact this operating
segment’s business, financial condition, operating results
and/or
cash
flows, see Item 1A, “Risk Factors.”
EPMS
Segment
The EPMS segment consists of the design, manufacture, assembly
and supply of electrical distribution systems and components for
traditional powertrain vehicles, as well as a new generation of
hybrid and electric vehicles. With the increase in the number of
electrical features and electronically controlled functions on
the vehicle, there is an increasing focus on improving the
functionality of the vehicle’s electrical architecture. We
are able to provide our customers with design and engineering
solutions and manufactured systems, modules and components that
optimally integrate the entire electrical distribution system,
consisting of wiring, terminals and connectors, junction boxes
and electronic modules, within the overall architecture of the
vehicle. This integration can reduce the overall system cost and
weight and improve the reliability and packaging by reducing the
number of wires and terminals and connectors normally required
to manage electrical power and signal distribution within a
vehicle. For example, our integrated seat adjuster module has
twenty-four fewer cut circuits and five fewer connectors, weighs
one-half pound less and costs 20% less than a traditional
separated electronic control unit and seat wiring system. In
addition, our smart junction box expands the traditional
junction box functionality by utilizing printed circuit board
technologies, which allows additional function integration.
We have structured our business globally to achieve engineering
synergies and take advantage of the industry shift toward global
vehicle platforms. We have narrowed our product focus to the
electrical distribution system of the vehicle and have
substantially exited non-core product lines, such as switches
and tire pressure monitoring systems.
Our High Power Global Center of Excellence, which opened in
2008, is dedicated to the development of high-power wiring,
terminals and connectors and high-power and hybrid electrical
systems and components. Additionally, we are supplying, or will
supply, one or more high-power systems or components, including
high voltage wire harnesses, custom terminals and connectors,
Smart
Connector
tm
technology, battery chargers and voltage quality modules, for
new models from Daimler, Renault and General Motors (including
the Chevrolet Volt extended range electric vehicle), BMW,
Nissan, Land Rover and Coda Automotive.
Electrical distribution systems are comprised primarily of wire
harness assemblies, terminals and connectors and control
modules, including junction boxes and fuse boxes. Wire harness
assemblies consist of a collection of wiring and terminals and
connectors that connect all of the various electrical and
electronic devices within the vehicle to each other
and/or
to a
power source. Fuse boxes are centrally located boxes within the
vehicle that contain fuses
and/or
relays for circuit and device protection, as well as for power
distribution. Junction boxes serve as a connection point for
multiple wire harness assemblies. They may also contain fuses
and/or
relays for circuit and device protection.
Smart junction boxes are junction boxes with integrated
electronic functionality often contained in other body control
modules. Smart junction boxes eliminate interconnections,
increase overall system reliability and can reduce the number of
electronic modules within the vehicle. Certain vehicles may have
two or three smart junction boxes linked as a multiplexed buss
line. Body control modules control various interior comfort and
convenience features. These body control modules may consolidate
multiple functions into a single module or may focus on a
specific function or part of the car interior, such as the
integrated seat adjuster module or the integrated door module.
The integrated seat adjuster module combines the controls for
seat adjustment, power lumbar support, memory function and seat
heating and ventilation. The integrated door module combines the
controls for window lift, door lock, power mirror and seat
heating and ventilation.
Wireless products send and receive signals using radio frequency
technology. Our wireless systems include passive entry systems
and dual range/dual function remote keyless entry systems.
Passive entry systems allow the
9
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vehicle operator to unlock the door without using a key or
physically activating a remote keyless fob. Dual range/dual
function remote keyless entry systems allow a single transmitter
to perform multiple functions. For example, our
Car2U
tm
remote keyless entry system can control and display the status
of the vehicle, such as starting the engine, locking and
unlocking the doors, opening the trunk and setting the cabin
temperature. In addition, dual range/dual function remote
keyless entry systems combine remote keyless operations with
vehicle immobilizer capability.
Our lighting control module integrates electronic control logic
and diagnostics with the headlamp switch. Entertainment products
include radio amplifiers, sound systems, in-vehicle television
tuner modules and floor-, seat- or center console-mounted Media
Console with a
flip-up
screen that provides DVD and video game viewing for back-seat
passengers.
Electrical distribution systems are networks of wiring and
associated control devices that route electrical signals and
manage electrical power within a vehicle. Wire harness
assemblies consist of raw, coiled wire, which is automatically
cut to length and terminated. Individual circuits are assembled
together on a jig or table, inserted into connectors and wrapped
or taped to form wire harness assemblies. Substantially all of
our materials are purchased from suppliers, with the exception
of a portion of the terminals and connectors that are produced
internally. The majority of our copper purchases are comprised
of extruded wire that is integrated into electrical wire.
Certain materials, particularly circuit boards, are available
from a limited number of suppliers. Supply agreements typically
last for up to one year, and our copper wire contracts are
generally subject to price index agreements. The assembly
process is labor intensive, and as a result, production is
generally performed in low-cost labor sites in Mexico, Honduras,
Eastern Europe, Africa, China and the Philippines.
Some of the principal components attached to the wire harness
assemblies that we manufacture include junction boxes and
electronic control modules. Junction boxes are manufactured in
North America, Europe and the Philippines with a proprietary,
capital-intensive assembly process, using printed circuit
boards, a portion of which are purchased from third-party
suppliers. Proprietary features have been developed to improve
the function of these junction boxes in harsh environments,
including high temperatures and humidity. Electronic control
modules are assembled using high-speed surface mount placement
equipment in North America and Europe.
Increasing demand for more features and functionality in
vehicles is driving an increase in traditional electrical
distribution systems. In addition, the emergence of alternative
powertrains, including electric, hybrid-electric and other
technologies is driving growth in high-power electrical systems
and components. Hybrid and electric vehicles offer a significant
content opportunity with the potential to more than double the
electrical content per vehicle. The EPMS segment is technology
driven and typically has higher investment requirements as a
percentage of sales than our seating segment. Our complete
electrical distribution system design capabilities, coupled with
certain market-leading component technologies, allow access to
our customers’ development teams, which provides an early
indication of our customers’ product needs. We also believe
that our capabilities in terminals and connectors can be
leveraged to a great extent to capture not only additional
market share and margins in wire harnesses but also provide the
longer term potential for non-automotive applications. As
mentioned above, our products are very cost sensitive because of
their labor intensity and batch processing nature. Our
manufacturing strategy is to produce all components in low-cost
or emerging markets leveraging our existing footprint. We plan
to increase our manufacturing capacity in Thailand, Brazil and
China to support our present backlog.
Financial
Summary
A summary of revenues from external customers and other
financial information for our EPMS segment is shown below. For
additional information regarding Lear’s total sales and
long-lived assets by geographic area, as
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well as customer concentrations, see Note 14, “Segment
Reporting,” to the consolidated financial statements
included in this Report. The top five customers of this segment
are: Ford, BMW, Nissan, PSA and Volvo.
| 2010 | 2009 (1) | 2008 | ||||||||||||||||||
| Successor | Combined | Successor | Predecessor | Predecessor | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Revenues from external customers
|
$ | 2,559.3 | $ | 1,926.7 | $ | 329.8 | $ | 1,596.9 | $ | 2,843.6 | ||||||||||
|
Segment
earnings
(2)
|
100.5 | (155.8 | ) | (24.5 | ) | (131.3 | ) | 44.7 | ||||||||||||
|
Depreciation and amortization
|
83.9 | 94.2 | 14.0 | 80.2 | 108.7 | |||||||||||||||
|
Capital expenditures
|
71.1 | 44.8 | 16.9 | 27.9 | 60.8 | |||||||||||||||
|
Total assets
|
1,052.2 | 966.5 | 966.5 | N/A | 1,385.7 | |||||||||||||||
| (1) | As discussed in Note 1, “Basis of Presentation,” to the consolidated financial statements included in this Report, in connection with the Company’s emergence from Chapter 11 bankruptcy proceedings on November 9, 2009, the Company adopted fresh-start accounting on November 7, 2009. As a result, financial data presented for periods prior to November 7, 2009, is identified as “Predecessor” information, and financial data presented for periods subsequent to November 7, 2009, is identified as “Successor” information. For purposes of this table, 2009 Successor amounts and 2009 Predecessor amounts have been combined to enhance comparability between periods. | |
| (2) | As discussed in Note 14, “Segment Reporting,” segment earnings represents pretax income (loss) before goodwill impairment charges, interest expense, other (income) expense, reorganization items and fresh-start accounting adjustments and equity in net (income) loss of affiliates. |
Competition
We estimate our global target market for electrical distribution
systems to be approximately $40 billion. Our major
competitors in this market include Delphi Corporation, Yazaki
Corporation, Sumitomo Corporation, Leoni AG and Furukawa
Electric Co., Ltd., as well as certain regional suppliers. We
are one of only four suppliers with complete electrical
distribution design and manufacturing capabilities for both
traditional and high-power systems and components in every
automotive market in the world. Our competition in terminals and
connectors includes Tyco Electronics, Molex Incorporated and FCI
SA.
Technology
The hybrid and electric vehicle market represents a significant
advancement in emerging technology for electrical distribution
systems and components. We offer a product portfolio of
stand-alone and fully integrated solutions for our
customers’ existing and future hybrid and electric
vehicles. Our systems and components have achieved industry
leading efficiency, packaging and reliability. We have over 100
patents and patents pending in our high-power product segment,
and our product portfolio includes the following:
| • | High-power charging systems comprised of on/off board chargers, a family of charge cord sets, fast charge stations and charge receptacles and couplers. | |
| • | High-power distribution systems including high voltage wire harnesses found throughout the vehicle and battery pack, high-power terminals and connectors (designed to carry high amounts of electric current, to be packaged tightly and to provide proper sealing, high-use reliability and ease of use for the consumer) and battery disconnect units, as well as manual service disconnects. | |
| • | Energy management systems including DC-DC converters, battery monitoring systems, dual storage management units and our patent-pending integrated power module, which integrates the functionality of charging and energy management for an efficient solution for the upcoming generation of plug-in hybrid and electric vehicles. |
We continue to develop new products and technologies, including
solid state smart junction boxes and new radio-frequency
products, as well as high-end electronics for the premier luxury
automotive manufacturers around the world, such as gateway
signal-routing modules, exterior and interior lighting controls
and other highly
11
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integrated electronic body modules. Solid state smart junction
boxes represent a significant improvement over existing smart
junction box technology because they replace the relatively
large fuses and relays with solid state drivers. Importantly,
the technology enables the integration of additional feature
content into the smart junction box with a sizable cost
reduction for the electrical system.
Our High Power Global Center of Excellence, also located in
Southfield, Michigan, supports growth opportunities in the
hybrid and electric vehicle market through the development of
high-power and hybrid electrical systems and components.
We also maintain electromagnetic compatibility labs at several
of our electrical facilities, where we develop and test
electronic products for compliance with government requirements
and customer specifications. We have developed a number of
innovative products and features focused on increasing value to
our customers, such as interior control and entertainment
systems, which include sound systems and family entertainment
systems, and wireless systems, which include remote keyless
entry.
For additional factors that may impact this operating
segment’s business, financial condition, operating results
and/or
cash
flows, see Item 1A, “Risk Factors.”
Seasonality
Our principal operations are directly related to the automotive
industry. Consequently, we may experience seasonal fluctuations
to the extent automotive vehicle production slows, such as in
the summer months when many customer plants typically close for
model year changeovers
and/or
vacations or during periods of high vehicle inventory. See
Note 16, “Quarterly Financial Data,” to the
consolidated financial statements included in this Report.
Customers
We serve the worldwide automotive and light truck market, which
produced over 71 million vehicles in 2010. We have
automotive content on over 300 vehicle nameplates worldwide and
serve all of the world’s major automotive manufacturers.
In 2010, General Motors and Ford, two of the largest automotive
and light truck manufacturers in the world, accounted for 21%
and 18%, respectively, of our net sales. In addition, BMW
accounted for approximately 11% of our net sales. For further
information related to our customers and domestic and foreign
sales and operations, see Note 14, “Segment
Reporting,” to the consolidated financial statements
included in this Report.
We receive purchase orders from our customers that generally
provide for the supply of a customer’s annual requirements
for a particular vehicle model and assembly plant, or in some
cases, for the supply of a customer’s requirements for the
life of a particular vehicle model, rather than for the purchase
of a specified quantity of products. Although most purchase
orders may be terminated by our customers at any time, such
terminations have been minimal and have not had a material
impact on our operating results. We are subject to risks that an
automotive manufacturer will produce fewer units of a vehicle
model than anticipated or that an automotive manufacturer will
not award us a replacement program following the life of a
vehicle model. To reduce our reliance on any one vehicle model,
we produce automotive systems and components for a broad
cross-section of both new and established models. However,
larger cars and light trucks, as well as vehicle platforms that
offer more features and functionality, such as luxury, sport
utility and crossover vehicles, typically have more content and,
therefore, tend to have a more significant impact on our
operating performance.
Our agreements with our major customers generally provide for an
annual productivity price reduction. Historically, cost
reductions through product design changes, increased
manufacturing productivity and similar programs with our
suppliers have generally offset these customer-imposed price
reduction requirements. However, in recent years, unprecedented
increases and volatility in raw material, energy and commodity
costs had a material adverse impact on our operating results and
made it more difficult to offset these customer-imposed price
reduction requirements. While we have developed and implemented
strategies to mitigate the impact of higher raw material, energy
and commodity costs, these strategies typically offset only a
portion of the adverse impact. Although raw material, energy and
commodity costs (with the exception of copper costs) have
moderated, these costs remain volatile, and no assurance can be
given that we will be able to achieve or offset such
customer-imposed price
12
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reduction targets in the future. In addition, we are exposed to
increasing market risk associated with fluctuations in foreign
exchange as a result of our low-cost footprint and vertical
integration strategies. We intend to use derivative financial
instruments to manage a portion of our exposure to fluctuations
in foreign exchange. For additional information regarding our
foreign exchange risk, see Part II — Item 7,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Financial Condition — Foreign Exchange.”
Employees
As of December 31, 2010 and 2009, our employment levels
worldwide were approximately as follows:
|
Region
|
2010 | 2009 | ||||||
|
United States and Canada
|
6,900 | 5,500 | ||||||
|
Mexico
|
27,500 | 22,200 | ||||||
|
Central and South America
|
7,100 | 6,800 | ||||||
|
Europe and Africa
|
30,700 | 28,100 | ||||||
|
Asia
|
14,600 | 12,300 | ||||||
|
Total
|
86,800 | 74,900 | ||||||
A substantial number of our employees are members of unions or
national trade organizations. We have collective bargaining
agreements with several unions, including the United Auto
Workers, the Canadian Auto Workers and the International
Association of Machinists and Aerospace Workers. All of our
unionized facilities in the United States and Canada have a
separate collective bargaining agreement with the union that
represents the workers at such facilities, with each such
agreement having an expiration date that is independent of other
agreements. The majority of our employees outside of the Unites
States and Canada are members of industrial trade union
organizations or confederations within their respective
countries. Many of these organizations and confederations
operate under national contracts, which are not specific to any
one employer. We have occasionally experienced labor disputes at
our plants. We have been able to resolve all such labor disputes
and believe our relations with our employees are generally good.
See Item 1A, “Risk Factors — A significant
labor dispute involving us or one or more of our customers or
suppliers or that could otherwise affect our operations could
adversely affect our financial performance,” and
Part II — Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Forward-Looking Statements.”
Technology
Worldwide, we hold many patents and patents with applications
pending. While we believe that our patent portfolio is a
valuable asset, no individual patent or group of patents is
critical to the success of our business. We also license
selected technologies to automotive manufacturers and to other
automotive suppliers. We continually strive to identify and
implement new technologies for use in the design and development
of our products.
Advanced technology development is conducted worldwide at our
six advanced technology centers and at our product engineering
centers. At these centers, we engineer our products to comply
with applicable safety standards, meet quality and durability
standards, respond to environmental conditions and conform to
customer and consumer requirements. Our global innovation and
technology center located in Southfield, Michigan, develops and
integrates new concepts and is our central location for consumer
research, benchmarking, craftsmanship and industrial design
activity.
We have numerous registered trademarks in the United States and
in many foreign countries. The most important of these marks
include “LEAR CORPORATION” (including a stylized
version thereof) and “LEAR.” These marks are widely
used in connection with our product lines and services. The
trademarks and service marks “ADVANCE RELENTLESSLY,”
“CAR2U,” “PROTEC,” “PROTEC PLUS”
and others are used in connection with certain of our product
lines and services.
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We will continue to dedicate resources to engineering and
development. Engineering and development costs incurred in
connection with the development of new products and
manufacturing methods more than one year prior to launch, to the
extent not recoverable from our customers, are charged to
selling, general and administrative expenses as incurred. These
costs, excluding amounts recoverable from our customers, totaled
approximately $81 million, $83 million and
$113 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Environmental
Matters
We are subject to local, state, federal and foreign laws,
regulations and ordinances which govern activities or operations
that may have adverse environmental effects and which impose
liability for
clean-up
costs resulting from past spills, disposals or other releases of
hazardous wastes and environmental compliance. For a description
of our outstanding environmental matters and other legal
proceedings, see Note 13, “Commitments and
Contingencies,” to the consolidated financial statements
included in this Report.
In addition, our customers are subject to significant
environmentally focused state, federal and foreign laws and
regulations that regulate vehicle emissions, fuel economy and
other matters related to the environmental impact of vehicles.
To the extent that such laws and regulations ultimately increase
or decrease automotive vehicle production, such laws and
regulations would likely impact our business. See Item 1A,
“Risk Factors — Risk Related to Our
Business.”
Furthermore, we currently offer products with environmentally
friendly features, and our expertise and capabilities are
allowing us to expand our product offerings in this area. We
will continue to monitor emerging developments in this area.
Joint
Ventures and Noncontrolling Interests
We form joint ventures in order to gain entry into new markets,
expand our product offerings and broaden our customer base. In
particular, we believe that certain joint ventures have provided
us, and will continue to provide us, with the opportunity to
expand our business relationships with Asian automotive
manufacturers, particularly in emerging markets. We also partner
with companies having significant local experience in commerce,
customs and capacity to reduce our financial risk and enhance
our potential for achieving expected financial returns. In some
cases, these joint ventures may be located in North America and
used to expand our customer relationships.
As of December 31, 2010, we had 28 operating joint ventures
located in 20 countries. Of these joint ventures, twelve are
consolidated and 16 are accounted for using the equity method of
accounting. Nineteen of the joint ventures operate in Asia, five
operate in North America (including two that are dedicated to
serving Asian automotive manufacturers), three operate in Europe
(including one that is dedicated to serving Asian automotive
manufacturers) or Africa and one operates in all three regions.
With the exception of International Automotive Components Group
North America, LLC, all of our joint ventures operate in our
core products. Net sales of our consolidated joint ventures
accounted for approximately 11% of our net sales in 2010. As of
December 31, 2010, our investments in non-consolidated
joint ventures totaled $173 million. A summary of our
non-consolidated operating joint ventures, including ownership
percentages, is shown below. For further information related to
our
14
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joint ventures, see Note 6, “Investments in Affiliates
and Other Related Party Transactions,” to the consolidated
financial statements included in this Report.
|
Ownership
|
||||||
|
Country
|
Name
|
Percentage
|
||||
|
China
|
Shanghai Lear STEC Automotive Parts Co., Ltd. | 55 | % | |||
|
China
|
Lear Dongfeng Automotive Seating Co., Ltd. | 50 | ||||
|
China
|
Jiangxi Jiangling Lear Interior Systems Co., Ltd. | 50 | ||||
|
China
|
Beijing BAI Lear Automotive Systems Co., Ltd. | 50 | ||||
|
China
|
Beijing Lear Automotive Electronics and Electrical Products Co., Ltd. | 50 | ||||
|
China
|
Changchun Lear FAW Sihuan Automotive Electrical and Electronics Co., Ltd. | 49 | ||||
|
China
|
Beijing Lear Dymos Automotive Systems Co., Ltd. | 40 | ||||
|
Honduras
|
Honduras Electrical Distribution Systems S. de R.L. de C.V. | 49 | ||||
|
India
|
Dymos Lear Automotive India Private Limited (India) | 35 | ||||
|
Korea
|
Dong Kwang Lear Yuhan Hoesa (Korea) | 50 | ||||
|
Malaysia
|
TS Lear Automotive Sdn Bhd. (Malaysia) | 46 | ||||
|
South Africa
|
Lear Shurlok Electronics (Proprietary) Limited (South Africa) | 51 | ||||
|
Spain
|
Industrias Cousin Freres, S.L. (Spain) | 50 | ||||
|
United States
|
Kyungshin-Lear Sales and Engineering LLC | 49 | ||||
|
United States
|
Tacle Seating USA, LLC | 49 | ||||
|
United States
|
International Automotive Components Group North America, LLC | 23 | ||||
Our business, financial condition, operating results and cash
flows may be impacted by a number of factors. In addition to the
factors affecting our business identified elsewhere in this
Report, the most significant factors affecting our operations
include the following:
Risks
Related to Our Business
| • | A decline in the production levels of our major customers, particularly with respect to models for which we are a significant supplier, could adversely affect our financial performance. |
Our sales are driven by the number of vehicles produced by the
automotive manufacturers, which is ultimately dependent on
consumer and fleet demand for automotive vehicles, and our level
of content on specific vehicle platforms. Automotive sales and
production can be affected by general economic or industry
conditions, labor relations issues, fuel prices, regulatory
requirements, government initiatives, trade agreements, the
availability and cost of credit and other factors. In recent
years, the global automotive industry has undergone major
restructuring and consolidation in response to overcapacity,
uncompetitive labor agreements, narrow profit margins, excess
debt and the necessary realignment of resources from mature
markets to emerging markets. In 2008 and continuing into 2009,
the global economic downturn and associated decline in
automotive production (particularly in North America and Europe)
represented a ‘turning point’ for the industry. During
this period, industry production in North America and Europe
experienced the steepest
peak-to-trough
declines in history.
Our ability to maintain and improve our financial performance in
the future will depend, in part, on our ability to continue to
diversify our sales on a customer, product, platform and
geographic basis to reflect the market overall. While we are
pursuing a strategy of aggressively expanding our sales and
operations in Asia, no assurance can be given as to how
successful we will be in doing so. As a result, a decline in the
production levels of our major customers, particularly with
respect to models for which we are a significant supplier, could
reduce our sales and thereby adversely affect our financial
condition, operating results and cash flows.
15
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| • | The loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier could adversely affect our financial performance. |
Although we receive purchase orders from our customers, these
purchase orders generally provide for the supply of a
customer’s annual requirements for a particular vehicle
model and assembly plant, or in some cases, for the supply of a
customer’s requirements for the life of a particular
vehicle model, rather than for the purchase of a specific
quantity of products. In addition, it is possible that customers
could elect to manufacture our products internally. The loss of
business with respect to, or the lack of commercial success of,
a vehicle model for which we are a significant supplier could
reduce our sales and thereby adversely affect our financial
condition, operating results and cash flows.
| • | Our industry is cyclical and our financial performance could be adversely affected by industry downturns. |
The automotive industry is cyclical and sensitive to general
economic conditions and other factors, including the global
credit markets, interest rates, consumer credit and consumer
spending and preferences. An economic downturn that results in a
reduction in vehicle production levels could adversely affect
our financial condition, operating results and cash flows.
| • | Our inability to achieve product cost reductions which offset customer-imposed price reductions could adversely affect our financial performance. |
We regularly negotiate contracts and sales prices with our
customers. These contracts require us to reduce our prices over
the life of a vehicle model and, at the same time, assume
significant responsibility for the design, development and
engineering of our products. Our financial performance is
largely dependent on our ability to achieve product cost
reductions through restructuring actions, manufacturing
efficiencies, product design enhancement and supply chain
management. We also seek to enhance our financial performance by
investing in product development, design capabilities and new
product initiatives that respond to the needs of our customers
and consumers. We continually evaluate operational and strategic
alternatives to align our business with the changing needs of
our customers, improve our business structure and lower our
operating costs. Our inability to achieve product cost
reductions which offset customer-imposed price reductions could
adversely affect our financial condition, operating results and
cash flows.
| • | Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance. |
Raw material, energy and commodity costs have been extremely
volatile over the past several years. While we have developed
and implemented strategies to mitigate the impact of higher raw
material, energy and commodity costs, these strategies, together
with commercial negotiations with our customers and suppliers,
typically offset only a portion of the adverse impact. Although
raw material, energy and commodity costs (with the exception of
copper costs) have moderated, these costs remain volatile. In
addition, the availability of raw materials, energy, commodities
and product components fluctuates from time to time due to
factors outside of our control. If the costs of raw materials,
energy, commodities and product components increase or the
availability thereof is restricted, it could adversely affect
our financial condition, operating results and cash flows.
| • | Adverse developments affecting or the financial distress of one or more of our suppliers could adversely affect our financial performance. |
We obtain components and other products and services from
numerous tier 2 automotive suppliers and other vendors
throughout the world. We are responsible for managing our supply
chain, including suppliers who may be the sole-sources of
products that we require, who our customers direct us to use or
who have unique capabilities that would make it difficult
and/or
expensive to re-source. In certain instances, entire industries
may experience short-term capacity constraints. Any significant
supply disruption could adversely affect our financial
performance. In addition, unfavorable industry conditions could
result in financial distress within our supply base, thereby
increasing the risk of supply disruption. In 2008 and continuing
into 2009, the global economic downturn and
16
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challenging industry conditions adversely affected the global
automotive industry, including several of our suppliers.
Although market conditions improved in 2010 and are continuing
to improve, another economic downturn or other unfavorable
industry conditions could cause a supply disruption and thereby
adversely affect our financial condition, operating results and
cash flows.
| • | Our substantial international operations make us vulnerable to risks associated with doing business in foreign countries. |
As a result of our global presence, a significant portion of our
revenues and expenses are denominated in currencies other than
the U.S. dollar. In addition, we have substantial
manufacturing and distribution facilities in many foreign
countries, including Mexico and countries in Europe, Central and
South America, Africa and Asia. International operations are
subject to certain risks inherent in doing business abroad,
including:
| • | exposure to local economic conditions; | |
| • | political, economic and civil instability (including acts of terrorism, civil unrest, drug-cartel related and other forms of violence and outbreaks of war); | |
| • | expropriation and nationalization; | |
| • | currency exchange rate fluctuations and currency controls; | |
| • | withholding and other taxes on remittances and other payments by subsidiaries; | |
| • | investment restrictions or requirements; | |
| • | repatriation restrictions and requirements; | |
| • | export and import restrictions; and | |
| • | increases in working capital requirements related to long supply chains. |
Expanding our sales and operations in Asia is an important
element of our strategy. In addition, our strategy includes
increasing our European market share and expanding our
manufacturing operations in lower-cost regions. As a result, our
exposure to the risks described above is substantial. The
likelihood of such occurrences and their potential effect on us
vary from country to country and are unpredictable. However, any
such occurrences could adversely affect our financial condition,
operating results and cash flows.
| • | We operate in a highly competitive industry and efforts by our competitors to gain market share could adversely affect our financial performance. |
We operate in a highly competitive industry. We and most of our
competitors are seeking to expand market share with new and
existing customers, including in Asia and other high growth
regions. Our customers award business based on, among other
things, price, quality, service and technology. Our
competitors’ efforts to grow market share could exert
downward pressure on our product pricing and margins. If we are
unable to differentiate our products or maintain a low-cost
footprint, we may lose market share or be forced to reduce
prices, thereby lowering our margins. Any such occurrences could
adversely affect our financial condition, operating results and
cash flows.
| • | Our inability to effectively manage the timing, quality and costs of new program launches could adversely affect our financial performance. |
In connection with the award of new business, we obligate
ourselves to deliver new products and services that are subject
to our customers’ timing, performance and quality
standards. Additionally, as a tier 1 supplier, we must
effectively coordinate the activities of numerous suppliers in
order for the program launches of our products to be successful.
Given the complexity of new program launches, we may experience
difficulties managing product quality, timeliness and associated
costs. In addition, new program launches require a significant
ramp up of costs; however, our sales related to these new
programs generally is dependent upon the timing and success of
our
17
Table of Contents
customers’ introduction of new vehicles. Our inability to
effectively manage the timing, quality and costs of these new
program launches could adversely affect our financial condition,
operating results and cash flows.
| • | A significant labor dispute involving us or one or more of our customers or suppliers or that could otherwise affect our operations could adversely affect our financial performance. |
A substantial number of our employees and the employees of our
largest customers and suppliers are members of industrial trade
unions and are employed under the terms of collective bargaining
agreements. All of our unionized facilities in the United States
and Canada have a separate collective bargaining agreement with
the union that represents the workers at such facilities, with
each such agreement having an expiration date that is
independent of other agreements. We have collective bargaining
agreements covering approximately 52,000 employees
globally. In the United States and Canada, contracts covering
approximately 18% of our unionized workforce are scheduled to
expire during 2011. A labor dispute involving us, any of our
customers or suppliers or any other suppliers to our customers
or that otherwise affects our operations, or the inability by
us, any of our customers or suppliers or any other suppliers to
our customers to negotiate, upon the expiration of a collective
bargaining agreement, an extension of such agreement or a new
agreement on satisfactory terms could adversely affect our
financial condition, operating results and cash flows.
| • | Our existing indebtedness and the inability to access capital markets could restrict our business activities or adversely affect our financial performance. |
As of December 31, 2010, we had approximately
$699 million of outstanding indebtedness. The debt
instruments governing our indebtedness contain covenants that
may restrict our business activities, and our failure to comply
with these covenants could result in a default under our
indebtedness. In addition, we are permitted by the terms of our
notes and our other debt instruments to incur substantial
additional indebtedness. Our inability to generate sufficient
cash flow to satisfy our debt obligations, to refinance our debt
obligations or to access capital markets on commercially
reasonable terms could adversely affect our financial condition,
operating results and cash flows.
| • | Significant changes in discount rates, the actual return on pension assets and other factors could adversely affect our financial performance. |
Our earnings may be positively or negatively impacted by the
amount of income or expense recorded related to our defined
benefit plans. Accounting principles generally accepted in the
United States (“GAAP”) require that income or expense
related to the defined benefit plans be calculated at the annual
measurement date using actuarial calculations, which reflect
certain assumptions. The most significant of these assumptions
relate to interest rates, the capital markets and other economic
conditions. These assumptions, as well as the actual value of
pension assets at the measurement date, will impact the
calculation of pension and other postretirement benefit expense
for the year. Although pension expense and pension contributions
are not directly related, the key economic indicators that
affect pension expense also affect the amount of cash that we
will contribute to our pension plans. Because interest rates and
the values of these pension assets have fluctuated and will
continue to fluctuate in response to changing market conditions,
pension and other postretirement benefit expense in subsequent
periods, the funded status of the pension plans and the future
minimum required pension contributions, if any, could adversely
affect our financial condition, operating results and cash flows.
| • | Impairment charges relating to our goodwill and long-lived assets could adversely affect our financial performance. |
We regularly monitor our goodwill and long-lived assets for
impairment indicators. In conducting our goodwill impairment
testing, we compare the fair value of each of our reporting
units to the related net book value. In conducting our
impairment analysis of long-lived assets, we compare the
undiscounted cash flows expected to be generated from the
long-lived assets to the related net book values. Changes in
economic or operating conditions impacting our estimates and
assumptions could result in the impairment of our goodwill or
long-lived assets. In the event that we determine that our
goodwill or long-lived assets are impaired, we may be required
to record a significant charge to earnings that could adversely
affect our financial condition and operating results.
18
Table of Contents
| • | Our failure to execute our strategic objectives could adversely affect our financial performance. |
Our financial performance depends, in part, on our ability to
successfully execute our strategic objectives. Our corporate
strategy involves, among other things, leveraging our global
presence and expanding our low-cost footprint, focusing on our
core capabilities, selective vertical integration and
investments in technology, and enhancing and diversifying our
strong customer relationships through operating performance.
Various factors, including the industry environment and the
other matters described in Part II — Item 7,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” including
“— Forward-Looking Statements,” could
adversely affect our ability to execute our corporate strategy.
Our failure to execute our strategic objectives could adversely
affect our financial condition, operating results and cash
flows. Moreover, there also can be no assurance that, even if
implemented, our strategic objectives will be successful.
| • | A significant product liability lawsuit, warranty claim or product recall involving us or one of our major customers could adversely affect our financial performance. |
In the event that our products fail to perform as expected,
whether allegedly due to our fault or that of one of our
sub-suppliers,
and such failure results in, or is alleged to result in, bodily
injury
and/or
property damage or other losses, we may be subject to product
liability lawsuits and other claims. In addition, we are a party
to warranty-sharing and other agreements with certain of our
customers related to our products. These customers may pursue
claims against us for contribution of all or a portion of the
amounts sought in connection with product liability and warranty
claims, recalls or other corrective actions involving our
products. We carry insurance for certain product liability
claims, but such coverage may be limited. We do not maintain
insurance for product warranty or recall matters. In addition,
we may not be successful in recovering amounts from third
parties, including
sub-suppliers,
in connection with these claims. These types of claims could
adversely affect our financial condition, operating results and
cash flows.
| • | We are involved from time to time in various legal and regulatory proceedings and claims, which could adversely affect our financial performance. |
We are involved in various legal and regulatory proceedings and
claims that, from time to time, are significant. These are
typically claims that arise in the normal course of business
including, without limitation, commercial or contractual
disputes, including disputes with our customers, suppliers or
competitors, intellectual property matters, personal injury
claims, environmental matters, tax matters and employment
matters. No assurance can be given that such proceedings and
claims will not adversely affect our financial condition,
operating results and cash flows.
| • | New laws or regulations or changes in existing laws or regulations could adversely affect our financial performance. |
We and the automotive industry are subject to a variety of
federal, state, local and foreign laws and regulations,
including those related to health, safety and environmental
matters. Governmental regulations also affect taxes and levies,
capital markets, healthcare costs, energy usage, international
trade and immigration and other labor issues, all of which may
have a direct or indirect effect on our business and the
businesses of our customers and suppliers. We cannot predict the
substance or impact of pending or future legislation or
regulations, or the application thereof. The introduction of new
laws or regulations or changes in existing laws or regulations,
or the interpretation thereof, could increase the costs of doing
business for us or our customers or suppliers or restrict our
actions and adversely affect our financial condition, operating
results and cash flows.
| • | We are required to comply with environmental laws and regulations that could cause us to incur significant costs. |
Our manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment, and we expect
that additional requirements with respect to environmental
matters will be imposed on us in the future. Material future
expenditures may be necessary if compliance standards change or
material unknown conditions that require remediation are
discovered. Environmental laws could also restrict our ability
to expand our facilities or could require us to acquire costly
equipment or to incur other significant expenses in connection
with
19
Table of Contents
our business. If we fail to comply with present and future
environmental laws and regulations, we could be subject to
future liabilities, which could adversely affect our financial
condition, operating results and cash flows.
| • | Developments or assertions by or against us relating to intellectual property rights could adversely affect our financial performance. |
We own significant intellectual property, including a large
number of patents, trademarks, copyrights and trade secrets, and
we are involved in numerous licensing arrangements. Our
intellectual property plays an important role in maintaining our
competitive position in a number of the markets that we serve.
Developments or assertions by or against us relating to
intellectual property rights could adversely affect our
financial condition, operating results and cash flows.
| • | Our U.S. net operating loss, capital loss and tax credit carryforwards could be substantially limited if we experience an ownership change as defined in the Internal Revenue Code. |
We have significant U.S. net operating loss, capital loss
and tax credit carryforwards (collectively, the “Tax
Attributes”). Under federal tax laws, we can carry forward
and use our Tax Attributes to reduce our future
U.S. taxable income until such Tax Attributes expire in
accordance with the Internal Revenue Code, as amended (the
“IRC”). Section 382 and Section 383 of the
IRC provide an annual limitation on our ability to utilize our
Tax Attributes, as well as certain
built-in-losses,
against future U.S. taxable income in the event of a change
in ownership, as defined under the IRC. Our emergence from
Chapter 11 bankruptcy proceedings is considered a change in
ownership for purposes of IRC Section 382. The limitation
under the IRC is based on the value of the Company as of the
emergence date. As a result, our future U.S. taxable income
may not be fully offset by the Tax Attributes if such income
exceeds our annual limitation, and we may incur a tax liability
with respect to such income. In addition, we may experience a
change in ownership in the future as a result of changes in our
stock ownership that are beyond our control, and any such
subsequent changes in ownership for purposes of the IRC could
further limit our ability to use our Tax Attributes.
| • | Because of the adoption of fresh-start accounting and the effects of the transactions contemplated by the Plan, financial information subsequent to November 7, 2009, is not comparable to financial information prior to November 7, 2009. |
Upon our emergence from Chapter 11 bankruptcy proceedings,
we adopted fresh-start accounting in accordance with the
provisions of ASC 852, pursuant to which our reorganization
value was allocated to our assets in conformity with the
procedures specified by ASC 805, “Business
Combinations.” Accordingly, our consolidated statements of
financial position and consolidated statements of operations
subsequent to November 7, 2009, are not comparable in many
respects to our consolidated statements of financial position
and consolidated statements of operations prior to
November 7, 2009. The lack of comparable historical
financial information may discourage investors from purchasing
our capital stock.
| ITEM 1B — | UNRESOLVED STAFF COMMENTS |
None.
As of December 31, 2010, our operations were conducted
through 200 facilities, some of which are used for multiple
purposes, including 81
just-in-time
manufacturing facilities, 78 dedicated component manufacturing
facilities, 11 sequencing and distribution sites, 24
administrative/technical support facilities and six advanced
technology centers, in 34 countries. Our corporate headquarters
is located in Southfield, Michigan.
Of our 200 total facilities, which include facilities owned or
leased by our consolidated subsidiaries, 81 are owned and 119
are leased with expiration dates ranging from 2011 through 2039.
We believe that substantially all of our property and equipment
is in good condition and that we have sufficient capacity to
meet our current and expected manufacturing and distribution
needs. See Part II — Item 7,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Financial Condition.”
20
Table of Contents
The following table presents the locations of our operating
facilities and the operating segments that use such facilities:
SEATING
|
Argentina
Escobar, BA Ferreyra, CBA Belgium Genk Brazil Betim Caçapava Camaçari Gravatai Canada Ajax, ON Kitchener, ON St. Thomas, ON Whitby, ON China Changchun Chongqing Liuzhou Nanjing Rui’an Shanghai Shenyang Wuhan Wuhu |
Czech Republic
Kolin Stribro France Cergy Feignies Guipry Germany Besigheim Boeblingen Bremen Eisenach Garching-Hochbrueck Ginsheim-Gustavsburg Munich Quakenbrueck Rietberg Wackersdorf Hungary Györ Mór India Chakan Chennai Halol Maraimalai Nagar Nasik Pune |
Italy
Caivano, NA Cassino, FR Grugliasco, TO Melfi, PZ Pozzo d’Adda, MI Termini Imerese, PA Mexico Cuautlancingo, PU Hermosillo, SO Juarez, CH Mexico City, DF Monclova, CO Nuevo Casas Grandes, CH Piedras Negras, CO Ramos Arizpe, CO Saltillo, CO San Felipe, GU San Luis Potosi, SL Silao, GO Toluca, MX Villa Ahumada, CH Moldova Ungheni Morocco Tangier |
Poland
Jaroslaw Tychy Russia Kaluga Nizhny Novgorod St. Petersburg Slovak Republic Presov Senec South Africa East London Port Elizabeth Rosslyn South Korea Gyeongju Spain Epila Logrono Valdemoro Sweden Trollhattan Thailand Mueang Nakhon Ratchasima Samuprakarn |
Turkey
Gemlik United Kingdom Coventry Redditch Sunderland United States Arlington, TX Brownstown Township, MI Columbia City, IN Detroit, MI Duncan, SC Farwell, MI Hammond, IN Hebron, OH Louisville, KY Mason, MI Montgomery, AL Morristown, TN Rochester Hills, MI Roscommon, MI Selma, AL Wentzville, MO Vietnam Hai Phong City |
||||
|
ELECTRICAL POWER MANAGEMENT SYSTEMS
|
||||||||
|
Argentina
Pacheco, BA China Chongqing Nanjing Shanghai Wuhan Czech Republic Vyskov |
France
Hordain Sandouville Germany Bersenbrueck Kronach Remscheid Saarlouis Wismar Honduras Naco |
Hungary
Gödöllö Gyöngyös India Pune Mexico Apodaca, NL Chihuahua, CH Juarez, CH Morocco Tangier |
Philippines
LapuLapu City Poland Mielec Russia Volokolamsk Romania Campulung Pitesti |
Spain
Almussafes Valls Turkey Bostanci-Instanbul Tunisia Bir El Bey United States Plymouth, IN Taylor, MI Traverse City, MI |
||||
|
ADMINISTRATIVE/TECHNICAL
|
||||||||
|
Australia
Flemington Brazil São Paulo China Shanghai Czech Republic Brno France Vélizy-Villacoublay |
Germany
Allershausen- Leonhardsbuch Boeblingen Ginsheim-Gustavsburg Kranzberg Munich Wolfsburg |
India
Pune Thane Italy Grugliasco, TO Japan Atsugi Hiroshima Kariya |
Netherlands
Weesp Philippines LapuLapu City Singapore Spain Valls South Korea Seoul |
Sweden
Gothenburg Thailand Bangkok United Kingdom Coventry United States El Paso, TX Southfield, MI |
||||
21
Table of Contents
Legal and
Environmental Matters
We are involved from time to time in various legal proceedings
and claims, including, without limitation, commercial or
contractual disputes, product liability claims and environmental
and other matters. For a description of risks related to various
legal proceedings and claims, see Item 1A, “Risk
Factors.” For a description of our outstanding material
legal proceedings, see Note 13, “Commitments and
Contingencies,” to the consolidated financial statements
included in this Report.
SUPPLEMENTARY
ITEM —
EXECUTIVE OFFICERS OF THE
COMPANY
The following table sets forth the names, ages and positions of
our executive officers. Executive officers are appointed
annually by our Board of Directors and serve at the pleasure of
our Board.
|
Name
|
Age
|
Position
|
||||
|
Shari L. Burgess
|
52 | Vice President and Treasurer | ||||
|
Wendy L. Foss
|
53 | Vice President and Corporate Controller | ||||
|
Terrence B. Larkin
|
56 | Senior Vice President, General Counsel and Corporate Secretary | ||||
|
Robert E. Rossiter
|
64 | Chief Executive Officer and President | ||||
|
Louis R. Salvatore
|
55 | Senior Vice President and President, Global Seating Operations | ||||
|
Raymond E. Scott
|
45 | Senior Vice President and President, Global Electrical Power Management Systems | ||||
|
Matthew J. Simoncini
|
50 | Senior Vice President and Chief Financial Officer | ||||
|
Melvin L. Stephens
|
55 | Senior Vice President, Communications, Human Resources and Investor Relations | ||||
Set forth below is a description of the business experience of
each of our executive officers.
| Shari L. Burgess | Ms. Burgess is the Company’s Vice President and Treasurer, a position she has held since August 2002. She has served in various financial roles since joining Lear in 1992, most recently as Assistant Treasurer. Prior to joining Lear, Ms. Burgess served as the corporate controller for Victor International Corporation and as an audit manager for Ernst & Young LLP. | |
| Wendy L. Foss | Ms. Foss is the Company’s Vice President and Corporate Controller, a position she has held since November 2007. Previously, she served as Vice President and Chief Compliance Officer from January 2007 until February 2009, Vice President, Audit Services since September 2007, Vice President, Finance and Administration and Corporate Secretary since May 2007, Vice President, Finance and Administration and Deputy Corporate Secretary since September 2006, Vice President, Accounting since July 2006, Assistant Corporate Controller since June 2003 and prior to 2003, in various financial management positions for both the Company and UT Automotive, Inc. (“UT Automotive”), which was acquired by Lear in 1999. | |
| Terrence B. Larkin | Mr. Larkin is the Company’s Senior Vice President, General Counsel and Corporate Secretary, a position he has held since January 2008. Prior to joining the Company, Mr. Larkin was a partner since 1986 of Bodman PLC, a Detroit-based law firm. Mr. Larkin served on the executive committee of Bodman PLC and was the chairman of its business law practice group. Mr. Larkin’s practice was focused on general corporate, commercial transactions and mergers and acquisitions. |
22
Table of Contents
| Robert E. Rossiter | Mr. Rossiter is the Company’s Chief Executive Officer and President, a position he has held since August 2007. Mr. Rossiter served as Chairman from January 2003 until August 2010, Chief Executive Officer since October 2000, President since August 2007 and from 1984 until December 2002 and Chief Operating Officer from 1988 until April 1997 and from November 1998 until October 2000. Mr. Rossiter also served as Chief Operating Officer — International Operations from April 1997 until November 1998. Mr. Rossiter has been a director of the Company since 1988. | |
| Louis R. Salvatore | Mr. Salvatore is the Company’s Senior Vice President and President, Global Seating Operations, a position he has held since February 2008. Previously, he served as Senior Vice President and President — Global Asian Operations/Customers since August 2005, President — Ford, Electrical/Electronics and Interior Divisions since July 2004, President — Global Ford Division since July 2000 and President — DaimlerChrysler Division since December 1998. Prior to joining the Company, Mr. Salvatore worked with Ford Motor Company for fourteen years and held various increasingly senior positions in manufacturing, finance, engineering and purchasing. | |
| Raymond E. Scott | Mr. Scott is the Company’s Senior Vice President and President, Global Electrical Power Management Systems, a position he has held since February 2008. Previously, he served as Senior Vice President and President, North American Seating Systems Group since August 2006, Senior Vice President and President, North American Customer Group since June 2005, President, European Customer Focused Division since June 2004 and President, General Motors Division since November 2000. | |
| Matthew J. Simoncini | Mr. Simoncini is the Company’s Senior Vice President and Chief Financial Officer, a position he has held since October 2007. Previously, he served as Senior Vice President, Finance and Chief Accounting Officer since August 2006, Vice President, Global Finance since February 2006, Vice President of Operational Finance since June 2004, Vice President of Finance — Europe since 2001 and prior to 2001, in various senior financial management positions for both the Company and UT Automotive. | |
| Melvin L. Stephens | Mr. Stephens is the Company’s Senior Vice President, Communications, Human Resources and Investor Relations, a position he has held since September 2009. Previously, he served as Vice President of Corporate Communications and Investor Relations since January 2002. Prior to joining the Company, Mr. Stephens worked with Ford Motor Company and held various leadership positions in finance, business planning, corporate strategy, communications, sales and marketing and investor relations. |
23
Table of Contents
| MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market
Information
Our existing common stock is listed on the New York Stock
Exchange under the symbol “LEA.”
Prior to July 2, 2009, our old common stock traded on the
New York Stock Exchange under the symbol “LEA” until
trading was suspended by the New York Stock Exchange and the
shares were subsequently delisted from the New York Stock
Exchange. In connection with our emergence from Chapter 11
bankruptcy proceedings, our existing common stock began trading
on the New York Stock Exchange on November 9, 2009. On
November 9, 2009, all of our old common stock was
extinguished in accordance with the terms of our plan of
reorganization.
Because the value of our old common stock bears no relation to
the value of our existing common stock, only the trading prices
of our existing common stock, following its listing on the New
York Stock Exchange, are set forth below.
The high and low sales prices per share of our existing common
stock, based on the daily closing price as reported on the New
York Stock Exchange, for the year ended December 31, 2010,
and for the period from November 9, 2009 through
December 31, 2009, are shown below:
|
Price Range of
|
||||||||
| Common Stock | ||||||||
|
2010:
|
High | Low | ||||||
|
4th Quarter
|
$ | 99.75 | $ | 78.83 | ||||
|
3rd Quarter
|
81.30 | 63.61 | ||||||
|
2nd Quarter
|
83.90 | 63.98 | ||||||
|
1st Quarter
|
81.85 | 68.65 | ||||||
|
Price Range of
|
||||||||
| Common Stock | ||||||||
|
2009:
|
High | Low | ||||||
|
4th Quarter (November 9, 2009 through December 31,
2009)
|
$ | 68.58 | $ | 56.25 | ||||
Holders
of Common Stock
The Transfer Agent and Registrar for our common stock is BNY
Mellon, located in New York, New York. On February 4, 2011,
there were 106 registered holders of record of our common stock.
For certain information regarding our equity compensation plans,
see Part III — Item 12, “Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters — Equity Compensation Plan
Information.”
Dividends
We have not paid cash dividends since 2006. The payment of cash
dividends in the future will be dependent upon our financial
condition, results of operations, capital requirements,
alternative uses of capital and other factors that our Board of
Directors may consider in its discretion. Our existing credit
facility and bond indentures place certain limitations on the
payment of cash dividends.
24
Table of Contents
Performance
Graph
The following graph compares the cumulative total stockholder
return from November 9, 2009, the date of our emergence
from Chapter 11 bankruptcy proceedings, through
December 31, 2010, for our existing common stock, the
S&P 500 Index and a peer group(1) of companies that we have
selected for purposes of this comparison. Because the value of
our old common stock bears no relation to the value of our
existing common stock, the graph below reflects only our
existing common stock. We have assumed that dividends have been
reinvested, and the returns of each company in the S&P 500
Index and the peer group have been weighted to reflect relative
stock market capitalization. The graph below assumes that $100
was invested on November 9, 2009, in each of our existing
common stock, the stocks comprising the S&P 500 Index and
the stocks comprising the peer group.
| November 9, 2009 | December 31, 2009 | December 31, 2010 | |||||||||||||
|
Lear Corporation
|
$ | 100.00 | $ | 133.94 | $ | 195.47 | |||||||||
|
S&P 500
|
$ | 100.00 | $ | 104.63 | $ | 120.14 | |||||||||
|
Peer
Group
(1)
|
$ | 100.00 | $ | 104.48 | $ | 169.16 | |||||||||
| (1) | We do not believe that there is a single published industry or line of business index that is appropriate for comparing stockholder returns. The peer group, as referenced in the graph above, that we have selected is comprised of representative independent automotive suppliers whose common stock is publicly traded. The peer group consists of ArvinMeritor, Inc., BorgWarner Inc., Cooper Tire & Rubber Company, Eaton Corp., Gentex Corp., Goodyear Tire & Rubber Company, Johnson Controls, Inc., Magna International, Inc., Superior Industries International, Inc. and TRW Automotive Holdings Corp. |
25
Table of Contents
The following statement of operations, statement of cash flow
and balance sheet data were derived from our consolidated
financial statements. Our consolidated financial statements for
the year ended December 31, 2010, the two month period
ended December 31, 2009, the ten month period ended
November 7, 2009, and the years ended December 31,
2008, 2007 and 2006, have been audited by Ernst &
Young LLP. The selected financial data below should be read in
conjunction with Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations,” and our consolidated financial statements and
the notes thereto included in this Report.
| Successor | Predecessor | |||||||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
|||||||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended | |||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
December 31,
|
December 31,
|
|||||||||||||||||||||||||
| 2010 (1) | 2009 (2) | 2009 (3) | 2008 (4) | 2007 (5) | 2006 (6) | |||||||||||||||||||||||||
|
Statement of Operations Data:
(in millions) |
||||||||||||||||||||||||||||||
|
Net sales
|
$ | 11,954.6 | $ | 1,580.9 | $ | 8,158.7 | $ | 13,570.5 | $ | 15,995.0 | $ | 17,838.9 | ||||||||||||||||||
|
Gross profit
|
1,018.3 | 72.8 | 287.4 | 747.6 | 1,151.8 | 930.8 | ||||||||||||||||||||||||
|
Selling, general and administrative expenses
|
452.7 | 71.2 | 376.7 | 511.5 | 572.8 | 644.6 | ||||||||||||||||||||||||
|
Amortization of intangible assets
|
27.2 | 4.5 | 4.1 | 5.3 | 5.2 | 5.2 | ||||||||||||||||||||||||
|
Goodwill impairment charges
|
— | — | 319.0 | 530.0 | — | 2.9 | ||||||||||||||||||||||||
|
Divestiture of Interior business
|
— | — | — | — | 10.7 | 636.0 | ||||||||||||||||||||||||
|
Interest expense
|
55.4 | 11.1 | 151.4 | 190.3 | 199.2 | 209.8 | ||||||||||||||||||||||||
|
Other (income) expense,
net
(7)
|
34.2 | 19.8 | (16.6 | ) | 51.9 | 40.7 | 85.7 | |||||||||||||||||||||||
|
Reorganization items and fresh-start accounting adjustments, net
|
— | — | (1,474.8 | ) | — | — | — | |||||||||||||||||||||||
|
Consolidated income (loss) before provision (benefit) for income
taxes, equity in net (income) loss of affiliates and cumulative
effect of a change in accounting principle
|
448.8 | (33.8 | ) | 927.6 | (541.4 | ) | 323.2 | (653.4 | ) | |||||||||||||||||||||
|
Provision (benefit) for income taxes
|
24.6 | (24.2 | ) | 29.2 | 85.8 | 89.9 | 54.9 | |||||||||||||||||||||||
|
Equity in net (income) loss of affiliates
|
(37.2 | ) | (1.9 | ) | 64.0 | 37.2 | (33.8 | ) | (16.2 | ) | ||||||||||||||||||||
|
Consolidated income (loss) before cumulative effect of a change
in accounting principle
|
461.4 | (7.7 | ) | 834.4 | (664.4 | ) | 267.1 | (692.1 | ) | |||||||||||||||||||||
|
Cumulative effect of a change in accounting
principle
(8)
|
— | — | — | — | — | (2.9 | ) | |||||||||||||||||||||||
|
Consolidated net income (loss)
|
461.4 | (7.7 | ) | 834.4 | (664.4 | ) | 267.1 | (689.2 | ) | |||||||||||||||||||||
|
Net income (loss) attributable to noncontrolling interests
|
23.1 | (3.9 | ) | 16.2 | 25.5 | 25.6 | 18.3 | |||||||||||||||||||||||
|
Net income (loss) attributable to Lear
|
$ | 438.3 | $ | (3.8 | ) | $ | 818.2 | $ | (689.9 | ) | $ | 241.5 | $ | (707.5 | ) | |||||||||||||||
|
Basic net income (loss) per share attributable to Lear
|
$ | 8.60 | $ | (0.11 | ) | $ | 10.56 | $ | (8.93 | ) | $ | 3.14 | $ | (10.31 | ) | |||||||||||||||
|
Diluted net income (loss) per share attributable to Lear
|
$ | 8.11 | $ | (0.11 | ) | $ | 10.55 | $ | (8.93 | ) | $ | 3.09 | $ | (10.31 | ) | |||||||||||||||
|
Weighted average shares outstanding
|
||||||||||||||||||||||||||||||
|
Basic
|
47,407,022 | 34,525,187 | 77,499,860 | 77,242,360 | 76,826,765 | 68,607,262 | ||||||||||||||||||||||||
|
Diluted
|
54,061,075 | 34,525,187 | 77,559,792 | 77,242,360 | 78,214,248 | 68,607,262 | ||||||||||||||||||||||||
|
Dividends per share
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 0.25 | ||||||||||||||||||
26
Table of Contents
| Successor | Predecessor | |||||||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
|||||||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended | |||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
December 31,
|
December 31,
|
|||||||||||||||||||||||||
| 2010 (1) | 2009 (2) | 2009 (3) | 2008 (4) | 2007 (5) | 2006 (6) | |||||||||||||||||||||||||
|
Statement of Cash Flow Data:
(in millions) |
||||||||||||||||||||||||||||||
|
Cash flows from operating activities
|
$ | 621.9 | $ | 324.0 | $ | (499.2 | ) | $ | 163.6 | $ | 487.5 | $ | 299.1 | |||||||||||||||||
|
Cash flows from investing activities
|
(192.1 | ) | (39.5 | ) | (52.7 | ) | (144.4 | ) | (340.0 | ) | (312.2 | ) | ||||||||||||||||||
|
Cash flows from financing activities
|
(320.7 | ) | 30.2 | 165.0 | 987.3 | (70.4 | ) | 263.6 | ||||||||||||||||||||||
|
Capital expenditures
|
193.3 | 41.3 | 77.5 | 167.7 | 202.2 | 347.6 | ||||||||||||||||||||||||
|
Other Data
(unaudited)
:
|
||||||||||||||||||||||||||||||
|
Ratio of earnings to fixed
charges
(9)
|
6.6 | x | — | 6.3 | x | — | 2.4 | x | — | |||||||||||||||||||||
| Successor | Predecessor | ||||||||||||||||||||
|
December 31,
|
December 31,
|
December 31,
|
December 31,
|
December 31,
|
|||||||||||||||||
|
As of or Year Ended
|
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
Balance Sheet Data:
(in millions) |
|||||||||||||||||||||
|
Current assets
|
$ | 4,385.5 | $ | 3,787.0 | $ | 3,674.2 | $ | 3,718.0 | $ | 3,890.3 | |||||||||||
|
Total assets
|
6,621.1 | 6,073.3 | 6,872.9 | 7,800.4 | 7,850.5 | ||||||||||||||||
|
Current liabilities
|
2,818.5 | 2,400.8 | 4,609.8 | 3,603.9 | 3,887.3 | ||||||||||||||||
|
Long-term debt
|
694.9 | 927.1 | 1,303.0 | 2,344.6 | 2,434.5 | ||||||||||||||||
|
Equity
|
2,568.8 | 2,181.8 | 247.7 | 1,117.5 | 640.0 | ||||||||||||||||
|
Other Data
(unaudited)
:
|
|||||||||||||||||||||
|
Employees at year end
|
86,757 | 74,870 | 80,112 | 91,455 | 104,276 | ||||||||||||||||
|
North American content per
vehicle
(10)
|
$ | 340 | $ | 344 | $ | 391 | $ | 483 | $ | 645 | |||||||||||
|
North American vehicle
production (in millions) (11) |
11.9 | 8.6 | 12.6 | 15.0 | 15.2 | ||||||||||||||||
|
European content per
vehicle
(12)
|
$ | 285 | $ | 294 | $ | 350 | $ | 342 | $ | 338 | |||||||||||
|
European vehicle
production (in millions) (13) |
17.4 | 15.6 | 18.8 | 20.2 | 19.0 | ||||||||||||||||
| (1) | Results include $69.0 million of restructuring and related manufacturing inefficiency charges (including $3.6 million of fixed asset impairment charges), $21.7 million of fees and expenses related to our capital restructuring and other related matters, an $11.8 million loss on the extinguishment of debt resulting from the write-off of unamortized debt issuance costs and $51.6 million of tax benefits related to reductions in recorded tax reserves and various other items. | |
| (2) | Results include $44.5 million of restructuring and related manufacturing inefficiency charges, a $1.9 million loss related to a transaction with an affiliate, $15.1 million of charges as a result of the bankruptcy proceedings and the application of fresh-start accounting and a $27.6 million tax benefit primarily related to the settlement of a tax matter in a foreign jurisdiction. | |
| (3) | Results include $319.0 million of goodwill impairment charges, a gain of $1,474.8 million related to reorganization items and fresh-start accounting adjustments, $23.9 million of fees and expenses related to our capital restructuring, $115.5 million of restructuring and related manufacturing inefficiency charges (including $5.6 million of fixed asset impairment charges), $42.0 million of impairment charges related to our investments in two equity affiliates, a $9.9 million loss related to a transaction with an affiliate and a $23.1 million tax benefit related to reorganization items and fresh-start accounting adjustments. | |
| (4) | Results include $530.0 million of goodwill impairment charges, $193.9 million of restructuring and related manufacturing inefficiency charges (including $17.5 million of fixed asset impairment charges), $7.5 million |
27
Table of Contents
| of gains related to the extinguishment of debt, a $34.2 million impairment charge related to an investment in an affiliate, $22.2 million of gains related to the sales of our interests in two affiliates and $8.5 million of net tax benefits related to a reduction in recorded tax reserves, the reversal of a valuation allowance in a European subsidiary and the establishment of a valuation allowance in another European subsidiary. | ||
| (5) | Results include $20.7 million of charges related to the divestiture of our interior business, $181.8 million of restructuring and related manufacturing inefficiency charges (including $16.8 million of fixed asset impairment charges), $36.4 million of a curtailment gain related to the freeze of the U.S. salaried pension plan, $34.9 million of merger transaction costs, $3.9 million of losses related to the acquisition of the noncontrolling interest in an affiliate and $24.8 million of net tax benefits related to changes in valuation allowances in several foreign jurisdictions, tax rates and various other tax items. | |
| (6) | Results include $636.0 million of charges related to the divestiture of our interior business, $2.9 million of goodwill impairment charges, $10.0 million of fixed asset impairment charges, $99.7 million of restructuring and related manufacturing inefficiency charges (including $5.8 million of fixed asset impairment charges), $47.9 million of charges related to the extinguishment of debt, $26.9 million of gains related to the sales of our interests in two affiliates and $19.5 million of net tax benefits related to the expiration of the statute of limitations in a foreign taxing jurisdiction, a tax audit resolution, a favorable tax ruling and several other tax items. | |
| (7) | Includes non-income related taxes, foreign exchange gains and losses, discounts and expenses associated with our asset-backed securitization and factoring facilities, gains and losses related to certain derivative instruments and hedging activities, gains and losses on the extinguishment of debt, gains and losses on the sales of fixed assets and other miscellaneous income and expense. | |
| (8) | The cumulative effect of a change in accounting principle in 2006 resulted from the adoption of FASB Accounting Standards Codification tm 718, “Compensation — Stock Compensation.” | |
| (9) | “Fixed charges” consist of interest on debt, amortization of deferred financing fees and that portion of rental expenses representative of interest. “Earnings” consist of consolidated income (loss) before provision (benefit) for income taxes and equity in the undistributed net (income) loss of affiliates, fixed charges and cumulative effect of a change in accounting principle. Earnings in the two month period ended December 31, 2009, and in the years ended December 31, 2008 and 2006, were insufficient to cover fixed charges by $33.2 million, $537.3 million and $651.8 million, respectively. Accordingly, such ratio is not presented for these periods. | |
| (10) | “North American content per vehicle” is our net sales in North America divided by estimated total North American vehicle production. Content per vehicle data excludes business conducted through non-consolidated joint ventures. Content per vehicle data for 2009 has been updated to reflect actual production levels. | |
| (11) | “North American vehicle production” includes car and light truck production in the United States, Canada and Mexico as provided by Ward’s Automotive. Production data for 2009 has been updated to reflect actual production levels. | |
| (12) | “European content per vehicle” is our net sales in Europe divided by estimated total European vehicle production. Content per vehicle data excludes business conducted through non-consolidated joint ventures. Content per vehicle data for 2009 has been updated to reflect actual production levels. | |
| (13) | “European vehicle production” includes car and light truck production in Austria, Belarus, Belgium, Bosnia, Czech Republic, Finland, France, Germany, Hungary, Italy, Netherlands, Norway, Poland, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden, Turkey, Ukraine and the United Kingdom as provided by IHS Automotive. Production data for 2009 has been updated to reflect actual production levels. |
28
Table of Contents
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Executive
Overview
We were incorporated in Delaware in 1987 and are a leading
tier 1 supplier to the global automotive industry. We
supply our products to virtually every major automotive
manufacturer in the world.
We supply automotive manufacturers with complete automotive seat
systems and related components, as well as electrical
distribution systems and related components. Our strategy is to
focus on our core capabilities, selective vertical integration
and investments in technology; leverage our global presence and
expand our low-cost footprint; and enhance and diversify our
strong customer relationships through our operational
performance.
Industry
Overview
Our sales are driven by the number of vehicles produced by the
automotive manufacturers, which is ultimately dependent on
consumer and fleet demand for automotive vehicles, and our level
of content on specific vehicle platforms. Automotive sales and
production can be affected by general economic or industry
conditions, labor relations issues, fuel prices, regulatory
requirements, government initiatives, trade agreements,
availability and cost of credit and other factors. Our operating
results are also significantly impacted by the overall
commercial success of the vehicle platforms for which we supply
particular products, as well as the profitability of the
products that we supply for these platforms. In addition, it is
possible that customers could elect to manufacture our products
internally. The loss of business with respect to any vehicle
model for which we are a significant supplier, or a decrease in
the production levels of any such models, could have a material
adverse impact on our operating results. In addition, larger
cars and light trucks, as well as vehicle platforms that offer
more features and functionality, such as luxury, sport utility
and crossover vehicles, typically have more content and,
therefore, tend to have a more significant impact on our
operating results.
In recent years, the global automotive industry has undergone
major restructuring and consolidation in response to
overcapacity, narrow profit margins, excess debt and the
necessary realignment of resources from mature markets to
emerging markets. In 2008 and continuing into 2009, the global
economic downturn and associated decline in automotive
production (particularly in North America and Europe)
represented a ‘turning point’ for the industry.
During this period, industry production in North America and
Europe experienced the steepest
peak-to-trough
declines in history. In North America, industry production
declined 50% — from a peak of 17.2 million units
in 2000 to a trough of 8.6 million units in 2009. In
Europe, industry production declined over 20% — from a
peak of 20.2 million units in 2007 to a trough of
15.6 million units in 2009.
The year ended December 31, 2010 saw a significant
improvement in industry production volumes globally. North
American industry production increased by approximately 39% from
a year ago levels to 11.9 million units. European industry
production increased by approximately 12% from a year ago levels
to 17.4 million units. Global vehicle production in 2010 of
71.5 million units exceeded the previous record of
68.7 million units in 2007.
The majority of our sales continue to be derived from automotive
manufacturers based in North America and Europe. Some of these
customers have experienced declines in market share in their
traditional markets. Our ability to maintain and improve our
financial performance in the future will depend, in part, on our
ability to continue to diversify our sales on a customer,
product, platform and geographic basis to reflect the market
overall.
Our customers require us to reduce our prices over the life of a
vehicle model and, at the same time, assume significant
responsibility for the design, development and engineering of
our products. Our financial performance is largely dependent on
our ability to achieve product cost reductions through
restructuring actions, manufacturing efficiencies, product
design enhancement and supply chain management. We also seek to
enhance our financial performance by investing in product
development, design capabilities and new product initiatives
that respond to the needs of our customers and consumers. We
continually evaluate operational and strategic alternatives to
align our business with the changing needs of our customers,
improve our business structure and lower our operating costs.
29
Table of Contents
Our material cost as a percentage of net sales was 67.9% in
2010, as compared to 69.0% in 2009 and 69.3% in 2008. Raw
material, energy and commodity costs have been extremely
volatile over the past several years. Unfavorable industry
conditions have also resulted in financial distress within our
supply base and an increase in the risk of supply disruption. We
have developed and implemented strategies to mitigate the impact
of higher raw material, energy and commodity costs, which
include cost reduction actions, such as the selective
in-sourcing of components, the continued consolidation of our
supply base, longer-term purchase commitments and the selective
expansion of low-cost country sourcing and engineering, as well
as value engineering and product benchmarking. However, these
strategies, together with commercial negotiations with our
customers and suppliers, typically offset only a portion of the
adverse impact. These costs remain volatile and could have an
adverse impact on our operating results in the foreseeable
future. See Part I — Item 1A, “Risk
Factors — Increases in the costs and restrictions on
the availability of raw materials, energy, commodities and
product components could adversely affect our financial
performance,” and “— Forward-Looking
Statements.”
Financial
Measures
In evaluating our financial condition and operating performance,
we focus primarily on earnings, cash flows and return on
invested capital. In addition to maintaining and expanding our
business with our existing customers in our more established
markets, our expansion plans are focused on emerging markets.
Asia, in particular, continues to present significant growth
opportunities, as major global automotive manufacturers
implement production expansion plans and local automotive
manufacturers aggressively expand their operations to meet
long-term demand in this region. As of December 31, 2010,
we had 20 joint ventures with operations in Asia, as well as an
additional three joint ventures in North America and Europe
dedicated to serving Asian automotive manufacturers. In
addition, we have aggressively pursued this strategy by
selectively increasing our vertical integration capabilities and
expanding our component manufacturing capacity in Mexico,
Eastern Europe, Africa and Asia. Furthermore, we have expanded
our low-cost engineering capabilities in China, India and the
Philippines.
Our success in generating cash flow will depend, in part, on our
ability to manage working capital effectively. Working capital
can be significantly impacted by the timing of cash flows from
sales and purchases. Historically, we have generally been
successful in aligning our vendor payment terms with our
customer payment terms. However, our ability to continue to do
so may be adversely impacted by the unfavorable financial
results of our suppliers and adverse automotive industry
conditions, as well as our financial results. In addition, our
cash flow is impacted by our ability to manage our inventory and
capital spending effectively. We utilize return on invested
capital as a measure of the efficiency with which assets are
deployed to increase our earnings. Improvements in our return on
invested capital will depend on our ability to maintain an
appropriate asset base for our business and to increase
productivity and operating efficiency.
Operational
and Financial Restructuring
In 2005, we initiated a multi-year operational restructuring
strategy to (i) eliminate excess capacity and lower our
operating costs, (ii) streamline our organizational
structure and reposition our business for improved long-term
profitability and (iii) better align our manufacturing
footprint with the changing needs of our customers. In light of
industry conditions and customer announcements, we expanded this
strategy. Through the end of 2009, we incurred pretax
restructuring costs of approximately $672 million and
related manufacturing inefficiency charges of $68 million.
In 2010, we incurred additional restructuring costs of
approximately $64 million and related manufacturing
inefficiency charges of approximately $5 million as we
continued to restructure our global operations and aggressively
reduce our costs. Cash expenditures related to our restructuring
actions totaled $103 million in 2010.
Our restructuring strategy has resulted in the closure of 44
manufacturing and 11 administrative facilities and a current
footprint with more than 80% of our component facilities and
more than 90% of our related employment in 20 low-cost
countries. We expect elevated restructuring actions and related
investments to continue in 2011 and to curtail thereafter.
Restructuring costs include employee termination benefits, fixed
asset impairment charges and contract termination costs, as well
as other incremental costs resulting from the restructuring
actions. These incremental
30
Table of Contents
costs principally include equipment and personnel relocation
costs. We also incur incremental manufacturing inefficiency
costs at the operating locations impacted by the restructuring
actions during the related restructuring implementation period.
Restructuring costs are recognized in our consolidated financial
statements in accordance with accounting principles generally
accepted in the United States (“GAAP”). Generally,
charges are recorded as restructuring actions are approved
and/or
implemented. Actual costs recorded in our consolidated financial
statements may vary from current estimates.
For further information, see Note 5,
“Restructuring,” to the consolidated financial
statements included in this Report.
In 2009, following a comprehensive evaluation of our strategic
and financial options, we concluded that voluntarily filing for
bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code (“Chapter 11”) was necessary in
order to re-align our capital structure and position our
business for long-term success. On July 7, 2009, Lear and
certain of its U.S. and Canadian subsidiaries filed
petitions for relief under Chapter 11 with the bankruptcy
court. On November 9, 2009, our plan of reorganization
became effective, and we emerged from Chapter 11 bankruptcy
proceedings. For further information on the bankruptcy
proceedings, see Note 2, “Reorganization under
Chapter 11,” to the consolidated financial statements
included in this Report.
Goodwill
In 2009 and 2008, we evaluated the carrying value of our
goodwill and recorded impairment charges of $319 million
and $530 million, respectively, related to our electrical
power management systems (“EPMS”) segment. In 2009,
our goodwill impairment analysis was based on our distributable
value, which was approved by the Bankruptcy Court, and resulted
in impairment charges of $319 million. In 2008, the
impairment charges were primarily the result of significant
declines in estimated production volumes. For further
information, see Note 4, “Summary of Significant
Accounting Policies — Impairment of Goodwill,” to
the consolidated financial statements included in this Report.
Other
Matters
In 2010, we recognized a loss on the extinguishment of debt of
approximately $12 million, resulting from the write-off of
unamortized debt issuance costs in conjunction with our debt
refinancing in March 2010. We also recognized tax benefits of
$33 million related to reductions in recorded tax reserves,
as well as net tax benefits of $19 million related to
restructuring, a tax law change in Mexico, the reduction of a
valuation allowance in a foreign subsidiary and various other
items.
In 2009, we incurred fees and expenses of $24 million
related to our capital restructuring efforts prior to our
bankruptcy filing. In addition, we recognized impairment charges
of $42 million related to our investments in two equity
affiliates and a loss of $12 million related to a
transaction with an affiliate. In 2009, we also recognized a tax
benefit of $23 million related to reorganization items and
fresh-start accounting adjustments, as well as a tax benefit of
$28 million primarily related to the settlement of a tax
matter in a foreign jurisdiction.
In 2008, we recognized a net gain on the extinguishment of debt
of approximately $8 million. We also recognized an
impairment charge of $34 million related to our investment
in an equity affiliate and gains of $22 million related to
the sales of our interests in two affiliates. In addition, we
recognized a tax benefit of $9 million related to a
reduction in recorded tax reserves, a tax benefit of
$19 million related to the reversal of a valuation
allowance in a European subsidiary and tax expense of
$19 million related to the establishment of a valuation
allowance in another European subsidiary.
For further information, see Note 4, “Summary of
Significant Accounting Policies — Impairment of
Investments in Affiliates,” Note 6, “Investments
in Affiliates and Other Related Party Transactions,”
Note 8, “Long-Term Debt,” and Note 9,
“Income Taxes,” to the consolidated financial
statements included in this Report.
31
Table of Contents
As discussed above, our results for the year ended
December 31, 2010, the 2009 Successor Period, the 2009
Predecessor Period and the year ended December 31, 2008,
reflect the following items (in millions):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Goodwill impairment charges
|
$ | — | $ | — | $ | 319 | $ | 530 | |||||||||
|
Reorganization items and fresh-start accounting adjustments, net
|
— | — | (1,475 | ) | — | ||||||||||||
|
Costs of restructuring actions, including manufacturing
inefficiencies of $5 million in 2010, $1 million in
the two month period ended December 31, 2009,
$15 million in the ten month period ended November 7,
2009, and $17 million in 2008
|
69 | 44 | 116 | 194 | |||||||||||||
|
Fees and expenses related to capital restructuring and other
related matters
|
22 | 15 | 24 | — | |||||||||||||
|
(Gains) losses on the extinguishment of debt
|
12 | — | — | (8 | ) | ||||||||||||
|
Impairment of investment in affiliates
|
— | — | 42 | 34 | |||||||||||||
|
(Gains) losses related to affiliate transactions
|
— | 2 | 10 | (22 | ) | ||||||||||||
|
Tax benefits, net
|
(52 | ) | (28 | ) | (23 | ) | (9 | ) | |||||||||
This section includes forward-looking statements that are
subject to risks and uncertainties. For further information
regarding these and other factors that have had, or may have in
the future, a significant impact on our business, financial
condition or results of operations, see Part I —
Item 1A, “Risk Factors,” and
“— Forward-Looking Statements.”
Results
of Operations
In connection with our emergence from Chapter 11 bankruptcy
proceedings and the adoption of fresh-start accounting, the
results of operations for 2009 separately present the 2009
Successor Period and the 2009 Predecessor Period. Although the
2009 Successor Period and the 2009 Predecessor Period are
distinct reporting periods, the effects of emergence and
fresh-start accounting did not have a material impact on the
comparability of our results of operations between these
periods, except as discussed below. Accordingly, references to
2009 results
32
Table of Contents
of operations combine the two periods in order to enhance the
comparability of such information to both 2010 and 2008. A
summary of our operating results in millions of dollars and as a
percentage of net sales is shown below:
| Successor | Predecessor | ||||||||||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||||||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||||||||||||||||||
|
Net sales
|
|||||||||||||||||||||||||||||||||
|
Seating
|
$ | 9,395.3 | 78.6 | % | $ | 1,251.1 | 79.1 | % | $ | 6,561.8 | 80.4 | % | $ | 10,726.9 | 79.0 | % | |||||||||||||||||
|
Electrical power management systems
|
2,559.3 | 21.4 | 329.8 | 20.9 | 1,596.9 | 19.6 | 2,843.6 | 21.0 | |||||||||||||||||||||||||
|
Net sales
|
11,954.6 | 100.0 | 1,580.9 | 100.0 | 8,158.7 | 100.0 | 13,570.5 | 100.0 | |||||||||||||||||||||||||
|
Gross profit
|
1,018.3 | 8.5 | 72.8 | 4.6 | 287.4 | 3.5 | 747.6 | 5.5 | |||||||||||||||||||||||||
|
Selling, general and administrative expenses
|
452.7 | 3.8 | 71.2 | 4.5 | 376.7 | 4.6 | 511.5 | 3.8 | |||||||||||||||||||||||||
|
Amortization of intangible assets
|
27.2 | 0.2 | 4.5 | 0.3 | 4.1 | — | 5.3 | — | |||||||||||||||||||||||||
|
Goodwill impairment charges
|
— | — | — | — | 319.0 | 3.9 | 530.0 | 3.9 | |||||||||||||||||||||||||
|
Interest expense
|
55.4 | 0.4 | 11.1 | 0.7 | 151.4 | 1.9 | 190.3 | 1.4 | |||||||||||||||||||||||||
|
Other (income) expense, net
|
34.2 | 0.3 | 19.8 | 1.2 | (16.6 | ) | (0.2 | ) | 51.9 | 0.4 | |||||||||||||||||||||||
|
Reorganization items and fresh-start accounting adjustments, net
|
— | — | — | — | (1,474.8 | ) | (18.1 | ) | — | — | |||||||||||||||||||||||
|
Provision (benefit) for income taxes
|
24.6 | 0.2 | (24.2 | ) | (1.5 | ) | 29.2 | 0.4 | 85.8 | 0.6 | |||||||||||||||||||||||
|
Equity in net (income) loss of affiliates
|
(37.2 | ) | (0.3 | ) | (1.9 | ) | (0.1 | ) | 64.0 | 0.8 | 37.2 | 0.3 | |||||||||||||||||||||
|
Net income (loss) attributable to noncontrolling interests
|
23.1 | 0.2 | (3.9 | ) | (0.3 | ) | 16.2 | 0.2 | 25.5 | 0.2 | |||||||||||||||||||||||
|
Net income (loss) attributable to Lear
|
438.3 | 3.7 | (3.8 | ) | (0.2 | ) | 818.2 | 10.0 | (689.9 | ) | (5.1 | ) | |||||||||||||||||||||
Year
Ended December 31, 2010, Compared With Year Ended
December 31, 2009
Net sales for the year ended December 31, 2010 were
$12.0 billion, as compared to $9.7 billion for the
year ended December 31, 2009, an increase of
$2.2 billion or 23%. Improved global vehicle production
volumes positively impacted net sales by $1.9 billion. The
impact of new business was largely offset by the impact of
selling price reductions.
Gross profit and gross margin were $1.0 billion and 8.5% in
2010, as compared to $360 million and 3.7% in 2009.
Improved global vehicle production volumes, as well as favorable
operating performance and the benefit of operational
restructuring actions, positively impacted gross profit by
$727 million. Gross profit also benefited from the impact
of new business. These increases were partially offset by the
impact of selling price reductions. In addition, gross profit
includes operational restructuring costs of $62 million in
2010, as compared to $149 million in 2009. Gross profit in
the 2009 Successor Period was negatively impacted by the
adoption of fresh-start accounting, which requires inventory to
be recorded at fair value upon emergence. An inventory
adjustment of $9 million was recognized in cost of sales in
the 2009 Successor Period as the inventory was sold. The impact
of other fresh start accounting adjustments on gross margin was
limited to changes in depreciation expense which were not
material.
Selling, general and administrative expenses, including
engineering and development expenses, were $453 million for
the year ended December 31, 2010, as compared to
$448 million for the year ended December 31, 2009. An
increase in compensation-related costs in 2010 was partially
offset by fees and expenses related to our
33
Table of Contents
capital restructuring incurred in the 2009 Predecessor Period.
In addition, selling, general and administrative expenses
include operational restructuring costs of $7 million in
2010, as compared to $15 million in 2009. As a percentage
of net sales, selling, general and administrative expenses
declined to 3.8% for the year ended December 31, 2010, as
compared to 4.6% for the year ended December 31, 2009, due
to the increase in net sales.
Engineering and development costs incurred in connection with
the development of new products and manufacturing methods more
than one year prior to launch, to the extent not recoverable
from the customer, are charged to selling, general and
administrative expenses as incurred. Such costs totaled
$81 million in 2010 and $83 million in 2009. In
certain situations, the reimbursement of pre-production
engineering and design costs is contractually guaranteed by, and
fully recoverable from, our customers and, therefore, is
capitalized. For the years ended December 31, 2010 and
2009, we capitalized $133 million and $117 million,
respectively, of such costs.
Amortization of intangible assets was $27 million in 2010,
as compared to $5 million in the 2009 Successor Period and
$4 million in the 2009 Predecessor Period, as a result of
intangible assets recognized in connection with the adoption of
fresh start accounting in 2009.
In the 2009 Predecessor Period, we recorded goodwill impairment
charges of $319 million, related to our EPMS segment. Our
goodwill impairment analysis was based on our distributable
value, which was approved by the Bankruptcy Court.
Interest expense was $55 million in 2010, as compared to
$163 million in 2009. Interest expense in 2010 reflects
lower borrowing levels, as well as lower overall borrowing
costs, related to our new capital structure and the results of
our March 2010 refinancing. Interest expense in the 2009
Predecessor Period properly excludes $70 million of
contractual interest for certain of our pre-petition debt
obligations subsequent to filing for bankruptcy protection under
Chapter 11, in accordance with GAAP. The benefit of this
exclusion was partially offset by interest and fees associated
with our
debtor-in-possession
financing, as well as fees associated with our pre-petition
primary credit facility amendments and waivers, in the 2009
Predecessor Period, and interest and fees associated with our
first and second lien credit agreements in the 2009 Successor
Period.
Other (income) expense, net, which includes non-income related
taxes, foreign exchange gains and losses, discounts and expenses
associated with our factoring facilities, gains and losses
related to certain derivative instruments and hedging
activities, gains and losses on the extinguishment of debt,
gains and losses on the sales of fixed assets and other
miscellaneous income and expense, was $34 million in 2010,
as compared to $3 million in 2009. The increase in other
expense was largely the result of unfavorable foreign exchange
in 2010. In addition, we recognized a loss on the extinguishment
of debt of $12 million, resulting from the write-off of
unamortized debt issuance costs in the first quarter of 2010. In
the 2009 Successor Period and 2009 Predecessor Period, we
recognized losses of $2 million and $10 million,
respectively, related to a transaction with an affiliate.
In the 2009 Predecessor Period, we recognized a gain of
approximately $2.0 billion for reorganization items as a
result of the bankruptcy proceedings. This gain reflects the
cancellation of our pre-petition equity, debt and certain of our
other obligations, partially offset by the recognition of
certain of our new equity and debt obligations, as well as
professional fees incurred as a direct result of the bankruptcy
proceedings. In addition, we recognized a charge of
approximately $526 million related to the valuation of our
net assets upon emergence from Chapter 11 bankruptcy
proceedings pursuant to the provisions of fresh-start accounting.
In 2010, the provision for income taxes was $25 million,
representing an effective tax rate of 5.5% on a pretax income of
$449 million. In the 2009 Successor Period, the benefit for
income taxes was $24 million, representing an effective tax
rate of 71.6% on a pretax loss of $34 million. In the 2009
Predecessor Period, the provision for income taxes was
$29 million, representing an effective tax rate of 3.1% on
pretax income of $928 million. The provision for income
taxes in 2010 was impacted by the mix of earnings among tax
jurisdictions, as well as a portion of our restructuring charges
and other expenses, for which no tax benefit was provided as the
charges were incurred in certain countries for which no tax
benefit is likely to be realized due to a history of operating
losses in those countries. Additionally, the provision was
impacted by tax benefits of $33 million, including interest
and penalties, related to reductions in recorded tax reserves,
as well as net tax benefits of $19 million related to
restructuring, a tax law change in Mexico, the reduction of a
valuation allowance in a foreign subsidiary and various other
items. The provision for income taxes in 2009 primarily relates
to profitable foreign operations, as well as withholding taxes
on
34
Table of Contents
royalties and dividends paid by our foreign subsidiaries. In
addition, we incurred losses in several countries that provided
no tax benefits due to valuation allowances on our deferred tax
assets in those countries. The provision was also impacted by a
portion of our restructuring charges, for which no tax benefit
was provided as the charges were incurred in certain countries
for which no tax benefit is likely to be realized due to a
history of operating losses in those countries. Additionally,
the benefit in the 2009 Successor Period was impacted by a tax
benefit of $28 million primarily related to the settlement
of a tax matter in a foreign jurisdiction. The provision in the
2009 Predecessor Period was impacted by a tax benefit of
$23 million related to reorganization items and fresh-start
accounting adjustments, as well as $319 million of goodwill
impairment charges, which were not deductible. Excluding these
items, the effective tax rate in 2010 and 2009 approximated the
U.S. federal statutory income tax rate of 35% adjusted for
income taxes on foreign earnings, losses and remittances,
foreign and U.S. valuation allowances, tax credits, income
tax incentives and other permanent items. Further, our current
and future provision for income taxes is significantly impacted
by the initial recognition of and changes in valuation
allowances in certain countries, particularly the United States.
We intend to maintain these allowances until it is more likely
than not that the deferred tax assets will be realized. Our
future income taxes will include no tax benefit with respect to
losses incurred and no tax expense with respect to income
generated in these countries until the respective valuation
allowances are eliminated. Accordingly, income taxes are
impacted by the U.S. and foreign valuation allowances and
the mix of earnings among jurisdictions.
Equity in net income of affiliates was $37 million for the
year ended December 31, 2010, as compared to equity in net
loss of affiliates of $62 million for the year ended
December 31, 2009, reflecting the improved operating
performance of our equity affiliates. In addition, we recognized
impairment charges of $42 million related to our
investments in two equity affiliates in the 2009 Predecessor
Period.
Net income (loss) attributable to Lear was $438 million in
2010, as compared to a net loss of $4 million in the 2009
Successor Period and net income of $818 million in the 2009
Predecessor Period, for the reasons discussed above.
Reportable
Operating Segments
We have two reportable operating segments: seating, which
includes seat systems and related components, such as seat
frames, recliner mechanisms, seat tracks, seat trim covers,
headrests and seat foam, and EPMS, which includes wiring,
connectors, junction boxes and various other components of
electrical distribution systems for traditional powertrain
vehicles, as well as a new generation of hybrid and electric
vehicles. The financial information presented below is for our
two reportable operating segments and our other category for the
periods presented. The other category includes unallocated costs
related to corporate headquarters, geographic headquarters and
the elimination of intercompany activities, none of which meets
the requirements of being classified as an operating segment.
Corporate and geographic headquarters costs include various
support functions, such as information technology, purchasing,
corporate finance, legal, executive administration and human
resources. Financial measures regarding each segment’s
income (loss) before goodwill impairment charges, interest
expense, other (income) expense, reorganization items and
fresh-start accounting adjustments, provision (benefit) for
income taxes and equity in net (income) loss of affiliates
(“segment earnings”) and segment earnings divided by
net sales (“margin”) are not measures of performance
under GAAP. Segment earnings and the related margin are used by
management to evaluate the performance of our reportable
operating segments. Segment earnings should not be considered in
isolation or as a substitute for net income (loss) attributable
to Lear, net cash provided by (used in) operating activities or
other statement of operations or cash flow statement data
prepared in accordance with GAAP or as measures of profitability
or liquidity. In addition, segment earnings, as we determine it,
may not be comparable to related or similarly titled measures
reported by other companies. For a reconciliation of
consolidated segment earnings to consolidated income (loss)
before provision (benefit) for income taxes and equity in net
(income) loss of affiliates, see Note 14, “Segment
Reporting,” to the consolidated financial statements
included in this Report.
35
Table of Contents
Seating —
A summary of the financial measures for our seating segment is
shown below (dollar amounts in millions):
| Successor | Predecessor | ||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
|||||||||||
|
December 31,
|
December 31,
|
November 7,
|
|||||||||||
| 2010 | 2009 | 2009 | |||||||||||
|
Net sales
|
$ | 9,395.3 | $ | 1,251.1 | $ | 6,561.8 | |||||||
|
Segment
earnings
(1)
|
655.0 | 52.4 | 184.9 | ||||||||||
|
Margin
|
7.0 | % | 4.2 | % | 2.8 | % | |||||||
| (1) | See definition above. |
Seating net sales were $9.4 billion for the year ended
December 31, 2010, as compared to $7.8 billion for the
year ended December 31, 2009, an increase of
$1.6 billion or 20%. Improved global vehicle production
volumes positively impacted net sales by $1.5 billion.
Segment earnings, including restructuring costs, and the related
margin on net sales were $655 million and 7.0% in 2010, as
compared to $237 million and 3.0% in 2009. Improved global
vehicle production volumes and the benefit of our restructuring
and other operating performance actions positively impacted
segment earnings by $549 million collectively. These
increases were partially offset by the impact of selling price
reductions and an increase in amortization expense as a result
of intangible assets recognized in connection with the adoption
of fresh-start accounting in 2009. In 2010, we incurred costs of
$48 million related to our restructuring actions in the
seating segment, as compared to $79 million in 2009.
Segment earnings were negatively impacted in the 2009
Predecessor Period by fees and expenses of $3 million
related to our capital restructuring and in the 2009 Successor
Period by the adoption of fresh-start accounting, which requires
inventory to be recorded at fair value upon emergence. An
inventory adjustment of $3 million was recognized in cost
of sales in the 2009 Successor Period as the inventory was sold.
The impact of other fresh start accounting adjustments on
segment earnings was limited to changes in depreciation expense
which were not material.
EPMS —
A summary of the financial measures for our EPMS segment is
shown below (dollar amounts in millions):
| Successor | Predecessor | ||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
|||||||||||
|
December 31,
|
December 31,
|
November 7,
|
|||||||||||
| 2010 | 2009 | 2009 | |||||||||||
|
Net sales
|
$ | 2,559.3 | $ | 329.8 | $ | 1,596.9 | |||||||
|
Segment
earnings
(1)
|
100.5 | (24.5 | ) | (131.3 | ) | ||||||||
|
Margin
|
3.9 | % | (7.4 | )% | (8.2 | )% | |||||||
| (1) | See definition above. |
EPMS net sales were $2.6 billion for the year ended
December 31, 2010, as compared to $1.9 billion for the
year ended December 31, 2009, an increase of
$633 million or 33%. Improved global vehicle production
volumes and the impact of new business positively impacted net
sales by $393 million and $276 million, respectively.
Segment earnings, including restructuring costs, and the related
margin on net sales were $101 million and 3.9% in 2010, as
compared to ($156) million and (8.1)% in 2009. Improved
global vehicle production volumes, the benefit of our
restructuring and other operating performance actions and the
impact of new business positively impacted segment earnings by
$242 million collectively. These increases were partially
offset by the impact of selling price reductions. In 2010, we
incurred costs of $19 million related to our restructuring
actions in the EPMS segment, as compared to $79 million in
2009. Segment earnings were negatively impacted in the 2009
Successor Period by the adoption of fresh-start accounting,
which requires inventory to be recorded at fair value upon
emergence. An inventory adjustment of $6 million was
recognized in cost of sales in the 2009 Successor Period as the
inventory was
36
Table of Contents
sold. The impact of other fresh start accounting adjustments on
segment earnings was limited to changes in depreciation and
amortization expense which were not material.
Other —
A summary of financial measures for our other category, which is
not an operating segment, is shown below (dollar amounts in
millions):
| Successor | Predecessor | ||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
|||||||||||
|
December 31,
|
December 31,
|
November 7,
|
|||||||||||
| 2010 | 2009 | 2009 | |||||||||||
|
Net sales
|
$ | — | $ | — | $ | — | |||||||
|
Segment
earnings
(1)
|
(217.1 | ) | (30.8 | ) | (147.0 | ) | |||||||
|
Margin
|
N/A | N/A | N/A | ||||||||||
| (1) | See definition above. |
Our other category includes unallocated corporate and geographic
headquarters costs, as well as the elimination of intercompany
activity. Corporate and geographic headquarters costs include
various support functions, such as information technology,
purchasing, corporate finance, legal, executive administration
and human resources. Segment earnings related to our other
category were ($217) million in 2010, as compared to
($178) million in 2009, primarily due to an increase in
compensation-related costs in 2010. In 2010, we incurred costs
of $2 million related to our restructuring actions, as
compared to $6 million in 2009. Segment earnings were
negatively impacted in the 2009 Predecessor Period by fees and
expenses of $21 million related to our capital
restructuring.
Year
Ended December 31, 2009, Compared With Year Ended
December 31, 2008
Net sales for the year ended December 31, 2009 were
$9.7 billion, as compared to $13.6 billion for the
year ended December 31, 2008, a decrease of
$3.8 billion or 28.2%. Lower industry production volumes in
North America and Europe, as well as the impact of net foreign
exchange rate fluctuations, negatively impacted net sales by
$3.1 billion and $405 million, respectively.
Gross profit and gross margin were $360 million and 3.7% in
2009, as compared to $748 million and 5.5% in 2008. Lower
industry production volumes in North America and Europe reduced
gross profit by $699 million. Gross profit was also
negatively impacted by net selling price reductions. The benefit
of our productivity and restructuring actions partially offset
these decreases in gross profit. Gross profit was negatively
impacted in the 2009 Successor Period by the adoption of
fresh-start accounting, which requires inventory to be recorded
at fair value upon emergence. This inventory adjustment of
$9 million was recognized in cost of sales in the 2009
Successor Period as the inventory was sold. The impact of other
fresh start accounting adjustments on gross margin was limited
to changes in depreciation expense which were not material.
Selling, general and administrative expenses, including
engineering and development expenses, were $448 million for
the year ended December 31, 2009, as compared to
$512 million for the year ended December 31, 2008. As
a percentage of net sales, selling, general and administrative
expenses were 4.6% and 3.8% in 2009 and 2008, respectively. The
decrease in selling, general and administrative expenses was
primarily due to favorable cost performance in 2009, including
lower compensation-related expenses, as well as reduced
engineering and development expenses and the impact of net
foreign exchange rate fluctuations. These decreases were
partially offset by fees and expenses of $24 million
related to our capital restructuring incurred in the 2009
Predecessor Period.
Engineering and development costs incurred in connection with
the development of new products and manufacturing methods more
than one year prior to launch, to the extent not recoverable
from the customer, are charged to selling, general and
administrative expenses as incurred. Such costs totaled
$83 million in 2009 and $113 million in 2008. In
certain situations, the reimbursement of pre-production
engineering and design costs is contractually guaranteed by, and
fully recoverable from, our customers and, therefore, is
capitalized. For the years ended December 31, 2009 and
2008, we capitalized $116 million and $137 million,
respectively, of such costs.
37
Table of Contents
In the 2009 Predecessor Period, we recorded goodwill impairment
charges of $319 million, related to our EPMS segment. Our
goodwill impairment analysis was based on our distributable
value, which was approved by the Bankruptcy Court. In 2008, we
recorded goodwill impairment charges of $530 million,
related to our EPMS segment, primarily as a result of
significant declines in estimated production volumes.
Interest expense was $163 million in 2009, as compared to
$190 million in 2008. Interest expense in the 2009
Predecessor Period properly excludes $70 million of
contractual interest for certain of our pre-petition debt
obligations subsequent to filing for bankruptcy protection under
Chapter 11, in accordance with GAAP. The benefit of this
exclusion was partially offset by interest and fees associated
with our
debtor-in-possession
financing, as well as fees associated with our pre-petition
primary credit facility amendments and waivers, in the 2009
Predecessor Period, and interest and fees associated with our
first and second lien credit agreements in the 2009 Successor
Period.
Other (income) expense, net, which includes non-income related
taxes, foreign exchange gains and losses, discounts and expenses
associated with our asset-backed securitization and factoring
facilities, gains and losses related to certain derivative
instruments and hedging activities, gains and losses on the
extinguishment of debt, gains and losses on the sales of fixed
assets and other miscellaneous income and expense, was
$3 million in 2009, as compared to $52 million in
2008. In the 2009 Successor Period and 2009 Predecessor Period,
we recognized losses of $2 million and $10 million,
respectively, related to a transaction with an affiliate. The
impact of this transaction was more than offset by an increase
in foreign exchange gains. In 2008, we recognized gains of
$22 million related to the sales of our interests in two
affiliates, as well as a gain of $8 million on the
extinguishment of debt.
In the 2009 Predecessor Period, we recognized a gain of
approximately $2.0 billion for reorganization items as a
result of the bankruptcy proceedings. This gain reflects the
cancellation of our pre-petition equity, debt and certain of our
other obligations, partially offset by the recognition of
certain of our new equity and debt obligations, as well as
professional fees incurred as a direct result of the bankruptcy
proceedings. In addition, we recognized a charge of
approximately $526 million related to the valuation of our
net assets upon emergence from Chapter 11 bankruptcy
proceedings pursuant to the provisions of fresh-start accounting.
In the 2009 Successor Period, the benefit for income taxes was
$24 million, representing an effective tax rate of 71.6% on
a pretax loss of $34 million. In the 2009 Predecessor
Period, the provision for income taxes was $29 million,
representing an effective tax rate of 3.1% on pretax income of
$928 million. In 2008, the provision for income taxes was
$86 million, representing an effective tax rate of negative
15.8% on a pretax loss of $541 million. The provision for
income taxes in 2009 primarily relates to profitable foreign
operations, as well as withholding taxes on royalties and
dividends paid by our foreign subsidiaries. In addition, we
incurred losses in several countries that provided no tax
benefits due to valuation allowances on our deferred tax assets
in those countries. The provision was also impacted by a portion
of our restructuring charges, for which no tax benefit was
provided as the charges were incurred in certain countries for
which no tax benefit is likely to be realized due to a history
of operating losses in those countries. Additionally, the
benefit in the 2009 Successor Period was impacted by a tax
benefit of $28 million primarily related to the settlement
of a tax matter in a foreign jurisdiction. The provision in the
2009 Predecessor Period was impacted by a tax benefit of
$23 million related to reorganization items and fresh-start
accounting adjustments, as well as $319 million of goodwill
impairment charges, which were not deductible. The 2008
provision for income taxes was impacted by $530 million of
goodwill impairment charges, a substantial portion of which were
not deductible. The provision was also impacted by a portion of
our restructuring charges, for which no tax benefit was provided
as the charges were incurred in certain countries for which no
tax benefit is likely to be realized due to a history of
operating losses in those countries. The provision was also
impacted by a tax benefit of $9 million, including
interest, related to a reduction in recorded tax reserves, a tax
benefit of $19 million related to the reversal of a
valuation allowance in a European subsidiary and tax expense of
$19 million related to the establishment of a valuation
allowance in another European subsidiary. Excluding these items,
the effective tax rate in 2009 and 2008 approximated the
U.S. federal statutory income tax rate of 35% adjusted for
income taxes on foreign earnings, losses and remittances,
foreign and U.S. valuation allowances, tax credits, income
tax incentives and other permanent items. Further, our current
and future provision for income taxes is significantly impacted
by the initial recognition of and changes in valuation
allowances in certain countries, particularly the United States.
We intend to maintain these allowances until it is more likely
than not that the deferred tax assets will be realized. Our
future income taxes will include no tax benefit with respect to
losses incurred and no tax expense with respect to
38
Table of Contents
income generated in these countries until the respective
valuation allowances are eliminated. Accordingly, income taxes
are impacted by the U.S. and foreign valuation allowances
and the mix of earnings among jurisdictions.
Equity in net loss of affiliates was $62 million for the
year ended December 31, 2009, as compared to equity in net
loss of affiliates of $37 million for the year ended
December 31, 2008. In the 2009 Predecessor Period, we
recognized impairment charges of $42 million related to our
investments in two equity affiliates. In 2008, we recognized an
impairment charge of $34 million related to our investment
in an affiliate.
Net income (loss) attributable to Lear was ($4) million in
the 2009 Successor Period and $818 million in the 2009
Predecessor Period, as compared to ($690) million in 2008,
for the reasons discussed above.
Reportable
Operating Segments
For a description of our reportable operating segments, see
“Year Ended December 31, 2010, Compared With Year
Ended December 31, 2009 — Reportable Operating
Segments” above.
Seating —
A summary of the financial measures for our seating segment is
shown below (dollar amounts in millions):
| Successor | Predecessor | ||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||
|
Period Ended
|
Period Ended
|
Year Ended
|
|||||||||||
|
December 31,
|
November 7,
|
December 31,
|
|||||||||||
| 2009 | 2009 | 2008 | |||||||||||
|
Net sales
|
$ | 1,251.1 | $ | 6,561.8 | $ | 10,726.9 | |||||||
|
Segment
earnings
(1)
|
52.4 | 184.9 | 386.7 | ||||||||||
|
Margin
|
4.2 | % | 2.8 | % | 3.6 | % | |||||||
| (1) | See definition above. |
Seating net sales were $7.8 billion for the year ended
December 31, 2009, as compared to $10.7 billion for
the year ended December 31, 2008, a decrease of
$2.9 billion or 27.2%. Lower industry production volumes in
North America and Europe, as well as the impact of net
foreign exchange rate fluctuations, negatively impacted net
sales by $2.5 billion and $355 million, respectively.
Segment earnings, including restructuring costs, and the related
margin on net sales were $237 million and 3.0% in 2009, as
compared to $387 million and 3.6% in 2008. Lower industry
production volumes in North America and Europe reduced segment
earnings by $499 million. Segment earnings were also
negatively impacted by net selling price reductions. The benefit
of our productivity and restructuring actions partially offset
these decreases in segment earnings. Segment earnings were
negatively impacted in the 2009 Predecessor Period by fees and
expenses of $3 million related to our capital restructuring and
in the 2009 Successor Period by the adoption of fresh-start
accounting, which requires inventory to be recorded at fair
value upon emergence. An inventory adjustment of $3 million
was recognized in cost of sales in the 2009 Successor Period as
the inventory was sold. In addition, we incurred costs of
$79 million in 2009 related to our restructuring actions in
the seating segment, as compared to $133 million in 2008.
EPMS —
A summary of the financial measures for our EPMS segment is
shown below (dollar amounts in millions):
| Successor | Predecessor | ||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||
|
Period Ended
|
Period Ended
|
Year Ended
|
|||||||||||
|
December 31,
|
November 7,
|
December 31,
|
|||||||||||
| 2009 | 2009 | 2008 | |||||||||||
|
Net sales
|
$ | 329.8 | $ | 1,596.9 | $ | 2,843.6 | |||||||
|
Segment
earnings
(1)
|
(24.5 | ) | (131.3 | ) | 44.7 | ||||||||
|
Margin
|
(7.4 | )% | (8.2 | )% | 1.6 | % | |||||||
| (1) | See definition above. |
39
Table of Contents
EPMS net sales were $1.9 billion for the year ended
December 31, 2009, as compared to $2.8 billion for the
year ended December 31, 2008, a decrease of
$917 million or 32.2%. Lower industry production volumes in
North America and Europe, as well as the impact of net
foreign exchange rate fluctuations, negatively impacted net
sales by $687 million and $50 million, respectively.
Segment earnings, including restructuring costs, and the related
margin on net sales were ($156) million and (8.1)% in 2009,
as compared to $45 million and 1.6% in 2008. Lower industry
production volumes in North America and Europe reduced segment
earnings by $200 million. Segment earnings were also
negatively impacted by net selling price reductions. The benefit
of our productivity and restructuring actions partially offset
these decreases in segment earnings. Segment earnings were
negatively impacted in the 2009 Successor Period by the adoption
of fresh-start accounting, which requires inventory to be
recorded at fair value upon emergence. An inventory adjustment
of $6 million was recognized in cost of sales in the 2009
Successor Period as the inventory was sold. In addition, we
incurred costs of $79 million in 2009 related to our
restructuring actions in the EPMS segment, as compared to
$31 million in 2008.
Other —
A summary of financial measures for our other category, which is
not an operating segment, is shown below (dollar amounts in
millions):
| Successor | Predecessor | ||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||
|
Period Ended
|
Period Ended
|
Year Ended
|
|||||||||||
|
December 31,
|
November 7,
|
December 31,
|
|||||||||||
| 2009 | 2009 | 2008 | |||||||||||
|
Net sales
|
$ | — | $ | — | $ | — | |||||||
|
Segment
earnings
(1)
|
(30.8 | ) | (147.0 | ) | (200.6 | ) | |||||||
|
Margin
|
N/A | N/A | N/A | ||||||||||
| (1) | See definition above. |
Our other category includes unallocated corporate and geographic
headquarters costs, as well as the elimination of intercompany
activity. Corporate and geographic headquarters costs include
various support functions, such as information technology,
purchasing, corporate finance, legal, executive administration
and human resources. Segment earnings related to our other
category were ($178) million in 2009, as compared to
($201) million in 2008, primarily due to savings from our
restructuring and other cost improvement actions. These savings
were partially offset by fees and expenses of $21 million
related to our capital restructuring incurred in the 2009
Predecessor Period. In addition, we incurred costs of
$6 million in 2009 related to our restructuring actions, as
compared to $24 million in 2008.
Liquidity
and Financial Condition
Our primary liquidity needs are to fund general business
requirements, including working capital requirements, capital
expenditures, operational restructuring actions and debt service
requirements. Our principal sources of liquidity are cash flows
from operating activities and our existing cash balance. A
substantial portion of our operating income is generated by our
subsidiaries. As a result, we are dependent on the earnings and
cash flows of and the combination of dividends, royalties,
intercompany loan repayments and other distributions and
advances from our subsidiaries to provide the funds necessary to
meet our obligations. There are no significant restrictions on
the ability of our subsidiaries to pay dividends or make other
distributions to Lear. For further information regarding
potential dividends from our
non-U.S. subsidiaries,
see Note 9, “Income Taxes,” to the consolidated
financial statements included in this Report.
Cash
Flows
Net cash provided by operating activities was $622 million
in 2010, as compared to net cash used in operating activities of
$175 million in 2009. The increase primarily reflects
higher earnings before the impact of reorganization items and
fresh-start accounting adjustments and goodwill impairment
charges recorded in 2009. The net change in sold accounts
receivable, which reflects the termination of our European
accounts receivable factoring
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facility in 2009, and the net change in working capital
benefited operating cash flow between years by $139 million
and $54 million, respectively. This benefit was partially
offset by the net change in recoverable customer engineering,
development and tooling, which resulted in a decrease in
operating cash flow between years of $42 million. In the
year ended December 31, 2010, increases in accounts
receivable and accounts payable resulted in a use of cash of
$291 million and a source of cash of $318 million,
respectively, primarily reflecting the impact of increased
production volumes. The impact of increases in inventories,
other current assets and accrued liabilities were largely
offsetting.
Net cash used in investing activities was $192 million in
2010, as compared to $92 million in 2009, reflecting an
increase in capital expenditures of $75 million between
years. Capital spending in 2011 is estimated at approximately
$250 million.
Net cash used in financing activities was $321 million in
2010, as compared to net cash provided by financing activities
of $195 million in 2009. In 2010, the repayment of
$925 million of term loans under our first and second lien
credit agreements and $43 million of other debt outstanding
was largely offset by $680 million of net proceeds related
to the issuance of our senior unsecured notes. In 2009, we
borrowed $375 million under the first lien credit agreement
and prepaid $50 million under the second lien credit
agreement. In addition, we paid $71 million in debt
issuance costs related to our pre-petition primary credit
facility, our
debtor-in-possession
financing and our first and second lien credit agreements. We
also prepaid $50 million of Series A preferred stock.
For further information regarding our 2010 and 2009 financing
transactions, see “— Capitalization” below.
Capitalization
In addition to cash provided by operating activities, we utilize
uncommitted lines of credit to fund our capital expenditures and
working capital requirements at certain of our foreign
subsidiaries. As of December 31, 2010 and 2009, our
outstanding short-term debt balance was $4 million and
$37 million, respectively. The weighted average short-term
interest rate on our short-term debt balances, excluding rates
under our prior year primary credit facility and senior notes,
was 2.6% and 3.8% for the years ended December 31, 2010 and
2009, respectively. The availability of uncommitted lines of
credit may be affected by our financial performance, credit
ratings and other factors.
Senior
Notes
On March 26, 2010, we issued $350 million in aggregate
principal amount at maturity of senior unsecured notes due 2018
at a stated coupon rate of 7.875% (the “2018 Notes”)
and $350 million in aggregate principal amount at maturity
of senior unsecured notes due 2020 at a stated coupon rate of
8.125% (the “2020 Notes” and together with the 2018
Notes, the “Notes”). The 2018 Notes were priced at
99.276% of par, resulting in a yield to maturity of 8.00%, and
the 2020 Notes were priced at 99.164% of par, resulting in a
yield to maturity of 8.25%. The net proceeds from the issuance
of the Notes, together with existing cash on hand, were used to
repay in full an aggregate amount of $925 million of term
loans provided under our first and second lien credit agreements
(described below).
Interest is payable on the Notes on March 15 and September 15 of
each year, beginning September 15, 2010. The 2018 Notes
mature on March 15, 2018, and the 2020 Notes mature on
March 15, 2020. As of December 31, 2010, we had
$695 million of Notes outstanding. The indenture governing
the Notes contain certain restrictive covenants and customary
events of default. As of December 31, 2010, we were in
compliance with all covenants under the indenture governing the
Notes.
The Notes are senior unsecured obligations. Our obligations
under the Notes are fully and unconditionally guaranteed,
jointly and severally, on a senior unsecured basis by certain
domestic subsidiaries, which are directly or indirectly 100%
owned by Lear.
For further information related to the Notes, including
information on early redemption, covenants and events of
default, see Note 8, “Long-Term Debt,” to the
consolidated financial statements included in this Report and
the indenture (as amended and supplemented) governing the Notes,
which has been incorporated by reference as an exhibit to this
Report.
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First
and Second Lien Credit Agreements and Revolving Credit
Facility
In connection with our emergence from Chapter 11 bankruptcy
proceedings, we entered into a first lien credit agreement (as
amended, restated or otherwise modified, the “first lien
credit agreement”) and a second lien credit agreement in
the fourth quarter of 2009. The first lien credit agreement
provided for the issuance of $375 million of term loans,
and the second lien credit agreement provided for the issuance
of $550 million of term loans. As described above, in March
2010, we repaid in full amounts outstanding under the first and
second lien credit agreements.
Effective March 19, 2010, we entered into an amendment and
restatement of the first lien credit agreement, which provides
for a $110 million revolving credit facility (the
“Revolving Credit Facility”). The Revolving Credit
Facility permits borrowings for general corporate and working
capital purposes and the issuance of letters of credit. The
commitments under the Revolving Credit Facility expire on
March 18, 2013. As of December 31, 2010, there were no
borrowings outstanding under the Revolving Credit Facility, and
we were in compliance with all covenants under the agreement
governing the Revolving Credit Facility.
For further information related to the Revolving Credit
Facility, including information on pricing, covenants and events
of default, see Note 8, “Long-Term Debt,” to the
consolidated financial statements included in this Report and
the amended and restated first lien credit agreement, which has
been incorporated by reference as an exhibit to this Report.
Also on March 19, 2010, we amended the first lien credit
agreement to facilitate the issuance of the Notes and the
repayment of amounts outstanding under the second lien credit
agreement. The amendment also provides for the repurchase of
certain amounts of the Notes and for a limited amount of cash
dividend payments or repurchases of our common stock, when
certain terms and conditions are met.
Contractual
Obligations
Our scheduled maturities of long-term debt, our scheduled
interest payments on the Notes and our lease commitments under
non-cancelable operating leases as of December 31, 2010,
are shown below (in millions):
| 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
|
Long-term debt maturities
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 694.9 | $ | 694.9 | ||||||||||||||
|
Scheduled interest payments
|
56.0 | 56.0 | 56.0 | 56.0 | 56.0 | 196.9 | 476.9 | |||||||||||||||||||||
|
Lease commitments
|
68.8 | 48.6 | 39.0 | 28.9 | 21.0 | 33.8 | 240.1 | |||||||||||||||||||||
|
Total
|
$ | 124.8 | $ | 104.6 | $ | 95.0 | $ | 84.9 | $ | 77.0 | $ | 925.6 | $ | 1,411.9 | ||||||||||||||
In addition to the obligations set forth above, we have capital
requirements with respect to new programs. We enter into
agreements with our customers to produce products at the
beginning of a vehicle’s life cycle. Although such
agreements do not provide for a specified quantity of products,
once we enter into such agreements, we are generally required to
fulfill our customers’ purchasing requirements for the
production life of the vehicle. Prior to being formally awarded
a program, we typically work closely with our customers in the
early stages of the design and engineering of a vehicle’s
systems. Failure to complete the design and engineering work
related to a vehicle’s systems, or to fulfill a
customer’s contract, could have a material adverse impact
on our business.
We also enter into agreements with suppliers to assist us in
meeting our customers’ production needs. These agreements
vary as to duration and quantity commitments. Historically, most
have been short-term agreements, which do not provide for
minimum purchases, or are requirements-based contracts.
We may be required to make significant cash outlays related to
our unrecognized tax benefits, including interest and penalties.
However, due to the uncertainty of the timing of future cash
flows associated with our unrecognized tax benefits, we are
unable to make reasonably reliable estimates of the period of
cash settlement, if any, with the respective taxing authorities.
Accordingly, unrecognized tax benefits, including interest and
penalties and excluding federal tax benefit where applicable, of
$45 million as of December 31, 2010, have been
excluded from the contractual obligations table above. For
further information related to our unrecognized tax benefits,
see Note 9, “Income Taxes,” to the consolidated
financial statements included in this Report.
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We also have minimum funding requirements with respect to our
pension obligation. Based on these minimum funding requirements,
we expect required contributions to be approximately $5 to
$10 million to our domestic and foreign pension plans in
2011. We may elect to make contributions in excess of the
minimum funding requirements in response to investment
performance or changes in interest rates or when we believe that
it is financially advantageous to do so and based on our other
cash requirements. Our minimum funding requirements after 2011
will depend on several factors, including investment performance
and interest rates. Our minimum funding requirements may also be
affected by changes in applicable legal requirements. We also
have payments due with respect to our postretirement benefit
obligation. We do not fund our postretirement benefit
obligation. Rather, payments are made as costs are incurred by
covered retirees. We expect payments related to our
postretirement benefit obligation to be approximately
$11 million in 2011.
We also have a defined contribution retirement program for our
salaried employees. Contributions to this program are determined
as a percentage of each covered employee’s eligible
compensation and are expected to be approximately
$14 million in 2011. In addition, we expect distributions
to participants in certain of our non-qualified defined benefit
plans to be approximately $7 million in 2011.
For further information related to our pension and other
postretirement benefit plans, see “— Other
Matters — Pension and Other Postretirement Benefit
Plans” and Note 10, “Pension and Other
Postretirement Benefit Plans,” to the consolidated
financial statements included in this Report.
Off-Balance
Sheet Arrangements
Guarantees and Commitments —
We guarantee 49%
of certain of the debt of Tacle Seating USA, LLC. As of
December 31, 2010, the aggregate amount of debt guaranteed
was approximately $2 million.
Dividends
See Item 5, “Market for the Company’s Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.”
Adequacy
of Liquidity Sources
As of December 31, 2010, we had approximately
$1.7 billion of cash and cash equivalents on hand, which we
believe will enable us to meet our liquidity needs to satisfy
ordinary course business obligations. However, our ability to
continue to meet such liquidity needs is subject to, and will be
affected by, cash flows from operations, including the impact of
restructuring activities, automotive industry conditions, the
financial condition of our customers and suppliers and other
related factors. Additionally, an economic downturn or reduction
in production levels could negatively impact our financial
condition. Furthermore, our future financial results will be
affected by cash flows from operations, including the impact of
restructuring activities, and will also be subject to certain
factors outside of our control, including those described above.
See Part I — Item 1A, “Risk
Factors,” “— Executive Overview” above
and “— Forward-Looking Statements” below for
further discussion of the risks and uncertainties affecting our
cash flows from operations and overall liquidity.
Market
Risk Sensitivity
In the normal course of business, we are exposed to market risks
associated with fluctuations in foreign exchange rates and
interest rates. We manage a portion of these risks through the
use of derivative financial instruments in accordance with
management’s guidelines. We enter into all hedging
transactions for periods consistent with the underlying
exposures. We do not enter into derivative instruments for
trading purposes.
Foreign
Exchange
Operating results may be impacted by our buying, selling and
financing in currencies other than the functional currency of
our operating companies (“transactional exposure”). We
may mitigate a portion of this risk by entering into forward
foreign exchange, futures and option contracts. The foreign
exchange contracts are executed with banks that we believe are
creditworthy. Gains and losses related to foreign exchange
contracts are deferred where
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appropriate and included in the measurement of the foreign
currency transaction subject to the hedge. Gains and losses
incurred related to foreign exchange contracts are generally
offset by the direct effects of currency movements on the
underlying transactions.
Our most significant foreign currency transactional exposures
relate to the Mexican peso, various European currencies, the
Chinese renminbi, the Canadian dollar and the Japanese yen. We
have performed a quantitative analysis of our overall currency
rate exposure as of December 31, 2010. The potential
earnings benefit related to net transactional exposures from a
hypothetical 10% strengthening of the U.S. dollar relative
to all other currencies to which it is exposed for a
twelve-month period is approximately $22 million. The
potential earnings benefit related to net transactional
exposures from a similar strengthening of the Euro relative to
all other currencies to which it is exposed for a twelve-month
period is approximately $15 million.
As of December 31, 2010, foreign exchange contracts
representing $315 million of notional amount were
outstanding with maturities of less than 12 months. As of
December 31, 2010, the fair value of these contracts was
approximately ($1) million. A 10% change in the value of
the U.S. dollar relative to all other currencies to which
it is exposed would result in a $7 million change in the
aggregate fair value of these contracts. A 10% change in the
value of the Euro relative to all other currencies to which it
is exposed would result in a $4 million change in the
aggregate fair value of these contracts. As of December 31,
2009, there were no foreign exchange contracts outstanding.
There are certain shortcomings inherent in the sensitivity
analysis presented. The analysis assumes that all currencies
would uniformly strengthen or weaken relative to the
U.S. dollar or Euro. In reality, some currencies may
strengthen while others may weaken, causing the earnings impact
to increase or decrease depending on the currency and the
direction of the rate movement.
In addition to the transactional exposure described above, our
operating results are impacted by the translation of our foreign
operating income into U.S. dollars (“translational
exposure”). In 2010, net sales outside of the
United States accounted for 82% of our consolidated net
sales, although certain
non-U.S. sales
are U.S. dollar denominated. We do not enter into foreign
exchange contracts to mitigate our translational exposure.
Interest
Rates
Historically, we have used interest rate swap and other
derivative contracts to manage our exposure to variable interest
rates on outstanding variable rate debt instruments indexed to
U.S. or European Monetary Union short-term money market
rates. As of December 31, 2010 and 2009, there were no
interest rate contracts outstanding. We will continue to
evaluate, and may use, derivative financial instruments,
including forwards, futures, options, swaps and other derivative
contracts to manage our exposures to fluctuations in interest
rates in the future.
Commodity
Prices
Raw material, energy and commodity costs have been extremely
volatile over the past several years. We have developed and
implemented strategies to mitigate the impact of higher raw
material, energy and commodity costs, which include cost
reduction actions, such as the selective in-sourcing of
components, the continued consolidation of our supply base,
longer-term purchase commitments and the selective expansion of
low-cost country sourcing and engineering, as well as value
engineering and product benchmarking. However, these strategies,
together with commercial negotiations with our customers and
suppliers, typically offset only a portion of the adverse
impact. These costs remain volatile and could have an adverse
impact on our operating results in the foreseeable future. See
Part I — Item 1A, “Risk
Factors — Increases in the costs and restrictions on
the availability of raw materials, energy, commodities and
product components could adversely affect our financial
performance,” and “— Forward-Looking
Statements.”
We have commodity price risk with respect to purchases of
certain raw materials, including steel, leather, resins,
chemicals, copper and diesel fuel. Our main cost exposures
relate to steel and copper. The majority of the steel used in
our products is comprised of components that are integrated into
a seat system, such as seat frames, recliner mechanisms, seat
tracks and mechanical components. Therefore, our exposure to
steel prices is primarily indirect, through these purchased
components. Approximately 80% of our copper purchases are
subject to price index agreements with our customers.
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In certain periods, we have used derivative instruments to
reduce our exposure to fluctuations in certain commodity prices,
including copper. As of December 31, 2010 and 2009, there
were no commodity swap contracts outstanding. We will continue
to evaluate, and may use, derivative financial instruments,
including forwards, futures, options, swaps and other derivative
contracts to manage our exposures to commodity prices in the
future.
For further information related to the financial instruments
described above, see Note 15, “Financial
Instruments,” to the consolidated financial statements
included in this Report.
Other
Matters
Legal
and Environmental Matters
We are involved from time to time in various legal proceedings
and claims, including, without limitation, commercial and
contractual disputes, product liability claims and environmental
and other matters. As of December 31, 2010, we had recorded
reserves for pending legal disputes, including commercial
disputes and other matters, of $23 million. In addition, as
of December 31, 2010, we had recorded reserves for product
liability claims and environmental matters of $44 million
and $3 million, respectively. Although these reserves were
determined in accordance with GAAP, the ultimate outcomes of
these matters are inherently uncertain, and actual results may
differ significantly from current estimates. For a description
of risks related to various legal proceedings and claims, see
Part I — Item 1A, “Risk Factors.”
For a more complete description of our outstanding material
legal proceedings, see Note 13, “Commitments and
Contingencies,” to the consolidated financial statements
included in this Report.
Significant
Accounting Policies and Critical Accounting
Estimates
Our significant accounting policies are more fully described in
Note 4, “Summary of Significant Accounting
Policies,” to the consolidated financial statements
included in this Report. Certain of our accounting policies
require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. These
estimates and assumptions are based on our historical
experience, the terms of existing contracts, our evaluation of
trends in the industry, information provided by our customers
and suppliers and information available from other outside
sources, as appropriate. However, these estimates and
assumptions are subject to an inherent degree of uncertainty. As
a result, actual results in these areas may differ significantly
from our estimates.
We consider an accounting estimate to be critical if it requires
us to make assumptions about matters that were uncertain at the
time the estimate was made and changes in the estimate would
have had a significant impact on our consolidated financial
position or results of operations.
Pre-Production
Costs Related to Long-Term Supply Arrangements
We incur pre-production engineering and development
(“E&D”) and tooling costs related to the products
produced for our customers under long-term supply agreements. We
expense all pre-production E&D costs for which
reimbursement is not contractually guaranteed by the customer.
In addition, we expense all pre-production tooling costs related
to customer-owned tools for which reimbursement is not
contractually guaranteed by the customer or for which we do not
have a non-cancelable right to use the tooling.
A change in the commercial arrangements affecting any of our
significant programs that would require us to expense E&D
or tooling costs that we currently capitalize could have a
material adverse impact on our operating results.
Impairment
of Goodwill
As of December 31, 2010 and 2009, we had recorded goodwill
of $615 million and $621 million, respectively.
Goodwill recorded as of December 31, 2010 and 2009,
reflects the adoption of fresh-start accounting (see
Note 3, “Fresh-Start Accounting,” to the
consolidated financial statements included in this Report).
Goodwill is not amortized but is tested for impairment on at
least an annual basis. Impairment testing is required more often
than
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annually if an event or circumstance indicates that an
impairment is more likely than not to have occurred. In
conducting our impairment testing, we compare the fair value of
each of our reporting units to the related net book value. If
the net book value of a reporting unit exceeds its fair value,
an impairment loss is measured and recognized. We conduct our
annual impairment testing as of the first day of the fourth
quarter.
We utilize an income approach to estimate the fair value of each
of our reporting units and a market valuation approach to
further support this analysis. The income approach is based on
projected debt-free cash flow which is discounted to the present
value using discount factors that consider the timing and risk
of cash flows. We believe that this approach is appropriate
because it provides a fair value estimate based upon the
reporting unit’s expected long-term operating cash flow
performance. This approach also mitigates the impact of cyclical
trends that occur in the industry. Fair value is estimated using
recent automotive industry and specific platform production
volume projections, which are based on both third-party and
internally developed forecasts, as well as commercial, wage and
benefit, inflation and discount rate assumptions. The discount
rate used is the value-weighted average of our estimated cost of
equity and of debt (“cost of capital”) derived using
both known and estimated customary market metrics. Our weighted
average cost of capital is adjusted by reporting unit to reflect
a risk factor, if necessary. Other significant assumptions
include terminal value growth rates, terminal value margin
rates, future capital expenditures and changes in future working
capital requirements. While there are inherent uncertainties
related to the assumptions used and to management’s
application of these assumptions to this analysis, we believe
that the income approach provides a reasonable estimate of the
fair value of our reporting units. The market valuation approach
is used to further support our analysis and is based on recent
transactions involving comparable companies.
Our 2010 annual goodwill impairment analysis, completed as of
the first day of the fourth quarter, resulted in no impairment.
We do not believe that any of our reporting units is at risk for
impairment.
In the 2009 Predecessor Period, our annual goodwill impairment
analysis, completed as of the first day of the fourth quarter,
was based on our distributable value, which was approved by the
Bankruptcy Court, and resulted in impairment charges of
$319 million related to our EPMS segment. For further
information on our distributable value, see Note 3,
“Fresh-Start Accounting” to the consolidated financial
statements included in this Report.
Our 2008 annual goodwill impairment analysis indicated a
significant decline in the fair value of our EPMS segment, as
well as an impairment of the related goodwill. The decline in
fair value resulted from unfavorable operating results,
primarily as a result of the significant decline in estimated
industry production volumes. We evaluated the net book value of
goodwill within our EPMS segment by comparing the fair value of
each reporting unit to the related net book value. As a result,
we recorded total goodwill impairment charges of
$530 million.
Impairment
of Long-Lived Assets
We monitor our long-lived assets for impairment indicators on an
ongoing basis in accordance with GAAP. If impairment indicators
exist, we perform the required impairment analysis by comparing
the undiscounted cash flows expected to be generated from the
long-lived assets to the related net book values. If the net
book value exceeds the undiscounted cash flows, an impairment
loss is measured and recognized. An impairment loss is measured
as the difference between the net book value and the fair value
of the long-lived assets. Fair value is estimated based upon
either discounted cash flow analyses or estimated salvage
values. Cash flows are estimated using internal budgets based on
recent sales data, independent automotive production volume
estimates and customer commitments, as well as assumptions
related to discount rates. Changes in economic or operating
conditions impacting these estimates and assumptions could
result in the impairment of our long-lived assets.
In the year ended December 31, 2010, the 2009 Predecessor
Period and the year ended December 31, 2008, we recognized
fixed asset impairment charges of $4 million,
$6 million and $18 million, respectively, in
conjunction with our restructuring actions, as well as an
additional $3 million of fixed asset impairment charges in
2010. See Note 5, “Restructuring,” to the
consolidated financial statements included in this Report.
Impairment
of Investments in Affiliates
As of December 31, 2010 and 2009, we had aggregate
investments in affiliates of $173 million and
$139 million, respectively. We monitor our investments in
affiliates for indicators of
other-than-temporary
declines
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in value on an ongoing basis in accordance with GAAP. If we
determine that an
other-than-temporary
decline in value has occurred, we recognize an impairment loss,
which is measured as the difference between the recorded book
value and the fair value of the investment. Fair value is
generally determined using an income approach based on
discounted cash flows or negotiated transaction values. A
deterioration in industry conditions and decline in the
operating results of our non-consolidated affiliates could
result in the impairment of our investments.
In the 2009 Predecessor Period, we recorded impairment charges
of $42 million related to certain of our investments in
affiliates. In the year ended December 31, 2008, we
recorded an impairment charge of $34 million related to an
investment in an affiliate.
Restructuring
Accruals have been recorded in conjunction with our
restructuring actions. These accruals include estimates
primarily related to facility consolidations and closures,
employment reductions and contract termination costs. Actual
costs may vary from these estimates. Restructuring-related
accruals are reviewed on a quarterly basis, and changes to
restructuring actions are appropriately recognized when
identified.
Legal
and Other Contingencies
We are involved from time to time in various legal proceedings
and claims, including commercial or contractual disputes,
product liability claims and environmental and other matters,
that arise in the normal course of business. We routinely assess
the likelihood of any adverse judgments or outcomes related to
these matters, as well as ranges of probable losses, by
consulting with internal personnel principally involved with
such matters and with our outside legal counsel handling such
matters. We have accrued for estimated losses in accordance with
GAAP for those matters where we believe that the likelihood that
a loss has occurred is probable and the amount of the loss is
reasonably estimable. The determination of the amount of such
reserves is based on knowledge and experience with regard to
past and current matters and consultation with internal
personnel principally involved with such matters and with our
outside legal counsel handling such matters. The amount of such
reserves may change in the future due to new developments or
changes in circumstances. The inherent uncertainty related to
the outcome of these matters can result in amounts materially
different from any provisions made with respect to their
resolution.
Pension
and Other Postretirement Defined Benefit Plans
We provide certain pension and other postretirement benefits to
our employees and retired employees, including pensions,
postretirement health care benefits and other postretirement
benefits.
Plan assets and obligations are measured using various actuarial
assumptions, such as discount rates, rate of compensation
increase, mortality rates, turnover rates and health care cost
trend rates, which are determined as of the current year
measurement date. The measurement of net periodic benefit cost
is based on various actuarial assumptions, including discount
rates, expected return on plan assets and rate of compensation
increase, which are determined as of the prior year measurement
date. We review our actuarial assumptions on an annual basis and
modify these assumptions when appropriate. As required by GAAP,
the effects of the modifications are recorded currently or are
amortized over future periods.
Approximately 12% of our active workforce is covered by defined
benefit pension plans. Approximately 2% of our active workforce
is covered by other postretirement benefit plans. Pension plans
provide benefits based on plan-specific benefit formulas as
defined by the applicable plan documents. Postretirement benefit
plans generally provide for the continuation of medical benefits
for all eligible employees. We also have contractual
arrangements with certain employees which provide for
supplemental retirement benefits. In general, our policy is to
fund our pension benefit obligation based on legal requirements,
tax and liquidity considerations and local practices. We do not
fund our postretirement benefit obligation.
As of December 31, 2010, our projected benefit obligations
related to our pension and other postretirement benefit plans
were $920 million and $178 million, respectively, and
our unfunded pension and other postretirement benefit
obligations were $138 million and $178 million,
respectively. These benefit obligations were valued using a
47
Table of Contents
weighted average discount rate of 5.45% and 5.00% for domestic
pension and other postretirement benefit plans, respectively,
and 5.20% and 5.60% for foreign pension and other postretirement
benefit plans, respectively. The determination of the discount
rate is based on the construction of a hypothetical bond
portfolio consisting of high-quality fixed income securities
with durations that match the timing of expected benefit
payments. Changes in the selected discount rate could have a
material impact on our projected benefit obligations and the
unfunded status of our pension and other postretirement benefit
plans. Decreasing the discount rate by 100 basis points
would have increased the projected benefit obligations and
unfunded status of our pension and other postretirement benefit
plans by approximately $130 million and $20 million,
respectively.
For the year ended December 31, 2010, net periodic pension
benefit cost was $7 million and net periodic other
postretirement benefit cost was $10 million. In 2010, net
periodic pension benefit cost was calculated using a variety of
assumptions, including a weighted average discount rate of 5.96%
for domestic and 5.88% for foreign plans and an expected return
on plan assets of 8.00% for domestic and 6.92% for foreign
plans. The expected return on plan assets is determined based on
several factors, including adjusted historical returns,
historical risk premiums for various asset classes and target
asset allocations within the portfolio. Adjustments made to the
historical returns are based on recent return experience in the
equity and fixed income markets and the belief that deviations
from historical returns are likely over the relevant investment
horizon. In 2010, net periodic other postretirement benefit cost
was calculated using a discount rate of 5.5% for domestic and
6.6% for foreign plans.
Aggregate net periodic pension and other postretirement benefit
cost is forecasted to be approximately $12 million in 2011.
This estimate is based on a weighted average discount rate of
5.5% and 5.3% for domestic and foreign pension plans,
respectively, and 5.0% and 5.6% for domestic and foreign other
postretirement benefit plans, respectively. Actual cost is also
dependent on various other factors related to the employees
covered by these plans. Adjustments to our actuarial assumptions
could have a material adverse impact on our operating results.
Decreasing the discount rate by 100 basis points would
increase net periodic pension and other postretirement benefit
cost each by approximately $1 million for the year ended
December 31, 2011. Decreasing the expected return on plan
assets by 100 basis points would increase net periodic
pension benefit cost by approximately $8 million for the
year ended December 31, 2011.
For further information related to our pension and other
postretirement benefit plans, see “
—
Liquidity and Financial Condition
—
Capitalization
—
Contractual
Obligations” above and Note 10, “Pension and
Other Postretirement Benefit Plans,” to the consolidated
financial statements included in this Report.
Revenue
Recognition and Sales Commitments
We enter into agreements with our customers to produce products
at the beginning of a vehicle’s life cycle. Although such
agreements do not provide for a specified quantity of products,
once we enter into such agreements, we are generally required to
fulfill our customers’ purchasing requirements for the
production life of the vehicle. These agreements generally may
be terminated by our customers at any time. Historically,
terminations of these agreements have been minimal. In certain
instances, we may be committed under existing agreements to
supply products to our customers at selling prices which are not
sufficient to cover the direct cost to produce such products. In
such situations, we recognize losses as they are incurred.
We receive purchase orders from our customers on an annual
basis. Generally, each purchase order provides the annual terms,
including pricing, related to a particular vehicle model.
Purchase orders do not specify quantities. We recognize revenue
based on the pricing terms included in our annual purchase
orders as our products are shipped to our customers. We are
asked to provide our customers with annual productivity price
reductions as part of certain agreements. We accrue for such
amounts as a reduction of revenue as our products are shipped to
our customers. In addition, we have ongoing adjustments to our
pricing arrangements with our customers based on the related
content, the cost of our products and other commercial factors.
Such pricing accruals are adjusted as they are settled with our
customers.
Income
Taxes
We account for income taxes in accordance with GAAP. Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between
financial statement carrying amounts of
48
Table of Contents
existing assets and liabilities and their respective tax bases
and operating loss and tax loss and credit carryforwards.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled.
In determining the provision for income taxes for financial
statement purposes, we make certain estimates and judgments,
which affect our evaluation of the carrying value of our
deferred tax assets, as well as our calculation of certain tax
liabilities. In accordance with GAAP, we evaluate the carrying
value of our deferred tax assets on a quarterly basis. In
completing this evaluation, we consider all available evidence.
Such evidence includes historical results, expectations for
future pretax operating income, the time period over which our
temporary differences will reverse and the implementation of
feasible and prudent tax planning strategies.
We continue to maintain a valuation allowance related to our net
deferred tax assets in the United States and several foreign
jurisdictions. As of December 31, 2010, we had valuation
allowances of $1.4 billion related to tax loss and credit
carryforwards and other deferred tax assets in the United States
and several foreign jurisdictions. Our current and future
provision for income taxes is significantly impacted by the
initial recognition of and changes in valuation allowances in
certain countries, particularly the United States. We intend to
maintain these allowances until it is more likely than not that
the deferred tax assets will be realized. Our future provision
for income taxes will include no tax benefit with respect to
losses incurred and no tax expense with respect to income
generated in these countries until the respective valuation
allowance is eliminated.
In addition, the calculation of our tax benefits and liabilities
includes uncertainties in the application of, and changes in,
complex tax regulations in a multitude of jurisdictions across
our global operations. We recognize tax benefits and liabilities
based on our estimate of whether, and the extent to which,
additional taxes will be due. We adjust these liabilities based
on changing facts and circumstances; however, due to the
complexity of some of these uncertainties and the impact of any
tax audits, the ultimate resolutions may differ significantly
from our estimated liabilities.
For further information related to income taxes, see
Note 9, “Income Taxes,” to the consolidated
financial statements included in this Report.
Fair
Value Measurements
We measure certain assets and liabilities at fair value on a
non-recurring basis using unobservable inputs (Level 3
input based on the GAAP fair value hierarchy). For further
information on these fair value measurements, see
“— Impairment of Goodwill,”
“— Impairment of Long-Lived Assets,”
“— Restructuring” and
“— Impairment of Investments in Affiliates”
above and “— Adoption of Fresh-Start
Accounting” below.
Adoption
of Fresh-Start Accounting
Fresh-start accounting results in a new basis of accounting and
reflects the allocation of our estimated fair value to our
underlying assets and liabilities. Our estimates of fair value
are inherently subject to significant uncertainties and
contingencies beyond our reasonable control. Accordingly, there
can be no assurance that the estimates, assumptions, valuations,
appraisals and financial projections will be realized, and
actual results could vary materially.
Our reorganization value was allocated to our assets in
conformity with the procedures specified by Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification
tm
(“ASC”) 805, “Business Combinations.” The
excess of reorganization value over the fair value of tangible
and identifiable intangible assets was recorded as goodwill.
Liabilities existing as of the date of our emergence from
Chapter 11 bankruptcy proceedings, other than deferred
taxes, were recorded at the present value of amounts expected to
be paid using appropriate risk adjusted interest rates. Deferred
taxes were determined in conformity with applicable income tax
accounting standards. Predecessor accumulated depreciation,
accumulated amortization, retained deficit, common stock and
accumulated other comprehensive loss were eliminated.
For further information on fresh-start accounting, see
Note 3, “Fresh-Start Accounting,” to the
consolidated financial statements included in this Report.
49
Table of Contents
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. During 2010, there were no material
changes in the methods or policies used to establish estimates
and assumptions. The adoption of fresh-start accounting required
significant estimation and judgment. See Note 3,
“Fresh-Start Accounting,” to the consolidated
financial statements included in this Report. Other matters
subject to estimation and judgment include amounts related to
accounts receivable realization, inventory obsolescence, asset
impairments, useful lives of fixed and intangible assets,
unsettled pricing discussions with customers and suppliers,
restructuring accruals, deferred tax asset valuation allowances
and income taxes, pension and other postretirement benefit plan
assumptions, accruals related to litigation, warranty and
environmental remediation costs and self-insurance accruals.
Actual results may differ significantly from our estimates.
Recently
Issued Accounting Pronouncements
Consolidation
of Variable Interest Entities
The FASB amended ASC 810, “Consolidations,” with
ASU
2009-17,
“Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities.” This update
significantly changes the model for determining whether an
entity is the primary beneficiary and should thus consolidate a
variable interest entity. In addition, this update requires
additional disclosures and an ongoing assessment of whether a
variable interest entity should be consolidated. The provisions
of this update are effective for annual reporting periods
beginning after November 15, 2009. We have ownership
interests in consolidated and non-consolidated variable interest
entities. The effects of adoption were not significant.
Revenue
Recognition
The FASB amended ASC 605, “Revenue Recognition,”
with ASU
2009-13,
“Revenue Recognition (Topic 605)
— Multiple-Deliverable Revenue Arrangements.” If
a revenue arrangement has multiple deliverables, this update
requires the allocation of revenue to the separate deliverables
based on relative selling prices. In addition, this update
requires additional ongoing disclosures about an entity’s
multiple-element revenue arrangements. The provisions of this
update are effective no later than January 1, 2011. We do
not expect the effects of adoption to be significant.
Forward-Looking
Statements
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by us or on our
behalf. The words “will,” “may,”
“designed to,” “outlook,”
“believes,” “should,”
“anticipates,” “plans,” “expects,”
“intends,” “estimates,”
“forecasts” and similar expressions identify certain
of these forward-looking statements. We also may provide
forward-looking statements in oral statements or other written
materials released to the public. All such forward-looking
statements contained or incorporated in this Report or in any
other public statements which address operating performance,
events or developments that we expect or anticipate may occur in
the future, including, without limitation, statements related to
business opportunities, awarded sales contracts, sales backlog
and ongoing commercial arrangements, or statements expressing
views about future operating results, are forward-looking
statements. Actual results may differ materially from any or all
forward-looking statements made by us. Important factors, risks
and uncertainties that may cause actual results to differ
materially from anticipated results include, but are not limited
to:
| • | general economic conditions in the markets in which we operate, including changes in interest rates or currency exchange rates; | |
| • | the financial condition and restructuring actions of our customers and suppliers; | |
| • | changes in actual industry vehicle production levels from our current estimates; |
50
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| • | fluctuations in the production of vehicles or the loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier; | |
| • | disruptions in the relationships with our suppliers; | |
| • | labor disputes involving us or our significant customers or suppliers or that otherwise affect us; | |
| • | the outcome of customer negotiations and the impact of customer-imposed price reductions; | |
| • | the impact and timing of program launch costs and our management of new program launches; | |
| • | the costs, timing and success of restructuring actions; | |
| • | increases in our warranty, product liability or recall costs; | |
| • | risks associated with conducting business in foreign countries; | |
| • | competitive conditions impacting us and our key customers and suppliers; | |
| • | the cost and availability of raw materials, energy, commodities and product components and our ability to mitigate such costs; | |
| • | the outcome of legal or regulatory proceedings to which we are or may become a party; | |
| • | the impact of pending legislation and regulations or changes in existing federal, state, local or foreign laws or regulations; | |
| • | unanticipated changes in cash flow, including our ability to align our vendor payment terms with those of our customers; | |
| • | limitations imposed by our existing indebtedness and our ability to access capital markets on commercially reasonable terms; | |
| • | impairment charges initiated by adverse industry or market developments; | |
| • | our ability to execute our strategic objectives; | |
| • | changes in discount rates and the actual return on pension assets; | |
| • | costs associated with compliance with environmental laws and regulations; | |
| • | developments or assertions by or against us relating to intellectual property rights; | |
| • | our ability to utilize our net operating loss, capital loss and tax credit carryforwards; and | |
| • | other risks, described in Part I — Item 1A, “Risk Factors,” and from time to time in our other Securities and Exchange Commission filings. |
The forward-looking statements in this Report are made as of the
date hereof, and we do not assume any obligation to update,
amend or clarify them to reflect events, new information or
circumstances occurring after the date hereof.
51
| CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
| 53 | ||||
| 55 | ||||
| 56 | ||||
| 57 | ||||
| 58 | ||||
| 60 | ||||
| 130 | ||||
52
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of Lear Corporation
We have audited the accompanying consolidated balance sheets of
Lear Corporation and subsidiaries as of December 31, 2010
and 2009, and the related consolidated statements of operations,
equity and cash flows for the year ended December 31, 2010,
the period from November 8, 2009 to December 31, 2009
(Successor), the period from January 1, 2009 to
November 7, 2009, and the year ended December 31, 2008
(Predecessor). Our audits also included the financial statement
schedule included in Item 8. These financial statements and
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Lear Corporation and
subsidiaries as of December 31, 2010 and 2009, and the
consolidated results of their operations and cash flows for the
year ended December 31, 2010, the period from
November 8, 2009 to December 31, 2009 (Successor), the
period from January 1, 2009 to November 7, 2009, and
the year ended December 31, 2008 (Predecessor), in
conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, on November 5, 2009, the United States
Bankruptcy Court for the Southern District of New York entered
an order confirming the Plan of Reorganization, which became
effective on November 9, 2009. Accordingly, the
accompanying consolidated financial statements have been
prepared in conformity with FASB Accounting Standards
Codification
tm
852, “Reorganizations,” for the Successor as a new
entity with assets, liabilities and a capital structure having
carrying values that are not comparable to prior periods.
As discussed in Note 10 to the consolidated financial
statements, in 2008, the Predecessor changed its method of
accounting for pension and other postretirement benefit plans.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Lear
Corporation’s internal control over financial reporting as
of December 31, 2010, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 10, 2011,
expressed an unqualified opinion thereon.
/s/ Ernst &
Young LLP
Detroit, Michigan
February 10, 2011
53
Table of Contents
Report of
Independent Registered Public Accounting Firm on Internal
Control over Financial Reporting
The Board
of Directors and Shareholders of Lear Corporation
We have audited Lear Corporation’s internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Lear
Corporation’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting included in Management’s Annual Report
on Internal Control Over Financial Reporting included in
Item 9A(b). Our responsibility is to express an opinion on
the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. A
company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
the preparation of financial statements in accordance with
U.S. generally accepted accounting principles and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use
or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Lear Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2010 consolidated financial statements of Lear Corporation and
subsidiaries, and our report dated February 10, 2011,
expressed an unqualified opinion thereon.
/s/ Ernst &
Young LLP
Detroit, Michigan
February 10, 2011
54
Table of Contents
LEAR
CORPORATION AND SUBSIDIARIES
| Successor | ||||||||
|
December 31,
|
2010 | 2009 | ||||||
| (In millions, except share data) | ||||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 1,654.1 | $ | 1,554.0 | ||||
|
Accounts receivable
|
1,758.4 | 1,479.9 | ||||||
|
Inventories
|
554.2 | 447.4 | ||||||
|
Other
|
418.8 | 305.7 | ||||||
|
Total current assets
|
4,385.5 | 3,787.0 | ||||||
|
Long-Term Assets:
|
||||||||
|
Property, plant and equipment, net
|
994.7 | 1,050.9 | ||||||
|
Goodwill
|
614.6 | 621.4 | ||||||
|
Other
|
626.3 | 614.0 | ||||||
|
Total long-term assets
|
2,235.6 | 2,286.3 | ||||||
| $ | 6,621.1 | $ | 6,073.3 | |||||
|
LIABILITIES AND EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Short-term borrowings
|
$ | 4.1 | $ | 37.1 | ||||
|
Accounts payable and drafts
|
1,838.4 | 1,547.5 | ||||||
|
Accrued liabilities
|
976.0 | 808.1 | ||||||
|
Current portion of long-term debt
|
— | 8.1 | ||||||
|
Total current liabilities
|
2,818.5 | 2,400.8 | ||||||
|
Long-Term Liabilities:
|
||||||||
|
Long-term debt
|
694.9 | 927.1 | ||||||
|
Other
|
538.9 | 563.6 | ||||||
|
Total long-term liabilities
|
1,233.8 | 1,490.7 | ||||||
|
Equity:
|
||||||||
|
Series A convertible preferred stock,
100,000,000 shares authorized; 10,896,250 shares
issued as of December 31, 2010 and 2009;
9,881,303 shares outstanding as of December 31, 2009
|
— | 408.1 | ||||||
|
Common stock, $0.01 par value, 300,000,000 shares
authorized; 52,749,440 and 36,954,733 shares issued as of
December 31, 2010 and 2009, respectively
|
0.5 | 0.4 | ||||||
|
Additional paid-in capital, including warrants to purchase
common stock
|
2,116.6 | 1,685.7 | ||||||
|
Common stock held in treasury, 161,065 shares as of
December 31, 2010, at cost
|
(13.4 | ) | — | |||||
|
Retained earnings (deficit)
|
434.5 | (3.8 | ) | |||||
|
Accumulated other comprehensive loss
|
(78.0 | ) | (1.3 | ) | ||||
|
Lear Corporation stockholders’ equity
|
2,460.2 | 2,089.1 | ||||||
|
Noncontrolling interests
|
108.6 | 92.7 | ||||||
|
Equity
|
2,568.8 | 2,181.8 | ||||||
| $ | 6,621.1 | $ | 6,073.3 | |||||
The accompanying notes are an integral part of these
consolidated balance sheets.
55
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LEAR
CORPORATION AND SUBSIDIARIES
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
| (In millions, except per share data) | |||||||||||||||||
|
Net sales
|
$ | 11,954.6 | $ | 1,580.9 | $ | 8,158.7 | $ | 13,570.5 | |||||||||
|
Cost of sales
|
10,936.3 | 1,508.1 | 7,871.3 | 12,822.9 | |||||||||||||
|
Selling, general and administrative expenses
|
452.7 | 71.2 | 376.7 | 511.5 | |||||||||||||
|
Amortization of intangible assets
|
27.2 | 4.5 | 4.1 | 5.3 | |||||||||||||
|
Goodwill impairment charges
|
— | — | 319.0 | 530.0 | |||||||||||||
|
Interest expense ($221.1 million of contractual interest
for the ten month period ended November 7, 2009)
|
55.4 | 11.1 | 151.4 | 190.3 | |||||||||||||
|
Other (income) expense, net
|
34.2 | 19.8 | (16.6 | ) | 51.9 | ||||||||||||
|
Reorganization items and fresh-start accounting adjustments, net
|
— | — | (1,474.8 | ) | — | ||||||||||||
|
Consolidated income (loss) before provision (benefit) for income
taxes and equity in net (income) loss of affiliates
|
448.8 | (33.8 | ) | 927.6 | (541.4 | ) | |||||||||||
|
Provision (benefit) for income taxes
|
24.6 | (24.2 | ) | 29.2 | 85.8 | ||||||||||||
|
Equity in net (income) loss of affiliates
|
(37.2 | ) | (1.9 | ) | 64.0 | 37.2 | |||||||||||
|
Consolidated net income (loss)
|
461.4 | (7.7 | ) | 834.4 | (664.4 | ) | |||||||||||
|
Less: Net income (loss) attributable to noncontrolling interests
|
23.1 | (3.9 | ) | 16.2 | 25.5 | ||||||||||||
|
Net income (loss) attributable to Lear
|
$ | 438.3 | $ | (3.8 | ) | $ | 818.2 | $ | (689.9 | ) | |||||||
|
Basic net income (loss) per share attributable to Lear
|
$ | 8.60 | $ | (0.11 | ) | $ | 10.56 | $ | (8.93 | ) | |||||||
|
Diluted net income (loss) per share attributable to Lear
|
$ | 8.11 | $ | (0.11 | ) | $ | 10.55 | $ | (8.93 | ) | |||||||
The accompanying notes are an integral part of these
consolidated financial statements.
56
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LEAR
CORPORATION AND SUBSIDIARIES
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
| (In millions) | |||||||||||||||||
|
Cash Flows from Operating Activities:
|
|||||||||||||||||
|
Consolidated net income (loss)
|
$ | 461.4 | $ | (7.7 | ) | $ | 834.4 | $ | (664.4 | ) | |||||||
|
Adjustments to reconcile consolidated net income (loss) to net
cash provided by (used in) operating activities —
Reorganization items and fresh start accounting adjustments, net |
— | — | (1,474.8 | ) | — | ||||||||||||
|
Goodwill impairment charges
|
— | — | 319.0 | 530.0 | |||||||||||||
|
Equity in net (income) loss of affiliates
|
(37.2 | ) | (1.9 | ) | 64.0 | 37.2 | |||||||||||
|
(Gain) loss on extinguishment of debt
|
11.8 | — | — | (7.5 | ) | ||||||||||||
|
Fixed asset impairment charges
|
7.2 | — | 5.6 | 17.5 | |||||||||||||
|
Deferred tax provision (benefit)
|
(10.9 | ) | (2.4 | ) | 32.2 | 30.4 | |||||||||||
|
Depreciation and amortization
|
235.9 | 39.8 | 223.9 | 299.3 | |||||||||||||
|
Stock-based compensation
|
22.9 | 8.0 | 7.3 | 19.2 | |||||||||||||
|
Net change in recoverable customer engineering,
|
|||||||||||||||||
|
development and tooling
|
(40.7 | ) | 11.0 | (9.6 | ) | 45.0 | |||||||||||
|
Net change in working capital items
|
48.3 | 291.2 | (297.0 | ) | (196.9 | ) | |||||||||||
|
Net change in sold accounts receivable
|
— | — | (138.5 | ) | 47.2 | ||||||||||||
|
Changes in other long-term liabilities
|
(53.4 | ) | (35.9 | ) | (75.0 | ) | (23.0 | ) | |||||||||
|
Changes in other long-term assets
|
(26.9 | ) | (1.7 | ) | (4.6 | ) | 0.2 | ||||||||||
|
Other, net
|
3.5 | 23.6 | 13.9 | 29.4 | |||||||||||||
|
Net cash provided by (used in) operating activities
|
621.9 | 324.0 | (499.2 | ) | 163.6 | ||||||||||||
|
Cash Flows from Investing Activities:
|
|||||||||||||||||
|
Additions to property, plant and equipment
|
(193.3 | ) | (41.3 | ) | (77.5 | ) | (167.7 | ) | |||||||||
|
Cost of acquisitions, net of cash acquired
|
(12.3 | ) | — | (4.4 | ) | (27.9 | ) | ||||||||||
|
Net proceeds from disposition of businesses and other assets
|
18.6 | 4.0 | 29.7 | 51.9 | |||||||||||||
|
Other, net
|
(5.1 | ) | (2.2 | ) | (0.5 | ) | (0.7 | ) | |||||||||
|
Net cash used in investing activities
|
(192.1 | ) | (39.5 | ) | (52.7 | ) | (144.4 | ) | |||||||||
|
Cash Flows from Financing Activities:
|
|||||||||||||||||
|
Proceeds from the issuance of successor senior notes
|
694.5 | — | — | — | |||||||||||||
|
Debtor-in-possession
term loan borrowings
|
— | — | 500.0 | — | |||||||||||||
|
Debtor-in-possession
term loan repayments
|
— | — | (500.0 | ) | — | ||||||||||||
|
First lien credit agreement borrowings (repayments)
|
(375.0 | ) | — | 375.0 | — | ||||||||||||
|
Second lien credit agreement repayments
|
(550.0 | ) | — | (50.0 | ) | — | |||||||||||
|
Payment of debt issuance and other financing costs
|
(17.6 | ) | — | (70.6 | ) | (17.6 | ) | ||||||||||
|
Predecessor primary credit facility borrowings
|
— | — | — | 1,186.0 | |||||||||||||
|
Repayment/repurchase of predecessor senior notes
|
— | — | — | (133.5 | ) | ||||||||||||
|
Other long-term debt repayments, net
|
(9.3 | ) | (1.9 | ) | (0.5 | ) | (5.3 | ) | |||||||||
|
Short-term borrowings (repayments), net
|
(34.0 | ) | 6.6 | (11.4 | ) | 12.6 | |||||||||||
|
Prepayment of Series A preferred stock in connection with
emergence from Chapter 11
|
— | — | (50.0 | ) | — | ||||||||||||
|
Dividends paid to noncontrolling interests
|
(16.2 | ) | (7.0 | ) | (16.8 | ) | (19.4 | ) | |||||||||
|
Other, net
|
(13.1 | ) | 32.5 | (10.7 | ) | (35.5 | ) | ||||||||||
|
Net cash provided by (used in) financing activities
|
(320.7 | ) | 30.2 | 165.0 | 987.3 | ||||||||||||
|
Effect of foreign currency translation
|
(9.0 | ) | (15.1 | ) | 49.2 | (15.7 | ) | ||||||||||
|
Net Change in Cash and Cash Equivalents
|
100.1 | 299.6 | (337.7 | ) | 990.8 | ||||||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
1,554.0 | 1,254.4 | 1,592.1 | 601.3 | |||||||||||||
|
Cash and Cash Equivalents at End of Period
|
$ | 1,654.1 | $ | 1,554.0 | $ | 1,254.4 | $ | 1,592.1 | |||||||||
|
Changes in Working Capital:
|
|||||||||||||||||
|
Accounts receivable
|
$ | (291.3 | ) | $ | 337.0 | $ | (426.0 | ) | $ | 867.6 | |||||||
|
Inventories
|
(106.8 | ) | 27.2 | 66.0 | 55.6 | ||||||||||||
|
Accounts payable
|
318.4 | 10.2 | 50.3 | (779.2 | ) | ||||||||||||
|
Accrued liabilities and other
|
128.0 | (83.2 | ) | 12.7 | (340.9 | ) | |||||||||||
|
Net change in working capital items
|
$ | 48.3 | $ | 291.2 | $ | (297.0 | ) | $ | (196.9 | ) | |||||||
|
Supplementary Disclosure:
|
|||||||||||||||||
|
Cash paid for interest
|
$ | 57.0 | $ | 0.5 | $ | 78.9 | $ | 195.9 | |||||||||
|
Cash paid for income taxes, net of refunds received of $25.3 in
2010, $26.9 in the ten month period ended November 7, 2009,
and $10.4 in 2008
|
$ | 57.5 | $ | 4.3 | $ | 60.0 | $ | 103.5 | |||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
57
Table of Contents
LEAR
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EQUITY
|
Series A
|
Additional
|
Retained
|
||||||||||||||||||
|
Preferred
|
Common
|
Paid-in
|
Treasury
|
Earnings
|
||||||||||||||||
| Stock | Stock | Capital | Stock | (Deficit) | ||||||||||||||||
| (In millions, except share data) | ||||||||||||||||||||
|
Balance at December 31, 2007 — Predecessor
|
$ | — | $ | 0.8 | $ | 1,373.3 | $ | (194.5 | ) | $ | (116.5 | ) | ||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||
|
Net income (loss)
|
— | — | — | — | (689.9 | ) | ||||||||||||||
|
Other comprehensive income (loss)
|
— | — | — | — | — | |||||||||||||||
|
Total comprehensive income (loss)
|
— | — | — | — | (689.9 | ) | ||||||||||||||
|
Stock-based compensation (includes issuances of
471,244 shares of common stock at an average price
of $48.03)
|
— | — | (1.6 | ) | 22.6 | — | ||||||||||||||
|
Purchases of 259,200 shares at an average price of $16.21
|
— | — | — | (4.2 | ) | — | ||||||||||||||
|
Adoption of new accounting pronouncement (Note 10)
|
— | — | — | — | (4.9 | ) | ||||||||||||||
|
Adoption of new accounting pronouncement (Note 10)
|
— | — | — | — | (6.9 | ) | ||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | — | — | — | |||||||||||||||
|
Transactions with affiliates
|
— | — | — | — | — | |||||||||||||||
|
Balance at December 31, 2008 — Predecessor
|
$ | — | $ | 0.8 | $ | 1,371.7 | $ | (176.1 | ) | $ | (818.2 | ) | ||||||||
|
Comprehensive income:
|
||||||||||||||||||||
|
Net income
|
— | — | — | — | 818.2 | |||||||||||||||
|
Other comprehensive income
|
— | — | — | — | — | |||||||||||||||
|
Total comprehensive income
|
— | — | — | — | 818.2 | |||||||||||||||
|
Stock-based compensation (includes issuances of
120,363 shares of common stock at an average price of
$50.56)
|
— | — | 1.6 | 6.1 | — | |||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | — | — | — | |||||||||||||||
|
Reorganization and fresh-start accounting adjustments
|
— | (0.8 | ) | (1,373.3 | ) | 170.0 | — | |||||||||||||
|
Balance at November 7, 2009 — Predecessor
|
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
|
Issuance of 10,896,250 shares of Series A preferred
stock, net of $50.0 million prepayment in connection with
emergence from Chapter 11
|
450.0 | — | — | — | — | |||||||||||||||
|
Issuance of 34,117,386 shares of common stock and 8,157,249
warrants in connection with emergence from Chapter 11
|
— | 0.4 | 1,635.8 | — | — | |||||||||||||||
|
Balance at November 7, 2009 — Successor
|
$ | 450.0 | $ | 0.4 | $ | 1,635.8 | $ | — | $ | — | ||||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||
|
Net loss
|
— | — | — | — | (3.8 | ) | ||||||||||||||
|
Other comprehensive income (loss)
|
— | — | — | — | — | |||||||||||||||
|
Total comprehensive income (loss)
|
— | — | — | — | (3.8 | ) | ||||||||||||||
|
Conversion of 1,014,947 shares of Series A preferred
stock
|
(41.9 | ) | — | 41.9 | — | — | ||||||||||||||
|
Issuance of 1,780,015 shares of common stock related to
exercises of warrants
|
— | — | — | — | — | |||||||||||||||
|
Stock-based compensation
|
— | — | 8.0 | — | — | |||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | — | — | — | |||||||||||||||
|
Balance at December 31, 2009 — Successor
|
$ | 408.1 | $ | 0.4 | $ | 1,685.7 | $ | — | $ | (3.8 | ) | |||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||
|
Net income
|
— | — | — | — | 438.3 | |||||||||||||||
|
Other comprehensive income (loss)
|
— | — | — | — | — | |||||||||||||||
|
Total comprehensive income (loss)
|
— | — | — | — | 438.3 | |||||||||||||||
|
Conversion of 9,881,303 shares of Series A preferred
stock
|
(408.1 | ) | 0.1 | 408.0 | — | — | ||||||||||||||
|
Issuance of 5,434,901 shares of common stock related to
exercises of warrants
|
— | — | — | — | — | |||||||||||||||
|
Stock-based compensation
|
— | — | 22.9 | (13.4 | ) | — | ||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | — | — | — | |||||||||||||||
|
Transactions with affiliates
|
— | — | — | — | — | |||||||||||||||
|
Balance at December 31, 2010 — Successor
|
$ | — | $ | 0.5 | $ | 2,116.6 | $ | (13.4 | ) | $ | 434.5 | |||||||||
58
Table of Contents
LEAR
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF
EQUITY
— (Continued)
|
Accumulated Other Comprehensive Loss,
|
||||||||||||||||||||||||
| net of tax | ||||||||||||||||||||||||
|
Defined
|
Derivative
|
Cumulative
|
Lear
|
Non-
|
||||||||||||||||||||
|
Benefit
|
Instruments and
|
Translation
|
Stockholders’
|
controlling
|
||||||||||||||||||||
| Plans | Hedging Activities | Adjustments | Equity | Interests | Equity | |||||||||||||||||||
| (In millions, except share data) | ||||||||||||||||||||||||
|
Balance at December 31, 2007 — Predecessor
|
$ | (106.0 | ) | $ | (14.7 | ) | $ | 148.3 | $ | 1,090.7 | $ | 26.8 | $ | 1,117.5 | ||||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||||||
|
Net income (loss)
|
— | — | — | (689.9 | ) | 25.5 | (664.4 | ) | ||||||||||||||||
|
Other comprehensive income (loss)
|
(69.0 | ) | (74.1 | ) | (64.8 | ) | (207.9 | ) | 0.7 | (207.2 | ) | |||||||||||||
|
Total comprehensive income (loss)
|
(69.0 | ) | (74.1 | ) | (64.8 | ) | (897.8 | ) | 26.2 | (871.6 | ) | |||||||||||||
|
Stock-based compensation (includes issuances of
471,244 shares of common stock at an average price
of $48.03)
|
— | — | — | 21.0 | — | 21.0 | ||||||||||||||||||
|
Purchases of 259,200 shares at an average price of $16.21
|
— | — | — | (4.2 | ) | — | (4.2 | ) | ||||||||||||||||
|
Adoption of new accounting pronouncement (Note 10)
|
— | — | — | (4.9 | ) | — | (4.9 | ) | ||||||||||||||||
|
Adoption of new accounting pronouncement (Note 10)
|
1.0 | — | — | (5.9 | ) | — | (5.9 | ) | ||||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | — | — | (19.4 | ) | (19.4 | ) | ||||||||||||||||
|
Transactions with affiliates
|
— | — | — | — | 15.2 | 15.2 | ||||||||||||||||||
|
Balance at December 31, 2008 — Predecessor
|
$ | (174.0 | ) | $ | (88.8 | ) | $ | 83.5 | $ | 198.9 | $ | 48.8 | $ | 247.7 | ||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net income
|
— | — | — | 818.2 | 16.2 | 834.4 | ||||||||||||||||||
|
Other comprehensive income
|
14.9 | 47.7 | 55.9 | 118.5 | 1.0 | 119.5 | ||||||||||||||||||
|
Total comprehensive income
|
14.9 | 47.7 | 55.9 | 936.7 | 17.2 | 953.9 | ||||||||||||||||||
|
Stock-based compensation (includes issuances of
120,363 shares of common stock at an average price of
$50.56)
|
— | — | — | 7.7 | — | 7.7 | ||||||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | — | — | (16.8 | ) | (16.8 | ) | ||||||||||||||||
|
Reorganization and fresh-start accounting adjustments
|
159.1 | 41.1 | (139.4 | ) | (1,143.3 | ) | 54.5 | (1,088.8 | ) | |||||||||||||||
|
Balance at November 7, 2009 — Predecessor
|
$ | — | $ | — | $ | — | $ | — | $ | 103.7 | $ | 103.7 | ||||||||||||
|
Issuance of 10,896,250 shares of Series A preferred
stock, net of $50.0 million prepayment in connection with
emergence from Chapter 11
|
— | — | — | 450.0 | — | 450.0 | ||||||||||||||||||
|
Issuance of 34,117,386 shares of common stock and 8,157,249
warrants in connection with emergence from Chapter 11
|
— | — | — | 1,636.2 | — | 1,636.2 | ||||||||||||||||||
|
Balance at November 7, 2009 — Successor
|
$ | — | $ | — | $ | — | $ | 2,086.2 | $ | 103.7 | $ | 2,189.9 | ||||||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||||||
|
Net loss
|
— | — | — | (3.8 | ) | (3.9 | ) | (7.7 | ) | |||||||||||||||
|
Other comprehensive income (loss)
|
9.2 | — | (10.5 | ) | (1.3 | ) | (0.1 | ) | (1.4 | ) | ||||||||||||||
|
Total comprehensive income (loss)
|
9.2 | — | (10.5 | ) | (5.1 | ) | (4.0 | ) | (9.1 | ) | ||||||||||||||
|
Conversion of 1,014,947 shares of Series A preferred
stock
|
— | — | — | — | — | — | ||||||||||||||||||
|
Issuance of 1,780,015 shares of common stock related to
exercises of warrants
|
— | — | — | — | — | — | ||||||||||||||||||
|
Stock-based compensation
|
— | — | — | 8.0 | — | 8.0 | ||||||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | — | — | (7.0 | ) | (7.0 | ) | ||||||||||||||||
|
Balance at December 31, 2009 — Successor
|
$ | 9.2 | $ | — | $ | (10.5 | ) | $ | 2,089.1 | $ | 92.7 | $ | 2,181.8 | |||||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||||||
|
Net income
|
— | — | — | 438.3 | 23.1 | 461.4 | ||||||||||||||||||
|
Other comprehensive income (loss)
|
(66.6 | ) | (1.3 | ) | (8.8 | ) | (76.7 | ) | 2.5 | (74.2 | ) | |||||||||||||
|
Total comprehensive income (loss)
|
(66.6 | ) | (1.3 | ) | (8.8 | ) | 361.6 | 25.6 | 387.2 | |||||||||||||||
|
Conversion of 9,881,303 shares of Series A preferred
stock
|
— | — | — | — | — | — | ||||||||||||||||||
|
Issuance of 5,434,901 shares of common stock related to
exercises of warrants
|
— | — | — | — | — | — | ||||||||||||||||||
|
Stock-based compensation
|
— | — | — | 9.5 | — | 9.5 | ||||||||||||||||||
|
Dividends paid to noncontrolling interests
|
(16.2 | ) | (16.2 | ) | ||||||||||||||||||||
|
Transactions with affiliates
|
— | — | — | — | 6.5 | 6.5 | ||||||||||||||||||
|
Balance at December 31, 2010 — Successor
|
$ | (57.4 | ) | $ | (1.3 | ) | $ | (19.3 | ) | $ | 2,460.2 | $ | 108.6 | $ | 2,568.8 | |||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
59
Table of Contents
Lear
Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| (1) | Basis of Presentation |
Lear Corporation (“Lear”) and its affiliates design
and manufacture complete automotive seat systems and related
components, as well as electrical distribution systems and
related components. Lear’s main customers are automotive
original equipment manufacturers. Lear operates facilities
worldwide (Note 14, “Segment Reporting”).
On November 9, 2009, Lear and certain of its U.S. and
Canadian subsidiaries emerged from bankruptcy proceedings under
Chapter 11 of the United States Bankruptcy Code (the
“Bankruptcy Code”) (“Chapter 11”). In
accordance with the provisions of FASB Accounting Standards
Codification
tm
(“ASC”) 852, “Reorganizations,” Lear adopted
fresh-start accounting upon its emergence from Chapter 11
bankruptcy proceedings and became a new entity for financial
reporting purposes as of November 7, 2009. Accordingly, the
consolidated financial statements for the reporting entity
subsequent to emergence from Chapter 11 bankruptcy
proceedings (the “Successor”) are not comparable to
the consolidated financial statements for the reporting entity
prior to emergence from Chapter 11 bankruptcy proceedings
(the “Predecessor”).
In addition, ASC 852 requires that financial statements,
for periods including and subsequent to a Chapter 11
bankruptcy filing, distinguish between transactions and events
that are directly associated with the reorganization proceedings
and the ongoing operations of the business, as well as contain
additional disclosures. Effective July 7, 2009, expenses,
gains and losses directly associated with the reorganization
proceedings are reported as reorganization items and fresh-start
accounting adjustments, net in the accompanying consolidated
statement of operations for the ten month period ended
November 7, 2009. In addition, liabilities subject to
compromise in the Chapter 11 bankruptcy proceedings are
distinguished from liabilities not subject to compromise and
from post-petition liabilities. Liabilities subject to
compromise were reported at amounts allowed or expected to be
allowed under the Chapter 11 bankruptcy proceedings. For
the period from July 7, 2009 through November 7, 2009,
contractual interest expense related to liabilities subject to
compromise of $69.7 million was not recorded as it was not
an allowed claim under the Chapter 11 bankruptcy
proceedings. The “Company,” when used in reference to
the period subsequent to emergence from Chapter 11
bankruptcy proceedings, refers to the Successor, and when used
in reference to periods prior to emergence from Chapter 11
bankruptcy proceedings, refers to the Predecessor. In addition,
results for the two month period ended December 31, 2009,
are referred to as the “2009 Successor Period,” and
results for the ten month period ended November 7, 2009,
are referred as the “2009 Predecessor Period.” For
further information regarding the Company’s filing under
and emergence from Chapter 11 bankruptcy proceedings and
the adoption of fresh-start accounting, see Note 2,
“Reorganization under Chapter 11,” and
Note 3, “Fresh-Start Accounting.”
The accompanying Successor and Predecessor consolidated
financial statements include the accounts of Lear, a Delaware
corporation, and the wholly owned and less than wholly owned
subsidiaries controlled by Lear. In addition, variable interest
entities in which Lear bears a majority of the risk of the
entities’ potential losses or stands to gain from a
majority of the entities’ expected returns are
consolidated. Investments in affiliates in which Lear does not
have control, but does have the ability to exercise significant
influence over operating and financial policies, are accounted
for under the equity method (Note 6, “Investments in
Affiliates and Other Related Party Transactions”).
| (2) | Reorganization under Chapter 11 |
In 2009, the Company completed a comprehensive evaluation of its
strategic and financial options and concluded that voluntarily
filing for bankruptcy protection under Chapter 11 was
necessary in order to re-align the Company’s capital
structure to address lower industry production and capital
market conditions and position the Company’s business for
long-term success. On July 7, 2009, Lear Corporation and
certain of its U.S. and Canadian subsidiaries (the
“Canadian Debtors” and collectively, the
“Debtors”) filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York (the
“Bankruptcy Court”) (Consolidated Case
No. 09-14326).
On July 9, 2009, the Canadian Debtors also filed petitions
for protection under section 18.6 of the Companies’
Creditors Arrangement Act in the Ontario Superior
60
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
Court, Commercial List (the “Canadian Court”).
Lear’s remaining subsidiaries, consisting primarily of
non-U.S. and
non-Canadian subsidiaries, were not subject to the requirements
of the Bankruptcy Code. On September 12, 2009, the Debtors
filed with the Bankruptcy Court their First Amended Joint Plan
of Reorganization (as amended and supplemented, the
“Plan” or “Plan of Reorganization”) and
their Disclosure Statement (as amended and supplemented, the
“Disclosure Statement”). On November 5, 2009, the
Bankruptcy Court entered an order approving and confirming the
Plan (the “Confirmation Order”), and on
November 6, 2009, the Canadian Court entered an order
recognizing the Confirmation Order and giving full force and
effect to the Confirmation Order and Plan under applicable
Canadian law. On November 9, 2009 (the “Effective
Date”), the Debtors consummated the reorganization
contemplated by the Plan and emerged from Chapter 11
bankruptcy proceedings.
Post-Emergence
Capital Structure
Following the Effective Date and after giving effect to the
Excess Cash Paydown (as described below) and total borrowings
under the first lien credit agreement, the Company’s
capital structure consisted of the following:
| • | $375 million and $550 million of term loans outstanding under the first lien credit agreement and the second lien credit agreement, respectively; | |
| • | $450 million, or 10,896,250 shares, of Series A convertible participating preferred stock (the “Series A Preferred Stock”); and | |
| • | A single class of Common Stock, par value $0.01 per share (the “Common Stock”), including sufficient shares to provide for (i) management equity grants, (ii) the conversion of the Series A Preferred Stock into Common Stock and (iii) warrants to purchase 15%, or 8,157,249 shares, of the Company’s Common Stock, on a fully diluted basis (the “Warrants”). |
Pursuant to the Plan, to the extent that the Company had
liquidity on the Effective Date in excess of $1.0 billion,
subject to certain working capital and other adjustments and
accruals, the amount of such excess would be utilized
(i) first, to prepay the Series A Preferred Stock in
an aggregate stated value of up to $50 million;
(ii) second, to prepay term loans provided under the second
lien credit agreement in an aggregate principal amount of up to
$50 million; and (iii) third, to reduce borrowings
under the first lien credit agreement (such prepayments and
reductions, the “Excess Cash Paydown”). After giving
effect to certain working capital and other adjustments and
accruals, the resulting aggregate Excess Cash Paydown was
approximately $225 million. The Excess Cash Paydown was
applied, in accordance with the Plan, (i) first, to prepay
the Series A Preferred Stock in an aggregate stated value
of $50 million; (ii) second, to prepay the term loans
provided under the second lien credit agreement in an aggregate
principal amount of $50 million; and (iii) third, to
reduce borrowings under the first lien credit agreement by an
aggregate principal amount of approximately $125 million.
In March 2010, the Company issued $700 million in aggregate
principal amount at maturity of senior unsecured notes due 2018
and 2020 and repaid in full the term loans provided under its
first and second lien credit agreements. In November 2010, each
issued and outstanding share of Series A Preferred Stock
converted on a
one-for-one
basis into shares of newly issued Common Stock. For more
information on the Company’s current capital structure, see
Note 8, “Long-Term Debt,” and Note 11,
“Capital Stock.”
Cancellation
of Certain Pre-Petition Obligations
Under the Plan, the Company’s pre-petition equity, debt and
certain of its other obligations were cancelled and
extinguished, as follows:
| • | The Predecessor common stock was extinguished, and no distributions were made to the Predecessor’s former shareholders; |
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| • | The Predecessor’s pre-petition debt securities were cancelled, and the indentures governing such debt securities were terminated (other than for the purposes of allowing holders of the notes to receive distributions under the Plan and allowing the trustees to exercise certain rights); and | |
| • | The Predecessor’s pre-petition primary credit facility was cancelled (other than for the purposes of allowing creditors under that facility to receive distributions under the Plan and allowing the administrative agent to exercise certain rights). |
For further information regarding the resolution of certain of
the Company’s other pre-petition liabilities in accordance
with the Plan, see Note 3, “Fresh-Start
Accounting — Liabilities Subject to Compromise,”
and Note 13, “Commitments and Contingencies.”
| (3) | Fresh-Start Accounting |
As discussed in Note 2, “Reorganization under
Chapter 11,” the Debtors emerged from Chapter 11
bankruptcy proceedings on November 9, 2009. As a result,
the Successor adopted fresh-start accounting as (i) the
reorganization value of the Predecessor’s assets
immediately prior to the confirmation of the Plan was less than
the total of all post-petition liabilities and allowed claims
and (ii) the holders of the Predecessor’s existing
voting shares immediately prior to the confirmation of the Plan
received less than 50% of the voting shares of the emerging
entity. Accounting principles generally accepted in the United
States (“GAAP”) require the adoption of fresh-start
accounting as of the Plan confirmation date, or as of a later
date when all material conditions precedent to the Plan’s
becoming effective are resolved, which occurred on
November 9, 2009. The Company elected to adopt fresh-start
accounting as of November 7, 2009, to coincide with the
timing of its normal October accounting period close. Other than
transactions specifically contemplated by the Plan, which have
been reflected in the consolidated financial statements for the
2009 Predecessor Period, there were no transactions that
occurred from November 8, 2009 through November 9,
2009, that would materially impact the Company’s
consolidated financial position, results of operations or cash
flows for the 2009 Successor or 2009 Predecessor Periods.
Reorganization
Value
The Bankruptcy Court confirmed the Plan that included a
distributable value (or reorganization value) of
$3,054 million as set forth in the Disclosure Statement.
For purposes of the Plan and the Disclosure Statement, the
Company and certain secured and unsecured creditors agreed upon
this value as of the bankruptcy filing date. This reorganization
value was determined to be a fair and reasonable value and is
within the range of values considered by the Bankruptcy Court as
part of the confirmation process. The reorganization value
reflects a number of factors and assumptions, including the
Company’s statements of operations and balance sheets, the
Company’s financial projections, the amount of cash
available to fund operations, current market conditions and a
return to more normalized production and sales volumes. The
range of values considered by the Bankruptcy Court of
$2.9 billion to $3.4 billion was determined using
comparable public company trading multiples and discounted cash
flow valuation methodologies.
The comparable public company analysis indentified a group of
comparable companies giving consideration to lines of business,
size, geographic footprint and customer base. The analysis
compared the public market implied enterprise value for each
comparable public company to its projected earnings before
interest, taxes, depreciation and amortization
(“EBITDA”). The calculated range of multiples for the
comparable companies was used to estimate a range which was
applied to the Company’s projected EBITDA to determine a
range of enterprise values for the reorganized company or the
reorganization value.
The discounted cash flow analysis was based on the
Company’s projected financial information which included a
variety of estimates and assumptions. While the Company
considers such estimates and assumptions to be reasonable, they
are inherently subject to uncertainties and to a wide variety of
significant business, economic and competitive risks, many of
which are beyond the Company’s control and may not
materialize. Changes in these
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
estimates and assumptions may have had a significant effect on
the determination of the Company’s reorganization value.
The discounted cash flow analysis was based on then recent
automotive industry and specific platform production volume
projections developed by both third-party and internal
forecasts, as well as commercial, wage and benefit, inflation
and discount rate assumptions. Other significant assumptions
included terminal value growth rate, terminal value margin rate,
future capital expenditures and changes in working capital
requirements.
Adoption
of Fresh-start Accounting
Fresh-start accounting results in a new basis of accounting and
reflects the allocation of the Company’s estimated fair
value to its underlying assets and liabilities. The
Company’s estimates of fair value are inherently subject to
significant uncertainties and contingencies beyond the
Company’s reasonable control. Accordingly, there can be no
assurance that the estimates, assumptions, valuations,
appraisals and financial projections will be realized, and
actual results could vary materially.
The Company’s reorganization value was allocated to its
assets in conformity with the procedures specified by
ASC 805, “Business Combinations.” The excess of
reorganization value over the fair value of tangible and
identifiable intangible assets was recorded as goodwill.
Liabilities existing as of the Effective Date, other than
deferred taxes, were recorded at the present value of amounts
expected to be paid using appropriate risk adjusted interest
rates. Deferred taxes were determined in conformity with
applicable income tax accounting standards. Predecessor
accumulated depreciation, accumulated amortization, retained
deficit, common stock and accumulated other comprehensive loss
were eliminated.
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
Adjustments recorded to the Predecessor balance sheet as of
November 7, 2009, resulting from the consummation of the
Plan and the adoption of fresh-start accounting are summarized
below (in millions):
|
Predecessor
|
Successor
|
|||||||||||||||||||
|
November 7,
|
Reorganization
|
Fresh-start
|
November 7,
|
|||||||||||||||||
| 2009 | Adjustments (1) | Adjustments (9) | 2009 | |||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Current Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,493 | .9 | $ | (239 | .5 | )(2) | $ | — | $ | 1,254 | .4 | ||||||||
|
Accounts receivable
|
1,836 | .6 | — | — | 1,836 | .6 | ||||||||||||||
|
Inventories
|
471 | .8 | — | 9 | .1 | 480 | .9 | |||||||||||||
|
Other
|
338 | .7 | — | 6 | .7 | 345 | .4 | |||||||||||||
|
Total current assets
|
4,141 | .0 | (239 | .5 | ) | 15 | .8 | 3,917 | .3 | |||||||||||
|
Long-Term Assets:
|
||||||||||||||||||||
|
Property, plant and equipment, net
|
1,072 | .3 | — | (4 | .7 | ) | 1,067 | .6 | ||||||||||||
|
Goodwill
|
1,203 | .7 | — | (582 | .3 | ) | 621 | .4 | (8) | |||||||||||
|
Other
|
518 | .0 | (20 | .2 | )(3) | 161 | .6 | 659 | .4 | |||||||||||
|
Total long-term assets
|
2,794 | .0 | (20 | .2 | ) | (425 | .4 | ) | 2,348 | .4 | ||||||||||
| $ | 6,935 | .0 | $ | (259 | .7 | ) | $ | (409 | .6 | ) | $ | 6,265 | .7 | |||||||
|
Liabilities and Equity (Deficit)
|
||||||||||||||||||||
|
Current Liabilities:
|
||||||||||||||||||||
|
Short-term borrowings
|
$ | 30 | .4 | $ | — | $ | — | $ | 30 | .4 | ||||||||||
|
Debtor-in-possession
term loan
|
500 | .0 | (500 | .0 | )(2) | — | — | |||||||||||||
|
Accounts payable and drafts
|
1,565 | .6 | — | — | 1,565 | .6 | ||||||||||||||
|
Accrued liabilities
|
884 | .7 | (1 | .8 | )(2) | 17 | .5 | 900 | .4 | |||||||||||
|
Current portion of long-term debt
|
4 | .2 | — | — | 4 | .2 | ||||||||||||||
|
Total current liabilities
|
2,984 | .9 | (501 | .8 | ) | 17 | .5 | 2,500 | .6 | |||||||||||
|
Long-Term Liabilities:
|
||||||||||||||||||||
|
Long-term debt
|
8 | .2 | 925 | .0 | (2)(4) | — | 933 | .2 | ||||||||||||
|
Other
|
679 | .7 | — | (37 | .7 | ) | 642 | .0 | ||||||||||||
|
Total long-term liabilities
|
687 | .9 | 925 | .0 | (37 | .7 | ) | 1,575 | .2 | |||||||||||
|
Liabilities Subject to Compromise
|
3,635 | .6 | (3,635 | .6 | )(4) | — | — | |||||||||||||
|
Equity (Deficit):
|
||||||||||||||||||||
|
Successor Series A Preferred Stock
|
— | 450 | .0 | (2)(4) | — | 450 | .0 | |||||||||||||
|
Successor Common Stock
|
— | 0 | .4 | (4)(7) | — | 0 | .4 | |||||||||||||
|
Successor additional paid-in capital
|
— | 1,635 | .8 | (4)(7) | — | 1,635 | .8 | |||||||||||||
|
Predecessor common stock
|
0 | .8 | (0 | .8 | )(5) | — | — | |||||||||||||
|
Predecessor additional paid-in capital
|
1,373 | .3 | (1,373 | .3 | )(5) | — | — | |||||||||||||
|
Predecessor common stock held in treasury
|
(170 | .0 | ) | 170 | .0 | (5) | — | — | ||||||||||||
|
Retained deficit
|
(1,565 | .9 | ) | 2,070 | .6 | (6) | (504 | .7 | ) | — | ||||||||||
|
Accumulated other comprehensive loss
|
(60 | .8 | ) | — | 60 | .8 | — | |||||||||||||
|
Lear Corporation stockholders’ equity (deficit)
|
(422 | .6 | ) | 2,952 | .7 | (443 | .9 | ) | 2,086 | .2 | ||||||||||
|
Noncontrolling interests
|
49 | .2 | — | 54 | .5 | 103 | .7 | |||||||||||||
|
Equity (deficit)
|
(373 | .4 | ) | 2,952 | .7 | (389 | .4 | ) | 2,189 | .9 | ||||||||||
| $ | 6,935 | .0 | $ | (259 | .7 | ) | $ | (409 | .6 | ) | $ | 6,265 | .7 | |||||||
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (1) | Represents amounts recorded as of the Effective Date for the consummation of the Plan, including the settlement of liabilities subject to compromise, the repayment of debtor-in-possession financing, the incurrence of new indebtedness and related cash payments, the issuances of Series A Preferred Stock and Common Stock and the cancellation of Predecessor common stock. | |
| (2) | This adjustment reflects net cash payments recorded as of the Effective Date, including total borrowings under the first lien credit agreement and the Excess Cash Paydown (see Note 2, “Reorganization under Chapter 11”). |
|
Borrowings under first lien credit agreement
|
$ | 375.0 | ||
|
Less: Debt issuance costs
|
(12.7 | ) | ||
|
First lien credit agreement — net proceeds
|
362.3 | |||
|
Prepayment of second lien credit agreement
|
(50.0 | ) | ||
|
Prepayment of Series A Preferred Stock
|
(50.0 | ) | ||
|
Repayment of
debtor-in-possession
financing, principal and accrued interest
|
(501.8 | ) | ||
|
Net cash payments
|
$ | (239.5 | ) | |
| (3) | This adjustment reflects the write-off of $32.9 million of unamortized debt issuance costs related to the repayment of debtor-in-possession financing, offset by the capitalization of debt issuance costs related to the first lien credit agreement (see (2) above). | |
| (4) | This adjustment reflects the settlement of liabilities subject to compromise (see “— Liabilities Subject to Compromise” below). |
|
Settlement of liabilities subject to compromise
|
$ | (3,635.6 | ) | |
|
Issuance of Successor Series A Preferred Stock (a)
|
500.0 | |||
|
Issuance of Successor Common Stock and Warrants (b)
|
1,636.2 | |||
|
Issuance of term loans provided under second lien credit
agreement (a)
|
600.0 | |||
|
Gain on settlement of liabilities subject to compromise
|
$ | (899.4 | ) | |
|
(a) Prior to the Excess Cash Paydown.
|
||||
|
(b) See (7) below for a
reconciliation of the reorganization value to the value of
Successor Common Stock (including additional
paid-in-capital).
|
||||
| (5) | This adjustment reflects the cancellation of the Predecessor common stock. | |
| (6) | This adjustment reflects the cumulative impact of the reorganization adjustments discussed above. |
|
Gain on settlement of liabilities subject to compromise
|
$ | (899.4 | ) | |
|
Cancellation of Predecessor common stock (see (5) above)
|
(1,204.1 | ) | ||
|
Write-off of unamortized debt issuance costs (see (3) above)
|
32.9 | |||
| $ | (2,070.6 | ) | ||
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (7) | A reconciliation of the reorganization value to the value of Successor Common Stock as of the Effective Date is shown below: |
|
Reorganization value
|
$ | 3,054.0 | ||
|
Less: First lien credit agreement
|
(375.0 | ) | ||
|
Second
lien credit agreement (c)
|
(550.0 | ) | ||
|
Other debt
|
(42.8 | ) | ||
|
Series A
Preferred Stock (c)
|
(450.0 | ) | ||
|
Reorganization value of Successor Common Stock and Warrants
|
1,636.2 | |||
|
Less: Fair value of Warrants (d)
|
305.9 | |||
|
Reorganization value of Successor Common Stock
|
$ | 1,330.3 | ||
|
Shares outstanding as of November 7, 2009
|
34,117,386 | |||
|
Per share value (e)
|
$ | 38.99 | ||
|
(c) After giving effect to the Excess
Cash Paydown.
|
||||
|
(d) For further information on the fair
value of Warrants, see Note 11, “Capital Stock.”
|
||||
|
(e) The per share value of $38.99 was
used to record the issuance of the Successor Common Stock.
|
||||
| (8) | A reconciliation of the reorganization value of the Successor assets and goodwill is shown below: |
|
Reorganization value
|
$ | 3,054.0 | ||
|
Plus: Liabilities (excluding debt and after giving effect
to fresh-start accounting adjustments)
|
3,108.0 | |||
|
Fair value
of noncontrolling interests
|
103.7 | |||
|
Reorganization value of Successor assets
|
6,265.7 | |||
|
Less: Successor assets (excluding goodwill and after giving
effect to fresh-start accounting adjustments)
|
5,644.3 | |||
|
Reorganization value of Successor assets in excess of fair
value — Successor goodwill
|
$ | 621.4 | ||
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (9) | Represents the adjustment of assets and liabilities to fair value, or other measurement as specified by ASC 805, in conjunction with the adoption of fresh-start accounting. Significant adjustments are summarized below. |
|
Elimination of Predecessor goodwill
|
$ | 1,203.7 | ||
|
Successor goodwill (see (8) above)
|
(621.4 | ) | ||
|
Elimination of Predecessor intangible assets
|
29.0 | |||
|
Successor intangible asset adjustment (f)
|
(191.0 | ) | ||
|
Defined benefit plans adjustment (g)
|
(55.0 | ) | ||
|
Inventory adjustment (h)
|
(9.1 | ) | ||
|
Property, plant and equipment adjustment (i)
|
4.7 | |||
|
Investments in non-consolidated affiliates adjustment (j)
|
(8.7 | ) | ||
|
Noncontrolling interests adjustment (j)
|
54.5 | |||
|
Elimination of Predecessor accumulated other comprehensive loss
and other adjustments
|
120.0 | |||
|
Pretax loss on fresh-start accounting adjustments
|
526.7 | |||
|
Tax benefit related to fresh-start accounting adjustments (k)
|
(22.0 | ) | ||
|
Net loss on fresh-start accounting adjustments
|
$ | 504.7 | ||
| (f) | Intangible assets — This adjustment reflects the fair value of intangible assets determined as of the Effective Date. For further information on the valuation of intangible assets, see Note 4, “Summary of Significant Accounting Policies.” | |
| (g) | Defined benefit plans — This adjustment primarily reflects differences in assumptions, such as the expected return on plan assets and the weighted average discount rate related to the payment of benefit obligations, between the prior measurement date of December 31, 2008, and the Effective Date. For additional information on the Company’s defined benefit plans, see Note 10, “Pension and Other Postretirement Benefit Plans.” | |
| (h) | Inventory — This amount adjusts inventory to fair value as of the Effective Date. Raw materials were valued at current replacement cost, work-in-process was valued at estimated finished goods selling price less estimated disposal costs, completion costs and a reasonable profit allowance for selling effort. Finished goods were valued at estimated selling price less estimated disposal costs and a reasonable profit allowance for selling effort. | |
| (i) | Property, plant and equipment — This amount adjusts property, plant and equipment to fair value as of the Effective Date, giving consideration to the highest and best use of the assets. Fair value estimates were based on independent appraisals. Key assumptions used in the appraisals were based on a combination of income, market and cost approaches, as appropriate. | |
| (j) | Investments in non-consolidated affiliates and noncontrolling interests — These amounts adjust investments in non-consolidated affiliates and noncontrolling interests to their estimated fair values. Estimated fair values were based on internal and external valuations using customary valuation methodologies, including comparable earnings multiples, discounted cash flows and negotiated transaction values. | |
| (k) | Tax benefit — This amount reflects the tax benefits related to the write-off of goodwill and other comprehensive loss, partially offset by the tax expense related to the intangible asset and property, plant and equipment fair value adjustments. |
Liabilities
Subject to Compromise
Certain pre-petition liabilities were subject to compromise or
other treatment under the Plan and were reported at amounts
allowed or expected to be allowed by the Bankruptcy Court.
Certain of these claims were resolved and
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
satisfied as of the Effective Date, while others have been or
will be resolved in periods subsequent to emergence from
Chapter 11 bankruptcy proceedings. Although the allowed
amount of certain disputed claims has not yet been determined,
our liability associated with these disputed claims was
discharged upon our emergence from Chapter 11 bankruptcy
proceedings. Future dispositions with respect to certain allowed
Class 5A claims will be satisfied out of a common stock and
warrant reserve established for that purpose. Accordingly, the
future resolution of these disputed claims will not have an
impact on our post-emergence financial condition or results of
operations. To the extent that disputed claims are settled for
less than current estimates, additional distributions will be
made from amounts remaining in the common stock and warrant
reserve to holders of allowed Class 5A claims pursuant to
the Plan. A summary of liabilities subject to compromise
reflected in the Predecessor consolidated balance sheet as of
November 7, 2009, is shown below:
|
Predecessor — November 7, 2009
|
||||
|
Short-term borrowings
|
$ | 2.1 | ||
|
Accounts payable and drafts
|
0.3 | |||
|
Accrued liabilities
|
80.6 | |||
|
Debt subject to compromise
|
||||
|
Pre-petition primary credit facility
|
2,240.6 | |||
|
8.50% Senior Notes, due 2013
|
298.0 | |||
|
8.75% Senior Notes, due 2016
|
589.3 | |||
|
5.75% Senior Notes, due 2014
|
399.5 | |||
|
Zero-coupon Convertible Senior Notes, due 2022
|
0.8 | |||
|
Accrued interest
|
61.5 | |||
|
Unamortized debt issuance costs
|
(37.1 | ) | ||
|
Liabilities subject to compromise
|
$ | 3,635.6 | ||
Reorganization
Items and Fresh-start Accounting Adjustments, Net
Reorganization items include expenses, gains and losses directly
related to the Debtors’ reorganization proceedings.
Fresh-start accounting adjustments reflect the impact of
adoption of fresh-start accounting. A summary of reorganization
items and fresh-start accounting adjustments, net for the 2009
Predecessor Period is shown below (in millions):
|
Predecessor — Ten Month Period Ended
November 7, 2009
|
||||
|
Pretax reorganization items:
|
||||
|
Professional fees
|
$ | 26.9 | ||
|
Interest income
|
(0.2 | ) | ||
|
Incentive compensation expense
|
40.1 | |||
|
Unamortized debt issuance costs related to the repayment of
debtor in possession financing
|
32.9 | |||
|
Gain on settlement of liabilities subject to compromise
|
(899.4 | ) | ||
|
Cancellation of Predecessor common stock
|
(1,204.1 | ) | ||
|
Other
|
2.3 | |||
| (2,001.5 | ) | |||
|
Pretax fresh-start accounting adjustments (see (9) above)
|
526.7 | |||
|
Reorganization items and fresh-start accounting adjustments, net
|
$ | (1,474.8 | ) | |
68
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (4) | Summary of Significant Accounting Policies |
Cash
and Cash Equivalents
Cash and cash equivalents include all highly liquid investments
with original maturities of ninety days or less.
Accounts
Receivable
The Company records accounts receivable as its products are
shipped to its customers. The Company’s customers are the
world’s major automotive manufacturers. The Company records
accounts receivable reserves for known collectibility issues, as
such issues relate to specific transactions or customer
balances. As of December 31, 2010, accounts receivable are
reflected net of reserves of $14.5 million. As of
December 31, 2009, there were no accounts receivable
reserves outstanding, primarily as a result of the adoption of
fresh-start accounting as of November 7, 2009 (see
Note 3, “Fresh-Start Accounting”). The Company
writes off accounts receivable when it becomes apparent, based
upon age or customer circumstances, that such amounts will not
be collected. Generally, the Company does not require collateral
for its accounts receivable.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the
first-in,
first-out method. Finished goods and
work-in-process
inventories include material, labor and manufacturing overhead
costs. The Company records inventory reserves for inventory in
excess of production
and/or
forecasted requirements and for obsolete inventory in production
and service inventories. As of December 31, 2010,
inventories are reflected net of reserves of $83.5 million.
As of December 31, 2009, there were no inventory reserves
outstanding, primarily as a result of the adoption of
fresh-start accounting as of November 7, 2009 (see
Note 3, “Fresh-Start Accounting”). A summary of
inventories is shown below (in millions):
| Successor | ||||||||
|
December 31,
|
2010 | 2009 | ||||||
|
Raw materials
|
$ | 448.6 | $ | 378.7 | ||||
|
Work-in-process
|
32.9 | 26.1 | ||||||
|
Finished goods
|
72.7 | 42.6 | ||||||
|
Inventories
|
$ | 554.2 | $ | 447.4 | ||||
Pre-Production
Costs Related to Long-Term Supply Arrangements
The Company incurs pre-production engineering and development
(“E&D”) and tooling costs related to the products
produced for its customers under long-term supply agreements.
The Company expenses all pre-production E&D costs for which
reimbursement is not contractually guaranteed by the customer.
In addition, the Company expenses all pre-production tooling
costs related to customer-owned tools for which reimbursement is
not contractually guaranteed by the customer or for which the
Company does not have a non-cancelable right to use the tooling.
During 2010 and 2009, the Company capitalized
$133.2 million and $116.5 million, respectively, of
pre-production E&D costs for which reimbursement is
contractually guaranteed by the customer. During 2010 and 2009,
the Company also capitalized $149.8 million and
$101.4 million, respectively, of pre-production tooling
costs related to customer-owned tools for which reimbursement is
contractually guaranteed by the customer or for which the
Company has a non-cancelable right to use the tooling. These
amounts are included in other current and long-term assets in
the accompanying consolidated balance sheets. During 2010 and
2009, the Company collected $243.3 million and
$221.3 million, respectively, of cash related to E&D
and tooling costs.
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
The classification of recoverable customer engineering,
development and tooling costs related to long-term supply
agreements is shown below (in millions):
| Successor | ||||||||
|
December 31,
|
2010 | 2009 | ||||||
|
Current
|
$ | 77.9 | $ | 38.5 | ||||
|
Long-term
|
75.3 | 76.8 | ||||||
|
Recoverable customer engineering, development and tooling
|
$ | 153.2 | $ | 115.3 | ||||
Property,
Plant and Equipment
Property, plant and equipment is stated at cost; however, as a
result of the adoption of fresh-start accounting, property,
plant and equipment was re-measured at estimated fair value as
of November 7, 2009 (see Note 3, “Fresh-Start
Accounting”). Depreciable property is depreciated over the
estimated useful lives of the assets, using principally the
straight-line method as follows:
|
Buildings and improvements
|
10 to 40 years | |||
|
Machinery and equipment
|
5 to 10 years |
A summary of property, plant and equipment is shown below (in
millions):
| Successor | ||||||||
|
December 31,
|
2010 | 2009 | ||||||
|
Land
|
$ | 106.0 | $ | 114.9 | ||||
|
Buildings and improvements
|
360.6 | 358.4 | ||||||
|
Machinery and equipment
|
761.8 | 608.3 | ||||||
|
Construction in progress
|
5.7 | 4.5 | ||||||
|
Total property, plant and equipment
|
1,234.1 | 1,086.1 | ||||||
|
Less — accumulated depreciation
|
(239.4 | ) | (35.2 | ) | ||||
|
Net property, plant and equipment
|
$ | 994.7 | $ | 1,050.9 | ||||
Depreciation expense was $208.7 million,
$35.2 million, $219.9 million and $294.0 million
for the year end December 31, 2010, the 2009 Successor
Period, the 2009 Predecessor Period and the year ended
December 31, 2008, respectively.
Costs associated with the repair and maintenance of the
Company’s property, plant and equipment are expensed as
incurred. Costs associated with improvements which extend the
life, increase the capacity or improve the efficiency or safety
of the Company’s property, plant and equipment are
capitalized and depreciated over the remaining life of the
related asset.
Impairment
of Goodwill
Goodwill is not amortized but is tested for impairment on at
least an annual basis. Impairment testing is required more often
than annually if an event or circumstance indicates that an
impairment is more likely than not to have occurred. In
conducting its impairment testing, the Company compares the fair
value of each of its reporting units to the related net book
value. If the net book value of a reporting unit exceeds its
fair value, an impairment loss is measured and recognized. The
Company conducts its annual impairment testing as of the first
day of the fourth quarter.
The Company utilizes an income approach to estimate the fair
value of each of its reporting units and a market valuation
approach to further support this analysis. The income approach
is based on projected debt-free cash flow
70
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
which is discounted to the present value using discount factors
that consider the timing and risk of cash flows. The Company
believes that this approach is appropriate because it provides a
fair value estimate based upon the reporting unit’s
expected long-term operating cash flow performance. This
approach also mitigates the impact of cyclical trends that occur
in the industry. Fair value is estimated using recent automotive
industry and specific platform production volume projections,
which are based on both third-party and internally developed
forecasts, as well as commercial, wage and benefit, inflation
and discount rate assumptions. The discount rate used is the
value-weighted average of the Company’s estimated cost of
equity and of debt (“cost of capital”) derived using
both known and estimated customary market metrics. The
Company’s weighted average cost of capital is adjusted by
reporting unit to reflect a risk factor, if necessary. Other
significant assumptions include terminal value growth rates,
terminal value margin rates, future capital expenditures and
changes in future working capital requirements. While there are
inherent uncertainties related to the assumptions used and to
management’s application of these assumptions to this
analysis, the Company believes that the income approach provides
a reasonable estimate of the fair value of its reporting units.
The market valuation approach is used to further support the
Company’s analysis and is based on recent transactions
involving comparable companies.
The Company’s 2010 annual goodwill impairment analysis,
completed as of the first day of the fourth quarter, resulted in
no impairment. The Company does not believe that any of its
reporting units is at risk for impairment.
In the 2009 Predecessor Period, the Company’s annual
goodwill impairment analysis, completed as of the first day of
the fourth quarter, was based on the Company’s
distributable value, which was approved by the Bankruptcy Court,
and resulted in impairment charges of $319.0 million
related to the electrical power management systems
(“EPMS”) segment in the accompanying consolidated
statement of operations for the 2009 Predecessor Period. For
further information on the Company’s distributable value,
see Note 3, “Fresh-Start Accounting.”
The Company’s 2008 annual goodwill impairment analysis
indicated a significant decline in the fair value of the
Company’s EPMS segment, as well as an impairment of the
related goodwill. The decline in fair value resulted from
unfavorable operating results, primarily as a result of the
significant decline in estimated industry production volumes.
The Company evaluated the net book value of goodwill within its
EPMS segment by comparing the fair value of each reporting unit
to the related net book value. As a result, the Company recorded
total goodwill impairment charges of $530.0 million in the
accompanying consolidated statement of operations for the year
ended December 31, 2008.
A summary of the changes in the carrying amount of goodwill, by
reportable operating segment, for each of the periods in the two
years ended December 31, 2010, is shown below (in millions):
| Seating | EPMS | Total | ||||||||||
|
Balance as of January 1, 2009 — Predecessor
|
$ | 1,076.9 | $ | 403.7 | $ | 1,480.6 | ||||||
|
Goodwill impairment charges
|
— | (319.0 | ) | (319.0 | ) | |||||||
|
Foreign currency translation and other
|
30.7 | 11.4 | 42.1 | |||||||||
|
Balance as of November 7, 2009 — Predecessor
|
1,107.6 | 96.1 | 1,203.7 | |||||||||
|
Fresh-start accounting adjustment (Note 3)
|
(486.2 | ) | (96.1 | ) | (582.3 | ) | ||||||
|
Balance as of December 31, 2009 — Successor
|
621.4 | — | 621.4 | |||||||||
|
Foreign currency translation and other
|
(6.8 | ) | — | (6.8 | ) | |||||||
|
Balance as of December 31, 2010 — Successor
|
$ | 614.6 | $ | — | $ | 614.6 | ||||||
Intangible
Assets
In connection with the adoption of fresh-start accounting,
certain intangible assets were recorded at their estimated fair
value, which was based on independent appraisals, as of
November 7, 2009. The technology intangible asset includes
the Company’s proprietary patents. The value assigned to
technology intangibles is based
71
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
on the royalty savings method, which applies a hypothetical
royalty rate to projected revenues attributable to the
identified technologies. Royalty rates were determined based on
analysis of market information and discussions with the
Company’s management. The customer-based intangible asset
includes the Company’s established relationships with its
customers and the ability of these customers to generate future
economic profits for the Company. The value assigned to
customer-based intangibles is based on the present value of
future earnings attributable to the asset group after
recognition of required returns to other contributory assets. A
summary of intangible assets as of December 31, 2010 and
2009, is shown below (in millions):
|
Weighted
|
||||||||||||||||
|
Gross Carrying
|
Accumulated
|
Net Carrying
|
Average Useful
|
|||||||||||||
| Value | Amortization | Value | Life (years) | |||||||||||||
|
Technology
|
$ | 20.0 | $ | (3.0 | ) | $ | 17.0 | 7.7 | ||||||||
|
Customer-based
|
178.1 | (29.7 | ) | 148.4 | 7.0 | |||||||||||
|
Balance as of December 31, 2010 — Successor
|
$ | 198.1 | $ | (32.7 | ) | $ | 165.4 | 7.1 | ||||||||
|
Weighted
|
||||||||||||||||
|
Gross Carrying
|
Accumulated
|
Net Carrying
|
Average Useful
|
|||||||||||||
| Value | Amortization | Value | Life (years) | |||||||||||||
|
Technology
|
$ | 20.0 | $ | (0.4 | ) | $ | 19.6 | 7.7 | ||||||||
|
Customer-based
|
171.0 | (4.1 | ) | 166.9 | 7.0 | |||||||||||
|
Balance as of December 31, 2009 — Successor
|
$ | 191.0 | $ | (4.5 | ) | $ | 186.5 | 7.1 | ||||||||
Excluding the impact of any future acquisitions, the
Company’s estimated annual amortization expense for the
five succeeding years is shown below (in millions):
|
Year
|
Expense | |||
|
2011
|
$ | 28.0 | ||
|
2012
|
28.0 | |||
|
2013
|
28.0 | |||
|
2014
|
28.0 | |||
|
2015
|
28.0 | |||
For further information on the adoption of fresh-start
accounting, see Note 3, “Fresh-Start Accounting.”
Impairment
of Long-Lived Assets
The Company monitors its long-lived assets for impairment
indicators on an ongoing basis in accordance with GAAP. If
impairment indicators exist, the Company performs the required
impairment analysis by comparing the undiscounted cash flows
expected to be generated from the long-lived assets to the
related net book values. If the net book value exceeds the
undiscounted cash flows, an impairment loss is measured and
recognized. An impairment loss is measured as the difference
between the net book value and the fair value of the long-lived
assets. Fair value is estimated based upon either discounted
cash flow analyses or estimated salvage values. Cash flows are
estimated using internal budgets based on recent sales data,
independent automotive production volume estimates and customer
commitments, as well as assumptions related to discount rates.
In the year ended December 31, 2010, the 2009 Predecessor
Period and the year ended December 31, 2008, the Company
recognized fixed asset impairment charges of $3.6 million,
$5.6 million and $17.5 million, respectively, in
conjunction with its restructuring actions (Note 5,
“Restructuring”), as well as an additional
$3.6 million of fixed asset impairment charges in 2010. As
discussed in Note 3, “Fresh-Start Accounting,”
the Company’s long-lived
72
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
assets were re-measured at estimated fair value as of
November 7, 2009, in connection with the adoption of
fresh-start accounting.
Fixed asset impairment charges are recorded in cost of sales in
the accompanying consolidated statements of operations for the
year ended December 31, 2010, the 2009 Predecessor Period
and the year ended December 31, 2008.
Impairment
of Investments in Affiliates
The Company monitors its investments in affiliates for
indicators of
other-than-temporary
declines in value on an ongoing basis in accordance with GAAP.
If the Company determines that an
other-than-temporary
decline in value has occurred, it recognizes an impairment loss,
which is measured as the difference between the recorded book
value and the fair value of the investment. Fair value is
generally determined using an income approach based on
discounted cash flows or negotiated transaction values.
For information on impairment charges recorded in the 2009
Predecessor Period and the year ended December 31, 2008,
see Note 6, “Investments in Affiliates and Other
Related Party Transactions.” As discussed in Note 3,
“Fresh-Start Accounting,” the Company’s
investments in affiliates were re-measured at estimated fair
value as of November 7, 2009, in connection with the
adoption of fresh-start accounting.
Revenue
Recognition and Sales Commitments
The Company enters into agreements with its customers to produce
products at the beginning of a vehicle’s life cycle.
Although such agreements do not provide for a specified quantity
of products, once the Company enters into such agreements, the
Company is generally required to fulfill its customers’
purchasing requirements for the production life of the vehicle.
These agreements generally may be terminated by the
Company’s customers at any time. Historically, terminations
of these agreements have been minimal. In certain instances, the
Company may be committed under existing agreements to supply
products to its customers at selling prices which are not
sufficient to cover the direct cost to produce such products. In
such situations, the Company recognizes losses as they are
incurred.
The Company receives purchase orders from its customers on an
annual basis. Generally, each purchase order provides the annual
terms, including pricing, related to a particular vehicle model.
Purchase orders do not specify quantities. The Company
recognizes revenue based on the pricing terms included in its
annual purchase orders as its products are shipped to its
customers. The Company is asked to provide its customers with
annual price reductions as part of certain agreements. The
Company accrues for such amounts as a reduction of revenue as
its products are shipped to its customers. In addition, the
Company has ongoing adjustments to its pricing arrangements with
its customers based on the related content, the cost of its
products and other commercial factors. Such pricing accruals are
adjusted as they are settled with the Company’s customers.
Amounts billed to customers related to shipping and handling
costs are included in net sales in the consolidated statements
of operations. Shipping and handling costs are included in cost
of sales in the consolidated statements of operations.
Cost
of Sales and Selling, General and Administrative
Expenses
Cost of sales includes material, labor and overhead costs
associated with the manufacture and distribution of the
Company’s products. Distribution costs include inbound
freight costs, purchasing and receiving costs, inspection costs,
warehousing costs and other costs of the Company’s
distribution network. Selling, general and administrative
expenses include selling, engineering and development and
administrative costs not directly associated with the
manufacture and distribution of the Company’s products.
73
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
Engineering
and Development
Costs incurred in connection with the development of new
products and manufacturing methods more than one year prior to
launch, to the extent not recoverable from the Company’s
customers, are charged to selling, general and administrative
expenses as incurred. These costs amounted to
$81.4 million, $11.8 million, $71.6 million and
$113.0 million for the year ended December 31, 2010,
the 2009 Successor Period, the 2009 Predecessor Period and the
year ended December 31, 2008, respectively.
Other
(Income) Expense, Net
Other (income) expense, net includes non-income related taxes,
foreign exchange gains and losses, discounts and expenses
associated with the Company’s factoring facilities, gains
and losses related to certain derivative instruments and hedging
activities, gains and losses on the extinguishment of debt
(Note 8, “Long-Term Debt”), gains and losses on
the sales of fixed assets and other miscellaneous income and
expense. A summary of other (income) expense, net is shown below
(in millions):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Other expense
|
$ | 37.2 | $ | 20.2 | $ | 30.2 | $ | 82.7 | |||||||||
|
Other income
|
(3.0 | ) | (0.4 | ) | (46.8 | ) | (30.8 | ) | |||||||||
|
Other (income) expense, net
|
$ | 34.2 | $ | 19.8 | $ | (16.6 | ) | $ | 51.9 | ||||||||
Income
Taxes
The Company accounts for income taxes in accordance with GAAP.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating
loss and tax loss and credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
In determining the provision for income taxes for financial
statement purposes, the Company makes certain estimates and
judgments, which affect its evaluation of the carrying value of
its deferred tax assets, as well as its calculation of certain
tax liabilities. In accordance with GAAP, the Company evaluates
the carrying value of its deferred tax assets on a quarterly
basis. In completing this evaluation, the Company considers all
available evidence. Such evidence includes historical results,
expectations for future pretax operating income, the time period
over which its temporary differences will reverse and the
implementation of feasible and prudent tax planning strategies.
Foreign
Currency Translation
With the exception of foreign subsidiaries operating in highly
inflationary economies, which are measured in U.S. dollars,
assets and liabilities of foreign subsidiaries are translated
into U.S. dollars at the foreign exchange rates in effect
at the end of the period. Revenues and expenses of foreign
subsidiaries are translated into U.S. dollars using an
average of the foreign exchange rates in effect during the
period. Translation adjustments that arise from translating a
foreign subsidiary’s financial statements from the
functional currency to the U.S. dollar are reflected in
accumulated other comprehensive loss in the consolidated balance
sheets.
Transaction gains and losses that arise from foreign exchange
rate fluctuations on transactions denominated in a currency
other than the functional currency, except certain long-term
intercompany transactions or those
74
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
transactions which operate as a hedge of long-term investments
in foreign subsidiaries, are included in the consolidated
statements of operations as incurred.
Stock-Based
Compensation
The Company measures stock-based employee compensation expense
at fair value in accordance with GAAP and recognizes such
expense over the vesting period of the stock-based employee
awards. For the year ended December 31, 2010, the 2009
Successor Period, the 2009 Predecessor Period and the year ended
December 31, 2008, the Company recognized stock-based
employee compensation expense of $21.8 million,
$8.0 million, $7.7 million and $15.7 million,
respectively.
For further information related to the Company’s
stock-based compensation programs, see Note 12,
“Stock-Based Compensation.”
Net
Income (Loss) Per Share Attributable to Lear
Basic net income (loss) per share attributable to Lear is
computed using the two-class method by dividing net income
(loss) attributable to Lear, after deducting undistributed
earnings allocated to participating securities, by the average
number of common shares outstanding during the period. Common
shares issuable upon the satisfaction of certain conditions
pursuant to a contractual agreement, such as those common shares
contemplated as part of the Company’s emergence from
Chapter 11 bankruptcy proceedings, are considered common
shares outstanding and are included in the computation of basic
net income (loss) per share attributable to Lear. The
Company’s preferred shares that were outstanding during
2010 are considered participating securities. In the year ended
December 31, 2010, average participating securities
outstanding were 3,544,837. For further information related to
the Company’s preferred shares, see Note 11,
“Capital Stock.” A summary of information used to
compute basic net income (loss) per share attributable to Lear
is shown below (in millions, except share data):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Net income (loss) attributable to Lear
|
$ | 438.3 | $ | (3.8 | ) | $ | 818.2 | $ | (689.9 | ) | |||||||
|
Less: Undistributed earnings allocated to participating
securities
|
(30.5 | ) | — | — | — | ||||||||||||
|
Net income (loss) available to Lear common shareholders
|
$ | 407.8 | $ | (3.8 | ) | $ | 818.2 | $ | (689.9 | ) | |||||||
|
Average common shares outstanding
|
47,407,022 | 34,525,187 | 77,499,860 | 77,242,360 | |||||||||||||
|
Basic net income (loss) per share attributable to Lear
|
$ | 8.60 | $ | (0.11 | ) | $ | 10.56 | $ | (8.93 | ) | |||||||
Diluted net income (loss) per share attributable to Lear is
computed using the treasury stock method by dividing net income
(loss) attributable to Lear by the average number of common
shares outstanding, including the dilutive effect of common
stock equivalents using the average share price during the
period. A summary of
75
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
information used to compute diluted net income (loss) per share
attributable to Lear is shown below (in millions, except share
data):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Net income (loss) attributable to Lear
|
$ | 438.3 | $ | (3.8 | ) | $ | 818.2 | $ | (689.9 | ) | |||||||
|
Average common shares outstanding
|
47,407,022 | 34,525,187 | 77,499,860 | 77,242,360 | |||||||||||||
|
Dilutive effect of common stock equivalents
|
6,654,053 | — | 59,932 | — | |||||||||||||
|
Average diluted shares outstanding
|
54,061,075 | 34,525,187 | 77,559,792 | 77,242,360 | |||||||||||||
|
Diluted net income (loss) per share attributable to Lear
|
$ | 8.11 | $ | (0.11 | ) | $ | 10.55 | $ | (8.93 | ) | |||||||
The Company’s participating securities were convertible
into common stock on a one to one basis and participated ratably
with common stock on dividends. Accordingly, in the year ended
December 31, 2010 and the 2009 Successor Period, diluted
net income (loss) per share attributable to Lear computed using
the two-class method produced the same results. In the 2009
Predecessor Period and the year ended December 31, 2008,
there were no participating securities outstanding.
The effect of certain common stock equivalents, including shares
of preferred stock, warrants, restricted stock units,
performance units, stock appreciation rights and options were
excluded from the computation of average diluted shares
outstanding in the 2009 Successor Period, the 2009 Predecessor
Period and the year ended December 31, 2008, as inclusion
would have resulted in antidilution. A summary of these common
stock equivalents, including the related option exercise prices,
is shown below:
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Shares of preferred stock
|
— | 9,881,303 | — | — | |||||||||||||
|
Warrants
|
— | 6,377,068 | — | — | |||||||||||||
|
Restricted stock units
|
— | 1,301,613 | 507,139 | 1,040,740 | |||||||||||||
|
Performance units
|
— | — | 84,709 | 168,696 | |||||||||||||
|
Stock appreciation rights
|
— | — | 1,875,807 | 2,432,745 | |||||||||||||
|
Options
|
— | — | 952,350 | 1,268,180 | |||||||||||||
|
Exercise prices
|
N/A | N/A | $ | 22.12 - $55.33 | $ | 22.12 - $55.33 | |||||||||||
Net income (loss) per share attributable to Lear for the year
ended December 31, 2010 and the 2009 Successor Period is
not comparable to that in the 2009 Predecessor Period or for the
year ended December 31, 2008, as all Predecessor common
stock was extinguished under the Plan.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. During 2010, there were no material
changes in the methods or policies used to establish estimates
and assumptions. The adoption of fresh-start accounting required
significant estimation and judgment (Note 3,
“Fresh-Start
76
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
Accounting”). Other matters subject to estimation and
judgment include amounts related to accounts receivable
realization, inventory obsolescence, asset impairments, useful
lives of fixed and intangible assets and unsettled pricing
discussions with customers and suppliers (Note 4,
“Summary of Significant Accounting Policies”);
restructuring accruals (Note 5, “Restructuring”);
deferred tax asset valuation allowances and income taxes
(Note 9, “Income Taxes”); pension and other
postretirement benefit plan assumptions (Note 10,
“Pension and Other Postretirement Benefit Plans”);
accruals related to litigation, warranty and environmental
remediation costs (Note 13, “Commitments and
Contingencies”); and self-insurance accruals. Actual
results may differ significantly from the Company’s
estimates.
Reclassifications
Certain amounts in prior periods’ financial statements have
been reclassified to conform to the presentation used in the
year ended December 31, 2010.
| (5) | Restructuring |
In 2005, the Company initiated a multi-year operational
restructuring strategy to (i) eliminate excess capacity and
lower the operating costs of the Company, (ii) streamline
the Company’s organizational structure and reposition its
business for improved long-term profitability and
(iii) better align the Company’s manufacturing
footprint with the changing needs of its customers. In light of
industry conditions and customer announcements, the Company
expanded this strategy and through the end of 2010, the Company
incurred pretax restructuring costs of $736.1 million. The
Company expects elevated restructuring actions and related
investments to continue in 2011 and to curtail thereafter.
Restructuring costs include employee termination benefits, fixed
asset impairment charges and contract termination costs, as well
as other incremental costs resulting from the restructuring
actions. These incremental costs principally include equipment
and personnel relocation costs. The Company also incurs
incremental manufacturing inefficiency costs at the operating
locations impacted by the restructuring actions during the
related restructuring implementation period. Restructuring costs
are recognized in the Company’s consolidated financial
statements in accordance with GAAP. Generally, charges are
recorded as restructuring actions are approved
and/or
implemented.
In 2010, the Company recorded charges of $63.9 million in
connection with its restructuring actions. These charges consist
of $56.9 million recorded as cost of sales and
$7.0 million recorded as selling, general and
administrative expenses. The restructuring charges consist of
employee termination benefits of $51.0 million, fixed asset
impairment charges of $3.6 million and contract termination
costs of $3.4 million, as well as other related costs of
$5.9 million. Employee termination benefits were recorded
based on existing union and employee contracts, statutory
requirements and completed negotiations. Asset impairment
charges relate to the disposal of buildings, leasehold
improvements and machinery and equipment with carrying values of
$3.6 million in excess of related estimated fair values.
Contract termination costs include pension benefit plan
curtailment charges of $3.0 million and other various costs
of $0.4 million.
77
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
A summary of 2010 activity, excluding pension benefit plan
curtailment charges of $3.0 million, is shown below (in
millions):
|
Successor
|
Successor
|
|||||||||||||||||||
|
Accrual as of
|
Accrual as of
|
|||||||||||||||||||
|
January 1,
|
2010
|
Utilization |
December 31,
|
|||||||||||||||||
| 2010 | Charges | Cash | Non-cash | 2010 | ||||||||||||||||
|
Initial Restructuring Strategy:
|
||||||||||||||||||||
|
Employee termination benefits
|
$ | 11.2 | $ | (0.5 | ) | $ | (0.4 | ) | $ | — | $ | 10.3 | ||||||||
|
Contract termination costs
|
2.0 | 0.1 | — | — | 2.1 | |||||||||||||||
| 13.2 | (0.4 | ) | (0.4 | ) | — | 12.4 | ||||||||||||||
|
Other Restructuring Initiatives:
|
||||||||||||||||||||
|
Employee termination benefits
|
68.6 | 51.5 | (92.0 | ) | — | 28.1 | ||||||||||||||
|
Asset impairments
|
— | 3.6 | — | (3.6 | ) | — | ||||||||||||||
|
Contract termination costs
|
1.3 | 0.3 | — | — | 1.6 | |||||||||||||||
|
Other related costs
|
— | 5.9 | (5.9 | ) | — | — | ||||||||||||||
| 69.9 | 61.3 | (97.9 | ) | (3.6 | ) | 29.7 | ||||||||||||||
|
Total
|
$ | 83.1 | $ | 60.9 | $ | (98.3 | ) | $ | (3.6 | ) | $ | 42.1 | ||||||||
In the 2009 Successor Period, the Company recorded charges of
$43.5 million in connection with its restructuring actions.
These charges consist of $36.6 million recorded as cost of
sales, $6.6 million recorded as selling, general and
administrative expenses and $0.3 million recorded as other
(income) expense, net. The restructuring charges consist of
employee termination benefits of $44.5 million and other
related credits of ($1.0) million. Employee termination
benefits were recorded based on existing union and employee
contracts, statutory requirements and completed negotiations.
A summary of activity for the 2009 Successor Period is shown
below (in millions):
|
Successor
|
Successor
|
|||||||||||||||||||
|
Accrual as of
|
Accrual as of
|
|||||||||||||||||||
|
November 8,
|
2009
|
Utilization |
December 31,
|
|||||||||||||||||
| 2009 | Charges | Cash | Non-cash | 2009 | ||||||||||||||||
|
Initial Restructuring Strategy:
|
||||||||||||||||||||
|
Employee termination benefits
|
$ | 11.6 | $ | 0.1 | $ | (0.5 | ) | $ | — | $ | 11.2 | |||||||||
|
Contract termination costs
|
2.0 | — | — | — | 2.0 | |||||||||||||||
| 13.6 | 0.1 | (0.5 | ) | — | 13.2 | |||||||||||||||
|
Other Restructuring Initiatives:
|
||||||||||||||||||||
|
Employee termination benefits
|
36.6 | 44.4 | (12.4 | ) | — | 68.6 | ||||||||||||||
|
Contract termination costs
|
1.3 | — | — | — | 1.3 | |||||||||||||||
|
Other related costs
|
1.0 | (1.0 | ) | — | — | — | ||||||||||||||
| 38.9 | 43.4 | (12.4 | ) | — | 69.9 | |||||||||||||||
|
Total
|
$ | 52.5 | $ | 43.5 | $ | (12.9 | ) | $ | — | $ | 83.1 | |||||||||
In the 2009 Predecessor Period, the Company recorded charges of
$100.4 million in connection with its restructuring
actions. These charges consist of $96.0 million recorded as
cost of sales, $8.8 million recorded as selling, general
and administrative expenses, ($0.5) million recorded as
other (income) expense, net and ($3.9) million recorded as
reorganization items and fresh-start accounting adjustments,
net. The restructuring charges consist of employee termination
benefits of $77.9 million, fixed asset impairment charges
of $5.6 million
78
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
and contract termination costs of $6.6 million, as well as
other related costs of $10.3 million. Employee termination
benefits were recorded based on existing union and employee
contracts, statutory requirements and completed negotiations.
Asset impairment charges relate to the disposal of buildings,
leasehold improvements and machinery and equipment with carrying
values of $5.6 million in excess of related estimated fair
values. Contract termination costs include net pension and other
postretirement benefit plan charges of $9.4 million and
various other credits of ($2.8) million, the majority of
which relate to the rejection of certain lease agreements in
connection with the Company’s bankruptcy filing.
A summary of activity for the 2009 Predecessor Period, excluding
net pension and other postretirement benefit plan charges of
$9.4 million, is shown below (in millions):
|
Predecessor
|
Predecessor
|
|||||||||||||||||||
|
Accrual as of
|
Accrual as of
|
|||||||||||||||||||
|
January 1,
|
2009
|
Utilization |
November 7,
|
|||||||||||||||||
| 2009 | Charges | Cash | Non-cash | 2009 | ||||||||||||||||
|
Initial Restructuring Strategy:
|
||||||||||||||||||||
|
Employee termination benefits
|
$ | 27.0 | $ | (4.1 | ) | $ | (11.3 | ) | $ | — | $ | 11.6 | ||||||||
|
Contract termination costs
|
5.9 | (3.4 | ) | (0.5 | ) | — | 2.0 | |||||||||||||
| 32.9 | (7.5 | ) | (11.8 | ) | — | 13.6 | ||||||||||||||
|
Other Restructuring Initiatives:
|
||||||||||||||||||||
|
Employee termination benefits
|
46.1 | 82.0 | (91.5 | ) | — | 36.6 | ||||||||||||||
|
Asset impairments
|
— | 5.6 | — | (5.6 | ) | — | ||||||||||||||
|
Contract termination costs
|
1.6 | 0.6 | (0.9 | ) | — | 1.3 | ||||||||||||||
|
Other related costs
|
— | 10.3 | (14.7 | ) | 5.4 | 1.0 | ||||||||||||||
| 47.7 | 98.5 | (107.1 | ) | (0.2 | ) | 38.9 | ||||||||||||||
|
Total
|
$ | 80.6 | $ | 91.0 | $ | (118.9 | ) | $ | (0.2 | ) | $ | 52.5 | ||||||||
In 2008, the Company recorded charges of $177.4 million in
connection with its restructuring actions. These charges consist
of $147.1 million recorded as cost of sales,
$24.0 million recorded as selling, general and
administrative expenses and $6.3 million recorded as other
(income) expense, net. The 2008 restructuring charges consist of
employee termination benefits of $127.9 million, fixed
asset impairment charges of $17.5 million and contract
termination costs of $9.2 million, as well as other related
costs of $22.8 million. Employee termination benefits were
recorded based on existing union and employee contracts,
statutory requirements and completed negotiations. Asset
impairment charges relate to the disposal of buildings,
leasehold improvements and machinery and equipment with carrying
values of $17.5 million in excess of related estimated fair
values. Contract termination costs include net pension and other
postretirement benefit plan charges of $7.5 million, lease
cancellation costs of $1.6 million, a reduction in
previously recorded repayments of various government-sponsored
grants of ($1.6) million and various other costs of
$1.7 million.
79
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
A summary of 2008 activity, excluding net pension and other
postretirement benefit plan charges of $7.5 million, is
shown below (in millions):
|
Predecessor
|
Predecessor
|
|||||||||||||||||||
|
Accrual as of
|
Accrual as of
|
|||||||||||||||||||
|
January 1,
|
2008
|
Utilization |
December 31,
|
|||||||||||||||||
| 2008 | Charges | Cash | Non-cash | 2008 | ||||||||||||||||
|
Initial Restructuring Strategy:
|
||||||||||||||||||||
|
Employee termination benefits
|
$ | 68.7 | $ | 23.7 | $ | (65.4 | ) | $ | — | $ | 27.0 | |||||||||
|
Asset impairments
|
— | 3.4 | — | (3.4 | ) | — | ||||||||||||||
|
Contract termination costs
|
5.9 | — | — | — | 5.9 | |||||||||||||||
|
Other related costs
|
— | 16.9 | (16.9 | ) | — | — | ||||||||||||||
| 74.6 | 44.0 | (82.3 | ) | (3.4 | ) | 32.9 | ||||||||||||||
|
Other Restructuring Initiatives:
|
||||||||||||||||||||
|
Employee termination benefits
|
— | 104.2 | (58.1 | ) | — | 46.1 | ||||||||||||||
|
Asset impairments
|
— | 14.1 | — | (14.1 | ) | — | ||||||||||||||
|
Contract termination costs
|
— | 1.7 | (0.1 | ) | — | 1.6 | ||||||||||||||
|
Other related costs
|
— | 5.9 | (5.9 | ) | — | — | ||||||||||||||
| — | 125.9 | (64.1 | ) | (14.1 | ) | 47.7 | ||||||||||||||
|
Total
|
$ | 74.6 | $ | 169.9 | $ | (146.4 | ) | $ | (17.5 | ) | $ | 80.6 | ||||||||
80
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (6) | Investments in Affiliates and Other Related Party Transactions |
The Company’s beneficial ownership in affiliates accounted
for under the equity method is shown below:
| Successor | Predecessor | |||||||||||
|
December 31,
|
2010 | 2009 | 2008 | |||||||||
|
Shanghai Lear STEC Automotive Parts Co., Ltd. (China)
|
55 | % | 55 | % | 55 | % | ||||||
|
Lear Shurlok Electronics (Proprietary) Limited (South Africa)
|
51 | 51 | 51 | |||||||||
|
Industrias Cousin Freres, S.L. (Spain)
|
50 | 50 | 50 | |||||||||
|
Lear Dongfeng Automotive Seating Co., Ltd. (China)
|
50 | 50 | 50 | |||||||||
|
Dong Kwang Lear Yuhan Hoesa (Korea)
|
50 | 50 | 50 | |||||||||
|
Jiangxi Jiangling Lear Interior Systems Co., Ltd. (China)
|
50 | 50 | 50 | |||||||||
|
Beijing BAI Lear Automotive Systems Co., Ltd. (China)
|
50 | 50 | 50 | |||||||||
|
Beijing Lear Automotive Electronics and Electrical Products Co.,
Ltd. (China)
|
50 | 50 | 50 | |||||||||
|
Changchun Lear FAW Sihuan Automotive Electrical and Electronics
Co., Ltd. (China)
|
49 | — | — | |||||||||
|
Honduras Electrical Distribution Systems S. de R.L. de C.V.
(Honduras)
|
49 | 49 | 49 | |||||||||
|
Kyungshin-Lear Sales and Engineering LLC
|
49 | 49 | 49 | |||||||||
|
Tacle Seating USA, LLC
|
49 | 49 | 49 | |||||||||
|
TS Lear Automotive Sdn Bhd. (Malaysia)
|
46 | 46 | 46 | |||||||||
|
Beijing Lear Dymos Automotive Systems Co., Ltd. (China)
|
40 | 40 | 40 | |||||||||
|
UPM S.r.L. (Italy)
|
39 | 39 | 39 | |||||||||
|
Dymos Lear Automotive India Private Limited (India)
|
35 | 35 | 35 | |||||||||
|
Markol Otomotiv Yan Sanayi VE Ticaret A.S. (Turkey)
|
35 | 35 | 35 | |||||||||
|
International Automotive Components Group North America, LLC
|
23 | 19 | 19 | |||||||||
|
International Automotive Components Group, LLC (Europe)
|
— | 30 | 34 | |||||||||
|
Furukawa Lear Corporation
|
— | 20 | — | |||||||||
|
Nanjing Lear Xindi Automotive Interiors Systems Co., Ltd. (China)
|
— | — | 50 | |||||||||
Summarized group financial information for affiliates accounted
for under the equity method as of December 31, 2010 and
2009, and for the years ended December 31, 2010, 2009 and
2008, is shown below (unaudited; in millions):
|
December 31,
|
2010 | 2009 | ||||||
|
Balance sheet data:
|
||||||||
|
Current assets
|
$ | 1,284.0 | $ | 1,107.8 | ||||
|
Non-current assets
|
854.7 | 819.4 | ||||||
|
Current liabilities
|
1,087.7 | 958.6 | ||||||
|
Non-current liabilities
|
258.7 | 316.4 | ||||||
81
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
|
For the Year Ended December 31,
|
2010 | 2009 | 2008 | |||||||||
|
Income statement data:
|
||||||||||||
|
Net sales
|
$ | 4,933.7 | $ | 3,199.9 | $ | 5,053.9 | ||||||
|
Gross profit
|
400.3 | 171.8 | 248.9 | |||||||||
|
Income (loss) before provision for income taxes
|
171.9 | (76.4 | ) | (107.0 | ) | |||||||
|
Net income (loss) attributable to affiliates
|
146.2 | (76.5 | ) | (111.9 | ) | |||||||
As a result of the adoption of fresh-start accounting,
investment in affiliates was re-measured at estimated fair value
as of November 7, 2009 (see Note 3, “Fresh-Start
Accounting”). As of December 31, 2010 and 2009, the
Company’s aggregate investment in affiliates was
$172.9 million and $138.8 million, respectively. In
addition, the Company had receivables due from affiliates,
including notes and advances, of $30.6 million and
$33.8 million and payables due to affiliates of
$25.8 million and $25.9 million as of
December 31, 2010 and 2009, respectively.
A summary of transactions with affiliates and other related
parties is shown below (in millions):
|
For the Year Ended December 31,
|
2010 | 2009 | 2008 | |||||||||
|
Sales to affiliates
|
$ | 81.0 | $ | 76.3 | $ | 95.8 | ||||||
|
Purchases from affiliates
|
150.7 | 121.5 | 250.8 | |||||||||
|
Purchases from other related
parties
(1)
|
2.2 | 2.3 | 7.6 | |||||||||
|
Management and other fees for services provided to affiliates
|
11.1 | 7.1 | 8.5 | |||||||||
|
Dividends received from affiliates
|
7.4 | 5.3 | 4.1 | |||||||||
| (1) | Includes $2.2 million, $2.3 million and $3.6 million in 2010, 2009 and 2008, respectively, paid to CB Richard Ellis for real estate brokerage services, as well as property and project management services; includes $4.0 million in 2008 paid to Analysts International, Sequoia Services Group for the purchase of computer equipment, as well as computer-related services. Each entity employed a relative of the Company’s Chief Executive Officer and President. |
The Company’s investment in Shanghai Lear STEC Automotive
Parts Co., Ltd. is accounted for under the equity method as the
result of certain approval rights granted to the minority
shareholders.
The Company guarantees 49% of certain of the debt of Tacle
Seating USA, LLC. As of December 31, 2010, the aggregate
amount of debt guaranteed was $2.4 million.
2010
In December 2010, two of the Company’s affiliates accounted
for under the equity method, International Automotive Components
Group North America, LLC (“IAC North America”) and
International Automotive Components Group, LLC (“IAC
Europe”), and a third entity, International Automotive
Components Group Japan, LLC, entered into a combination
agreement whereby each of the entities was combined into IAC
North America as the surviving entity. After giving effect to
the combination, the Company’s ownership interest in IAC
North America increased to 22.88% from 18.75%. The
Company’s investment in IAC North America was accounted for
under the equity method in prior periods due to the
Company’s ability to exert significant influence over the
venture.
In June 2010, the Company divested its ownership interest in
Furukawa Lear Corporation for $2.1 million and recognized a
gain of $1.8 million on the transaction, which is reflected
in other (income) expense, net in the accompanying consolidated
statement of operations for the year ended December 31,
2010. Also in 2010, the Company established Changchun Lear FAW
Sihuan Automotive Electrical and Electronics Co., Ltd., a joint
venture with Changchun FAW Sihuan Group Corporation and
Changchun ZhiXin LiHe Trade Co., Ltd., to manufacture and supply
electrical and electronic automotive products in China.
82
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
In addition, the name of Hanil Lear India Private Limited was
changed to Dymos Lear Automotive India Private Limited.
2009
In July 2009, the Company divested its ownership interest in
Nanjing Lear Xindi Automotive Interiors Systems Co., Ltd. for
$0.7 million and recognized a gain of $0.7 million on
the transaction, which is reflected in other (income) expense,
net in the accompanying consolidated statement of operations for
the 2009 Predecessor Period. In April 2009, the Company divested
a portion of its ownership interest in Furukawa Lear
Corporation, thereby reducing its ownership interest to 20% from
80%, and commenced accounting for its investment under the
equity method. Previously, Furukawa Lear Corporation was
accounted for as a consolidated, less than wholly owned
subsidiary.
In July 2009, as a result of an equity transaction between IAC
Europe and one of the Company’s joint venture partners, the
Company’s ownership interest in IAC Europe decreased to
30.45%, and the Company recognized an impairment charge of
$26.6 million related to its investment. The Company also
recognized an impairment charge of $15.4 million related to
its investment in another equity affiliate. These impairment
charges are reflected in equity in net (income) loss of
affiliates in the accompanying consolidated statement of
operations for the 2009 Predecessor Period. See Note 4,
“Summary of Significant Accounting Policies.”
2008
In December 2008, the Company divested its ownership interest in
Total Interior Systems — America, LLC for
$35.0 million and recognized a gain of $19.5 million
on the transaction, which is reflected in other (income)
expense, net in the accompanying consolidated statement of
operations for the year ended December 31, 2008. In June
2008, the Company divested a portion of its ownership interests
in Honduras Electrical Distribution Systems S. de R.L. de C.V.
and Kyungshin-Lear Sales and Engineering LLC, thereby reducing
its ownership interests in these ventures to 49% from 60%. In
connection with this transaction, the Company recognized a gain
of $2.7 million, which is reflected in other (income)
expense, net in the accompanying consolidated statement of
operations for the year ended December 31, 2008. In April
2008, the Company divested a portion of its ownership interest
in Hanil Lear India Private Limited, thereby reducing its
ownership interest in this venture to 35% from 50%. In
connection with this transaction, the Company recognized an
impairment charge of $1.0 million in the first quarter of
2008, which is reflected in equity in net (income) loss of
affiliates in the accompanying consolidated statement of
operations for the year ended December 31, 2008.
Also in 2008, the Company recognized an impairment charge of
$34.2 million related to its investment in IAC North
America. The impairment charge was based on the significant
decline in the operating results of IAC North America, as well
as a financing transaction between IAC North America and certain
of its lenders, and is reflected in equity in net (income) loss
of affiliates in the accompanying consolidated statement of
operations for the year ended December 31, 2008. See
Note 4, “Summary of Significant Accounting
Policies.”
In the second quarter of 2008, the Company began to consolidate
the financial position and operating results of Chongqing Lear
Chang’an Automotive Trim, Co., Ltd. and Lear Changan
(Chongqing) Automotive System Co., Ltd. as a result of the
elimination of certain approval rights granted to the minority
shareholders. Previously, the Company’s investments in
these ventures were accounted for under the equity method.
| (7) | Short-Term Borrowings |
The Company utilizes uncommitted lines of credit as needed for
its short-term working capital fluctuations in certain of its
foreign subsidiaries. As of December 31, 2010, the Company
had lines of credit from banks totaling $27.8 million, of
which no amounts were outstanding and $27.8 million was
unused and available, subject to certain restrictions imposed by
the Company’s senior notes and credit agreement
(Note 8, “Long-Term Debt”). As of
December 31, 2009, the Company had lines of credit from
banks totaling $12.4 million, of which $8.9 million
was
83
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
outstanding and $3.5 million was unused and available,
subject to certain restrictions imposed by the Company’s
long-term credit agreements. As of December 31, 2009, the
weighted average interest rate on outstanding borrowings under
these lines of credit was 10.2%.
| (8) |
|
A summary of long-term debt and the related weighted average
interest rates is shown below (in millions):
|
December 31,
|
2010 | 2009 | ||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Long-Term
|
Average
|
Long-Term
|
Average
|
|||||||||||||
|
Debt Instrument
|
Debt | Interest Rate | Debt | Interest Rate | ||||||||||||
|
7.875% Senior Notes due 2018
|
$ | 347.7 | 8.00 | % | $ | — | N/A | |||||||||
|
8.125% Senior Notes due 2020
|
347.2 | 8.25 | % | — | N/A | |||||||||||
|
First Lien Credit Agreement
|
— | N/A | 375.0 | 7.50 | % | |||||||||||
|
Second Lien Credit Agreement
|
— | N/A | 550.0 | 9.00 | % | |||||||||||
|
Other
|
— | 10.2 | 2.05 | % | ||||||||||||
| 694.9 | 935.2 | |||||||||||||||
|
Less — Current portion
|
— | (8.1 | ) | |||||||||||||
|
Long-term debt
|
$ | 694.9 | $ | 927.1 | ||||||||||||
Senior
Notes
On March 26, 2010, the Company issued $350 million in
aggregate principal amount at maturity of senior unsecured notes
due 2018 at a stated coupon rate of 7.875% (the “2018
Notes”) and $350 million in aggregate principal amount
at maturity of senior unsecured notes due 2020 at a stated
coupon rate of 8.125% (the “2020 Notes” and together
with the 2018 Notes, the “Notes”). The 2018 Notes were
priced at 99.276% of par, resulting in a yield to maturity of
8.00%, and the 2020 Notes were priced at 99.164% of par,
resulting in a yield to maturity of 8.25%. The net proceeds from
the issuance of the Notes, together with existing cash on hand,
were used to repay in full an aggregate amount of
$925.0 million of term loans provided under the
Company’s first and second lien credit agreements
(described below).
Interest is payable on the Notes on March 15 and September 15 of
each year, beginning September 15, 2010. The 2018 Notes
mature on March 15, 2018, and the 2020 Notes mature on
March 15, 2020.
The Company may redeem all or part of the Notes, at its option,
at any time on or after March 15, 2014, in the case of the
2018 Notes, and March 15, 2015, in the case of the 2020
Notes, at the redemption prices set forth below, plus accrued
and unpaid interest to the redemption date.
|
Twelve-Month Period Commencing March 15,
|
2018 Notes | 2020 Notes | ||||||
|
2014
|
103.938 | % | N/A | |||||
|
2015
|
101.969 | % | 104.063 | % | ||||
|
2016
|
100.0 | % | 102.708 | % | ||||
|
2017
|
100.0 | % | 101.354 | % | ||||
|
2018 and thereafter
|
100.0 | % | 100.0 | % | ||||
Prior to March 15, 2013, the Company may redeem up to 35%
of the original aggregate principal amount of the 2018 Notes and
the 2020 Notes at a price equal to 107.875% and 108.125%,
respectively, of the principal amount thereof, plus accrued and
unpaid interest to the redemption date, with the net cash
proceeds of one or more equity offerings, provided that at least
65% of the original aggregate principal amount of each series of
Notes remains outstanding after the redemption. The Company may
also redeem all or part of the Notes at any time prior to
84
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
March 15, 2014, in the case of the 2018 Notes, and
March 15, 2015, in the case of the 2020 Notes, at a price
equal to 100% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date and a
“make-whole” premium. In addition, the Company may
redeem up to 10% of the original aggregate principal amount of
each series of Notes during any
12-month
period prior to March 15, 2014, in the case of the 2018
Notes, and March 15, 2015, in the case of the 2020 Notes,
at a price equal to 103% of the principal amount thereof, plus
accrued and unpaid interest to the redemption date.
Subject to certain limitations, in the event of a change of
control of the Company, the Company will be required to make an
offer to purchase the Notes at a purchase price equal to 101% of
the principal amount of the Notes, plus accrued and unpaid
interest to the date of purchase.
The Notes are senior unsecured obligations. The Company’s
obligations under the Notes are fully and unconditionally
guaranteed, jointly and severally, on a senior unsecured basis
by certain domestic subsidiaries, which are directly or
indirectly 100% owned by Lear. See Note 18,
“Supplemental Guarantor Condensed Consolidating Financial
Statements.”
The indenture governing the Notes contains restrictive covenants
that, among other things, limit the ability of the Company and
its subsidiaries to: (i) incur additional debt,
(ii) pay dividends and make other restricted payments,
(iii) create or permit certain liens, (iv) issue or
sell capital stock of the Company’s restricted
subsidiaries, (v) use the proceeds from sales of assets and
subsidiary stock, (vi) create or permit restrictions on the
ability of the Company’s restricted subsidiaries to pay
dividends or make other distributions to the Company,
(vii) enter into transactions with affiliates,
(viii) enter into sale and leaseback transactions and
(ix) consolidate or merge or sell all or substantially all
of the Company’s assets. The foregoing limitations are
subject to exceptions as set forth in the Notes. In addition, if
in the future the Notes have an investment grade credit rating
from both Moody’s Investors Service and
Standard & Poor’s Ratings Services and no default
has occurred and is continuing, certain of these covenants will,
thereafter, no longer apply to the Notes for so long as the
Notes have an investment grade credit rating by both rating
agencies.
The indenture governing the Notes contains customary events of
default that include, among other things (subject in certain
cases to customary grace and cure periods): (i) non-payment
of principal or interest, (ii) breach of certain covenants
contained in the indenture governing the Notes,
(iii) failure to pay certain other indebtedness or the
acceleration of certain other indebtedness prior to maturity if
the total amount of such indebtedness unpaid or accelerated
exceeds $100 million or its foreign currency equivalent,
(iv) the rendering of a final and nonappealable judgment
for the payment of money in excess of $100 million or its
foreign currency equivalent that is not timely paid or its
enforcement stayed, (v) the failure of the guarantees by
the subsidiary guarantors to be in full force and effect in all
material respects and (vi) certain events of bankruptcy or
insolvency. Generally, if an event of default occurs (subject to
certain exceptions), the trustee or the holders of at least 25%
in aggregate principal amount of the then outstanding Notes of
any series may declare all of the Notes of such series to be due
and payable immediately.
As of December 31, 2010, the Company was in compliance with
all covenants under the indenture governing the Notes.
First
and Second Lien Credit Agreements and Revolving Credit
Facility
In connection with the Company’s emergence from
Chapter 11 bankruptcy proceedings, the Company entered into
a first lien credit agreement (as amended, restated or otherwise
modified, the “first lien credit agreement”) and a
second lien credit agreement with certain financial institutions
party thereto and JPMorgan Chase Bank, N.A., as administrative
agent, in the fourth quarter of 2009. Pursuant to the terms of
the first lien credit agreement, on the Effective Date, the
Company had access to $500 million, subject to certain
adjustments as defined in the Plan. A portion of the proceeds
under the first lien credit agreement was used to satisfy
amounts outstanding under the Company’s
debtor-in-possession
credit facility. The remaining proceeds were available for other
general corporate purposes. For further information regarding
the
debtor-in-possession
credit facility, see “DIP Agreement” below. The second
lien credit agreement provided for the issuance of
$550 million of term loans, which debt was issued on
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
the Effective Date in partial satisfaction of the amounts
outstanding under the Company’s pre-petition primary credit
facility. As of December 31, 2009, the Company had
$375.0 million and $550.0 million of term loans
outstanding under the first lien credit agreement and the second
lien credit agreement, respectively.
Effective March 19, 2010, the Company entered into an
amendment and restatement of the first lien credit agreement,
which provides for a $110 million revolving credit facility
(the “Revolving Credit Facility”). The Revolving
Credit Facility permits borrowings for general corporate and
working capital purposes and the issuance of letters of credit.
The commitments under the Revolving Credit Facility expire on
March 18, 2013. As of December 31, 2010, there were no
borrowings outstanding under the Revolving Credit Facility.
Obligations under the Revolving Credit Facility are secured on a
first priority basis by a lien on substantially all of the
U.S. assets of Lear and its domestic subsidiaries, as well
as 100% of the stock of Lear’s domestic subsidiaries and
65% of the stock of certain of Lear’s foreign subsidiaries.
In addition, obligations under the Revolving Credit Facility are
guaranteed, jointly and severally, on a first priority basis, by
certain of Lear’s domestic subsidiaries, which are directly
or indirectly 100% owned by Lear. See Note 18,
“Supplemental Guarantor Condensed Consolidating Financial
Statements.”
Advances under the Revolving Credit Facility bear interest at a
variable rate per annum equal to (i) LIBOR, as adjusted for
certain statutory reserves, plus an adjustable margin based on
the Company’s corporate rating, 3.5% as of the date of this
Report, payable on the last day of each applicable interest
period but in no event less frequently than quarterly, or
(ii) the Adjusted Base Rate (as defined in the first lien
credit agreement) plus an adjustable margin based on the
Company’s corporate rating, 2.5% as of the date of this
Report, payable quarterly.
The Revolving Credit Facility contains various customary
representations, warranties and covenants by the Company,
including, without limitation, (i) covenants regarding
maximum leverage and minimum interest coverage,
(ii) limitations on the amount of capital expenditures,
(iii) limitations on fundamental changes involving the
Company or its subsidiaries and (iv) limitations on
indebtedness and liens. As of December 31, 2010, the
Company was in compliance with all covenants under the agreement
governing the Revolving Credit Facility.
Also on March 19, 2010, the Company amended the first lien
credit agreement to facilitate the issuance of the Notes and the
repayment of amounts outstanding under the second lien credit
agreement. The amendment also provides for the repurchase of
certain amounts of the Notes and for a limited amount of cash
dividend payments or repurchases of the Company’s common
stock, when certain terms and conditions are met.
As discussed above, the Company used the net proceeds from the
issuance of the Notes, together with its existing cash on hand,
to repay in full all amounts outstanding under the term loans
provided under the Company’s first and second lien credit
agreements. In connection with the issuance of the Notes, the
repayment of the term loans and the related amendments to the
first lien credit agreement, in 2010, the Company recognized a
loss on the extinguishment of debt of $11.8 million,
resulting from the write-off of unamortized debt issuance costs,
and paid debt issuance costs of $17.6 million. The debt
issuance costs are being amortized over the life of the related
debt. The loss on the extinguishment of debt is recorded in
other (income) expense, net in the accompanying consolidated
statement of operations for the year ended December 31,
2010. See Note 4, “Summary of Significant Accounting
Policies.”
DIP
Agreement
On July 6, 2009, the Debtors entered into a credit and
guarantee agreement by and among Lear, as borrower, the
guarantors party thereto, JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party thereto (the
“DIP Agreement”). The DIP Agreement provided for new
money
debtor-in-possession
financing comprised of a term loan in the aggregate principal
amount of $500 million. On August 4, 2009, the
Bankruptcy Court entered an order approving the DIP Agreement,
and the Debtors subsequently received proceeds of
$500 million, net of related fees and expenses of
$36.7 million, related to available
debtor-in-possession
financing. On the Effective Date,
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
amounts outstanding under the DIP Agreement were repaid, using
proceeds of the first lien credit agreement and available cash.
Pre-Petition
Primary Credit Facility
The Company’s pre-petition primary credit facility
consisted of an amended and restated credit and guarantee
agreement, as further amended, which provided for maximum
revolving borrowing commitments of $1.3 billion and a term
loan facility of $1.0 billion. Borrowings and repayments
under the pre-petition primary credit facility are shown below
(in millions):
|
Year
|
Borrowings | Repayments | ||||||
|
2008 — Predecessor
|
$ | 1,418.9 | $ | 232.9 | ||||
In the 2009 Predecessor Period, there were additional non-cash
borrowings of $63.6 million under the pre-petition primary
credit facility related to draws on the Company’s
outstanding letters of credit. On the Effective Date, pursuant
to the Plan, the Company’s pre-petition primary credit
facility was cancelled (except for the purposes of allowing
creditors under that facility to receive distributions under the
Plan and allowing the administrative agent to exercise certain
rights). On the Effective Date, pursuant to the Plan, each
lender under the pre-petition primary credit facility received
its pro rata share of (i) $550 million of term loans
provided under the second lien credit agreement;
(ii) $450 million of Series A Preferred Stock;
(iii) 35.5% of the Common Stock (excluding any effect of
the Series A Preferred Stock, the Warrants and the
management equity grants) and (iv) $100 million of
cash.
Pre-Petition
Senior Notes
The Company’s pre-petition debt securities consisted of
senior notes under the following:
| • | Indenture dated as of November 24, 2006, by and among Lear, certain subsidiary guarantors party thereto from time to time and The Bank of New York Mellon Trust Company, N.A., as trustee (“BONY”), relating to the 8.5% senior notes due 2013 and the 8.75% senior notes due 2016; | |
| • | Indenture dated as of August 3, 2004, by and among Lear, the guarantors party thereto from time to time and BNY Midwest Trust Company, N.A., as trustee, as amended and supplemented by that certain Supplemental Indenture No. 1 and Supplemental Indenture No. 2, relating to the 5.75% senior notes due 2014; and | |
| • | Indenture dated as of February 20, 2002, by and among Lear, the guarantors party thereto from time to time and BONY, as amended and supplemented by that certain Supplemental Indenture No. 1, Supplemental Indenture No. 2, Supplemental Indenture No. 3 and Supplemental Indenture No. 4, relating to the zero-coupon convertible senior notes due 2022. |
On the Effective Date, pursuant to the Plan, the Company’s
pre-petition outstanding debt securities were cancelled and the
indentures governing such debt securities were terminated
(except for the purposes of allowing holders of the notes to
receive distributions under the Plan and allowing the trustees
to exercise certain rights). Under the Plan, each holder of
senior notes and certain other general unsecured claims against
the Debtors and the unsecured deficiency claims of the lenders
under the pre-petition primary credit facility received its pro
rata share of (i) 64.5% of the Common Stock (excluding any
effect of the Series A Preferred Stock, the Warrants and
the management equity grants) and (ii) the Warrants.
For further information regarding the Plan and the cancellation
of pre-petition obligations, see Note 2,
“Reorganization under Chapter 11.”
Pre-Petition
Senior Notes — 2008 Transactions
In April 2008, the Company repaid, on the maturity date,
€55.6 million ($87.0 million based on the
exchange rate in effect as of the transaction date) aggregate
principal amount of senior notes. In August 2008, the Company
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
repurchased its remaining senior notes due 2009, with an
aggregate principal amount of $41.4 million, for a purchase
price of $43.1 million, including the call premium and
related fees. In December 2008, the Company repurchased a
portion of its senior notes due 2013 and 2016, with an aggregate
principal amount of $2.0 million and $10.7 million,
respectively, in the open market for an aggregate purchase price
of $3.4 million, including related fees. In connection with
these transactions, the Company recognized a net gain on the
extinguishment of debt of $7.5 million, which is included
in other (income) expense, net in the accompanying consolidated
predecessor statement of operations for the year ended
December 31, 2008.
Other
As of December 31, 2009, other long-term debt consisted
primarily of amounts outstanding under term loans and capital
leases.
Scheduled
Maturities
As of December 31, 2010, there are no scheduled maturities
of long-term debt in the next five years.
| (9) | Income Taxes |
A summary of consolidated income (loss) before provision
(benefit) for income taxes and equity in net (income) loss of
affiliates and the components of provision (benefit) for income
taxes is shown below (in millions):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Consolidated income (loss) before provision (benefit) for income
taxes and equity in net (income) loss of affiliates:
|
|||||||||||||||||
|
Domestic
|
$ | 195.8 | $ | (98.0 | ) | $ | 1,087.0 | $ | (164.1 | ) | |||||||
|
Foreign
|
253.0 | 64.2 | (159.4 | ) | (377.3 | ) | |||||||||||
| $ | 448.8 | $ | (33.8 | ) | $ | 927.6 | $ | (541.4 | ) | ||||||||
|
Domestic provision (benefit) for income taxes:
|
|||||||||||||||||
|
Current provision (benefit)
|
$ | 13.6 | $ | (0.1 | ) | $ | (38.8 | ) | $ | 3.4 | |||||||
|
Deferred provision
|
4.5 | 0.7 | 0.9 | — | |||||||||||||
|
Total domestic provision (benefit)
|
18.1 | 0.6 | (37.9 | ) | 3.4 | ||||||||||||
|
Foreign provision (benefit) for income taxes:
|
|||||||||||||||||
|
Current provision (benefit)
|
21.9 | (21.7 | ) | 35.8 | 52.0 | ||||||||||||
|
Deferred provision (benefit)
|
(15.4 | ) | (3.1 | ) | 31.3 | 30.4 | |||||||||||
|
Total foreign provision (benefit)
|
6.5 | (24.8 | ) | 67.1 | 82.4 | ||||||||||||
|
Provision (benefit) for income taxes
|
$ | 24.6 | $ | (24.2 | ) | $ | 29.2 | $ | 85.8 | ||||||||
The domestic provision (benefit) includes withholding taxes
related to dividends and royalties paid by the Company’s
foreign subsidiaries. The domestic deferred provision includes
the benefit of prior unrecognized net operating loss
carryforwards of $90.3 million and $34.7 million for
the years ended December 31, 2010 and 2008, respectively.
The foreign deferred provision (benefit) includes the benefit of
prior unrecognized net operating loss carryforwards of
$7.3 million and $1.9 million for the years ended
December 31, 2010 and 2008, respectively. The
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
domestic and foreign deferred provision (benefit) does not
include any benefit of prior unrecognized net operating loss
carryforwards for the 2009 Successor and 2009 Predecessor
Periods.
A summary of the differences between the provision (benefit) for
income taxes calculated at the United States federal statutory
income tax rate of 35% and the consolidated provision (benefit)
for income taxes is shown below (in millions):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Consolidated income (loss) before provision (benefit) for income
taxes and equity in net (income) loss of affiliates multiplied
by the United States federal statutory income tax rate
|
$ | 157.1 | $ | (11.8 | ) | $ | 324.7 | $ | (189.5 | ) | |||||||
|
Differences in income taxes on foreign earnings, losses and
remittances
|
(35.4 | ) | (5.2 | ) | 23.2 | (7.8 | ) | ||||||||||
|
Valuation allowance adjustments
|
(56.2 | ) | 54.8 | 219.5 | 138.1 | ||||||||||||
|
Tax credits
|
(19.1 | ) | — | (9.0 | ) | (9.3 | ) | ||||||||||
|
Tax audits and assessments
|
(30.8 | ) | (27.6 | ) | (1.2 | ) | 9.5 | ||||||||||
|
Increase in tax loss
carryforwards
(1)
|
(268.1 | ) | — | — | — | ||||||||||||
|
Increase in valuation allowance related to tax loss
carryforwards
(1)
|
268.1 | — | — | — | |||||||||||||
|
Goodwill impairment charges
|
— | — | 111.6 | 181.6 | |||||||||||||
|
Reorganization items and fresh-start accounting adjustments, net
|
— | — | (641.3 | ) | — | ||||||||||||
|
Other
|
9.0 | (34.4 | ) | 1.7 | (36.8 | ) | |||||||||||
|
Provision (benefit) for income taxes
|
$ | 24.6 | $ | (24.2 | ) | $ | 29.2 | $ | 85.8 | ||||||||
| (1) | Represents the increase in tax loss carryforwards resulting from the final determination of the Company’s reorganization value for U.S. tax purposes, an international restructuring transaction and other matters, all of which are subject to a full valuation allowance as it is not more likely than not that the deferred tax assets will be realized. |
Under the Plan, the Company’s pre-petition debt securities,
primary credit facility and other obligations were extinguished.
Absent an exception, a debtor recognizes cancellation of
indebtedness income (“CODI”) upon discharge of its
outstanding indebtedness for an amount of consideration that is
less than its adjusted issue price. The amount of CODI realized
by a taxpayer is the adjusted issue price of any indebtedness
discharged less the sum of (i) the amount of cash paid,
(ii) the issue price of any new indebtedness issued and
(iii) the fair market value of any other consideration,
including equity, issued. Conversely, a debtor recognizes a
premium deduction upon discharge of its outstanding indebtedness
for an amount of consideration that exceeds its adjusted issue
price. As a result of the final determination of the
Company’s reorganization value for U.S. tax purposes,
the Company increased its U.S. net operating loss
carryforwards and retained its capital loss and tax credit
carryforwards (collectively, the “Tax Attributes”). As
a result, the Company has increased its deferred tax assets
related to its tax loss carryforwards. However, a valuation
allowance has been provided with respect to the deferred tax
assets as the Company has concluded that it is not more likely
than not that the deferred tax assets will be realized.
Internal Revenue Code of 1986, as amended (“IRC”),
Sections 382 and 383 provide an annual limitation with
respect to the ability of a corporation to utilize its Tax
Attributes, as well as certain
built-in-losses,
against future U.S. taxable income in the event of a change
in ownership. The Company’s emergence from Chapter 11
bankruptcy
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
proceedings is considered a change in ownership for purposes of
IRC Section 382. The limitation under the IRC is based on
the value of the corporation as of the emergence date. As a
result, the Company’s future U.S. taxable income may
not be fully offset by the Tax Attributes if such income exceeds
its annual limitation, and the Company may incur a tax liability
with respect to such income. In addition, subsequent changes in
ownership for purposes of the IRC could further limit the
Company’s ability to use its Tax Attributes.
For the year ended December 31, 2010, the 2009 Successor
Period, the 2009 Predecessor Period and the year ended
December 31, 2008, income in foreign jurisdictions with tax
holidays was $164.4 million, $9.8 million,
$99.8 million and $104.4 million, respectively. Such
tax holidays generally expire from 2011 through 2017.
Deferred income taxes represent temporary differences in the
recognition of certain items for financial reporting and income
tax purposes. A summary of the components of the net deferred
income tax asset is shown below (in millions):
| Successor | ||||||||
|
December 31,
|
2010 | 2009 | ||||||
|
Deferred income tax assets:
|
||||||||
|
Tax loss carryforwards
|
$ | 892.2 | $ | 715.6 | ||||
|
Tax credit carryforwards
|
252.6 | 221.3 | ||||||
|
Retirement benefit plans
|
78.0 | 80.4 | ||||||
|
Accrued liabilities
|
104.8 | 76.5 | ||||||
|
Self-insurance reserves
|
11.5 | 15.0 | ||||||
|
Current asset basis differences
|
24.5 | 25.1 | ||||||
|
Long-term asset basis differences
|
41.6 | 34.7 | ||||||
|
Defined benefit plan liability adjustments
|
10.2 | — | ||||||
|
Deferred compensation
|
18.3 | 4.1 | ||||||
|
Recoverable customer engineering, development and tooling
|
0.6 | 10.1 | ||||||
|
Undistributed earnings of foreign subsidiaries
|
0.9 | — | ||||||
|
Derivative instruments and hedging
|
— | 0.2 | ||||||
|
Other
|
1.0 | — | ||||||
| 1,436.2 | 1,183.0 | |||||||
|
Valuation allowance
|
(1,407.3 | ) | (1,166.4 | ) | ||||
| $ | 28.9 | $ | 16.6 | |||||
|
Deferred income tax liabilities:
|
||||||||
|
Undistributed earnings of foreign subsidiaries
|
$ | — | $ | (2.6 | ) | |||
|
Defined benefit plan liability adjustments
|
— | (1.7 | ) | |||||
|
Other
|
— | (2.9 | ) | |||||
| $ | — | $ | (7.2 | ) | ||||
|
Net deferred income tax asset
|
$ | 28.9 | $ | 9.4 | ||||
The Company continues to maintain a valuation allowance related
to its net deferred tax assets in the United States and several
foreign jurisdictions. The Company’s current and future
provision for income taxes is significantly impacted by the
initial recognition of and changes in valuation allowances in
certain countries, particularly the United States. The Company
intends to maintain these allowances until it is more likely
than not that the deferred tax assets will be realized. The
Company’s future provision for income taxes will include no
tax benefit with respect to losses incurred and no tax expense
with respect to income generated in these countries until the
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
respective valuation allowance is eliminated. The classification
of the net deferred income tax asset is shown below (in
millions):
| Successor | ||||||||
|
December 31,
|
2010 | 2009 | ||||||
|
Deferred income tax assets:
|
||||||||
|
Current
|
$ | 57.6 | $ | 37.3 | ||||
|
Long-term
|
52.1 | 72.8 | ||||||
|
Deferred income tax liabilities:
|
||||||||
|
Current
|
(22.5 | ) | (16.9 | ) | ||||
|
Long-term
|
(58.3 | ) | (83.8 | ) | ||||
|
Net deferred income tax asset
|
$ | 28.9 | $ | 9.4 | ||||
Deferred income taxes have not been provided on
$738.6 million of certain undistributed earnings of the
Company’s foreign subsidiaries as such amounts are
considered to be permanently reinvested. It is not practicable
to determine the unrecognized deferred tax liability on these
earnings because the actual tax liability on these earnings, if
any, is dependent on circumstances existing when remittance
occurs.
As of December 31, 2010, the Company had tax loss
carryforwards of $2.9 billion. Of the total tax loss
carryforwards, $1.6 billion has no expiration date, and
$1.3 billion expires from 2011 through 2029. In addition,
the Company had tax credit carryforwards of $252.6 million
comprised principally of U.S. foreign tax credits, research
and development credits and investment tax credits that
generally expire between 2011 and 2030.
As of December 31, 2010 and 2009, the Company’s gross
unrecognized tax benefits were $36.2 million and
$63.8 million, respectively (excluding interest and
penalties), all of which, if recognized, would affect the
Company’s effective tax rate. The gross unrecognized tax
benefits are recorded in other long-term liabilities, with the
exception of $11.7 million and $2.7 million (excluding
interest and penalties) which is recorded in accrued
liabilities, in the accompanying consolidated balance sheets as
of December 31, 2010 and 2009, respectively.
A summary of the changes in gross unrecognized tax benefits is
shown below (in millions):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Balance at beginning of period
|
$ | 63.8 | $ | 93.2 | $ | 99.8 | $ | 135.8 | |||||||||
|
Additions based on tax positions related to current year
|
0.3 | 0.9 | 0.5 | 10.3 | |||||||||||||
|
Additions (reductions) based on tax positions related to prior
years
|
(1.2 | ) | (28.8 | ) | 7.7 | 0.7 | |||||||||||
|
Settlements
|
(4.4 | ) | — | (12.4 | ) | (0.2 | ) | ||||||||||
|
Statute expirations
|
(21.7 | ) | — | (8.0 | ) | (30.1 | ) | ||||||||||
|
Foreign currency translation
|
(0.6 | ) | (1.5 | ) | 5.6 | (16.7 | ) | ||||||||||
|
Balance at end of period
|
$ | 36.2 | $ | 63.8 | $ | 93.2 | $ | 99.8 | |||||||||
The Company recognizes interest and penalties with respect to
unrecognized tax benefits as income tax expense. As of
December 31, 2010 and 2009, the Company had recorded gross
reserves of $10.7 and $26.7 million (excluding federal
benefit where applicable), respectively, related to interest and
penalties, of which $8.7 million and $20.2 million,
respectively, if recognized, would affect the Company’s
effective tax rate. During the year ended December 31,
2010, the 2009 Successor Period, the 2009 Predecessor Period and
the year ended December 31,
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
2008, the Company recorded net tax (benefit) expense (including
federal benefit where applicable) related to changes in its
reserves for interest and penalties of ($12.1) million,
($4.8) million, ($3.2) million and $10.1 million,
respectively.
The Company operates in multiple jurisdictions throughout the
world, and its tax returns are periodically audited or subject
to review by both domestic and foreign tax authorities. During
the next twelve months, it is reasonably possible that, as a
result of audit settlements, the conclusion of current
examinations and the expiration of the statute of limitations in
several jurisdictions, the Company may decrease the amount of
its gross unrecognized tax benefits by approximately
$11.7 million, all of which, if recognized, would affect
its effective tax rate. The gross unrecognized tax benefits
subject to potential decrease involve issues related to transfer
pricing, tax credits and various other tax items in several
jurisdictions. However, as a result of ongoing examinations, tax
proceedings in certain countries, additions to the gross
unrecognized tax benefits for positions taken and interest and
penalties, if any, arising in 2011, it is not possible to
estimate the potential net increase or decrease to the
Company’s gross unrecognized tax benefits during the next
twelve months.
The Company considers its significant tax jurisdictions to
include Canada, Germany, Hungary, Italy, Mexico, Poland, Spain
and the United States. The Company or its subsidiaries remain
subject to income tax examination in certain U.S. state and
local jurisdictions for years after 1998; however, for any
taxable year prior to 2009, such jurisdictions are generally
limited to the amount of any tax claims they filed in the
Bankruptcy Court by January 4, 2010. Further, the Company
or its subsidiaries remain subject to income tax examination in
Mexico for years after 2002, in Germany for years after 2003, in
Hungary and Poland for years after 2004, in Italy and Spain
generally for years after 2005, in Canada for years after 2008,
and in the United States for years after 2009.
New
Legislation
In March 2010, the Patient Protection and Affordable Care Act
and the Health Care Education and Affordability Reconciliation
Act (the “Acts”) were signed into law. The Acts will
reduce the tax deduction available to the Company to the extent
of any Medicare Part D subsidy received. Although the Acts
do not take effect until 2012, the Company is required to
recognize the tax impact of the Acts beginning in the period in
which the Acts were signed. As a result of the valuation
allowance related to the Company’s net deferred tax assets
in the United States, the Acts did not impact the Company’s
2010 effective tax rate.
In August 2010, the Education Jobs & Medicaid
Assistance Act (“H.R. 1586”) was signed into law. H.R.
1586 contains a number of international tax revenue raising
provisions, which are generally effective January 1, 2011.
These provisions generally attempt to limit a taxpayer’s
ability to fully claim foreign tax credits in several
situations. The Company does not expect the impact of H.R. 1586
to be significant.
In December 2010, the Tax Relief, Unemployment Reauthorization,
and Job Creation Act of 2010 (“H.R. 4853”) was
enacted. In addition to the extension of the personal income tax
rates and various other individual tax provisions, H.R. 4853
contains a number of business tax provisions, including the
extension of certain expired provisions. H.R. 4853 extends the
Research & Development Tax Credit (“R&D
Credit”), which expired on December 31, 2009,
retroactively for two years through December 31, 2011. The
Company intends to claim the R&D Credit; however, as a
result of the valuation allowance related to the Company’s
net deferred tax assets in the United States, the R&D
Credit did not impact the Company’s 2010 effective tax
rate. The R&D Credit is available to be carried forward for
20 years.
| (10) | Pension and Other Postretirement Benefit Plans |
The Company has noncontributory defined benefit pension plans
covering certain domestic employees and certain employees in
foreign countries, principally Canada. The Company’s
salaried pension plans provide benefits based on final average
earnings formulas. The Company’s hourly pension plans
provide benefits under flat benefit and cash balance formulas.
The Company also has contractual arrangements with certain
employees which provide
92
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
for supplemental retirement benefits. In general, the
Company’s policy is to fund its pension benefit obligation
based on legal requirements, tax and liquidity considerations
and local practices.
The Company has postretirement benefit plans covering certain
domestic and Canadian employees. The Company’s
postretirement benefit plans generally provide for the
continuation of medical benefits for all eligible employees who
complete ten years of service after age 45 and retire from
the Company at age 55 or older. The Company does not fund
its postretirement benefit obligation. Rather, payments are made
as costs are incurred by covered retirees.
Obligations
and Funded Status
A reconciliation of the change in benefit obligation and the
change in plan assets for the year ended December 31, 2010,
the 2009 Successor Period and the 2009 Predecessor Period is
shown below (in millions):
| Pension | |||||||||||||||||||||||||
| Successor | Predecessor | ||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
|||||||||||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
|||||||||||||||||||||||
| 2010 | 2009 | 2009 | |||||||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | ||||||||||||||||||||
|
Change in benefit obligation:
|
|||||||||||||||||||||||||
|
Benefit obligation at beginning of period
|
$ | 404.7 | $ | 412.6 | $ | 404.0 | $ | 410.7 | $ | 417.6 | $ | 360.9 | |||||||||||||
|
Service cost
|
3.2 | 4.7 | 0.4 | 0.9 | 3.0 | 4.9 | |||||||||||||||||||
|
Interest cost
|
23.1 | 23.7 | 3.2 | 3.6 | 20.0 | 19.3 | |||||||||||||||||||
|
Amendments
|
— | — | — | — | — | (1.5 | ) | ||||||||||||||||||
|
Actuarial (gain) loss
|
29.9 | 46.6 | (0.8 | ) | (3.7 | ) | (16.8 | ) | 27.0 | ||||||||||||||||
|
Benefits paid
|
(19.3 | ) | (27.1 | ) | (2.1 | ) | (5.0 | ) | (19.9 | ) | (24.5 | ) | |||||||||||||
|
Curtailment (gain) loss
|
— | 3.5 | — | — | — | (0.6 | ) | ||||||||||||||||||
|
Special termination benefits
|
— | — | — | — | 0.1 | 0.5 | |||||||||||||||||||
|
Settlements
|
— | — | — | — | — | (19.6 | ) | ||||||||||||||||||
|
Translation adjustment
|
— | 14.7 | — | 6.1 | — | 44.3 | |||||||||||||||||||
|
Benefit obligation at end of period
|
$ | 441.6 | $ | 478.7 | $ | 404.7 | $ | 412.6 | $ | 404.0 | $ | 410.7 | |||||||||||||
| Pension | |||||||||||||||||||||||||
| Successor | Predecessor | ||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
|||||||||||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
|||||||||||||||||||||||
| 2010 | 2009 | 2009 | |||||||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | ||||||||||||||||||||
|
Change in plan assets:
|
|||||||||||||||||||||||||
|
Fair value of plan assets at beginning of period
|
$ | 301.4 | $ | 384.6 | $ | 294.3 | $ | 367.5 | $ | 246.8 | $ | 277.0 | |||||||||||||
|
Actual return on plan assets
|
28.6 | 31.5 | 9.2 | 6.1 | 33.6 | 35.9 | |||||||||||||||||||
|
Employer contributions
|
24.5 | 36.9 | — | 7.2 | 33.8 | 39.8 | |||||||||||||||||||
|
Benefits paid
|
(19.3 | ) | (27.1 | ) | (2.1 | ) | (5.0 | ) | (19.9 | ) | (24.4 | ) | |||||||||||||
|
Translation adjustment
|
— | 21.5 | — | 8.8 | — | 39.2 | |||||||||||||||||||
|
Fair value of plan assets at end of period
|
$ | 335.2 | $ | 447.4 | $ | 301.4 | $ | 384.6 | $ | 294.3 | $ | 367.5 | |||||||||||||
|
Funded Status
|
$ | (106.4 | ) | $ | (31.3 | ) | $ | (103.3 | ) | $ | (28.0 | ) | $ | (109.7 | ) | $ | (43.2 | ) | |||||||
93
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| Pension | ||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | |||||||||||||||||
|
Amounts recognized in the consolidated balance sheet:
|
||||||||||||||||||||
|
Other long-term assets
|
$ | — | $ | 39.4 | $ | — | $ | 44.8 | ||||||||||||
|
Accrued liabilities
|
(6.9 | ) | (4.3 | ) | (6.9 | ) | (3.4 | ) | ||||||||||||
|
Other long-term liabilities
|
(99.5 | ) | (66.4 | ) | (96.4 | ) | (69.4 | ) | ||||||||||||
| Other Postretirement | |||||||||||||||||||||||||
| Successor | Predecessor | ||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
|||||||||||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
|||||||||||||||||||||||
| 2010 | 2009 | 2009 | |||||||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | ||||||||||||||||||||
|
Change in benefit obligation:
|
|||||||||||||||||||||||||
|
Benefit obligation at beginning of period
|
$ | 103.0 | $ | 53.4 | $ | 103.0 | $ | 52.4 | $ | 92.2 | $ | 80.2 | |||||||||||||
|
Service cost
|
0.5 | 0.8 | 0.1 | 0.1 | 0.7 | 1.5 | |||||||||||||||||||
|
Interest cost
|
5.5 | 3.6 | 0.7 | 0.5 | 4.4 | 5.2 | |||||||||||||||||||
|
Amendments
|
— | — | — | — | — | (39.5 | ) | ||||||||||||||||||
|
Actuarial (gain) loss
|
8.0 | 7.2 | 0.1 | (0.5 | ) | 11.6 | 0.8 | ||||||||||||||||||
|
Benefits paid
|
(5.6 | ) | (1.7 | ) | (0.9 | ) | (0.4 | ) | (5.9 | ) | (2.5 | ) | |||||||||||||
|
Curtailment gain
|
— | — | — | — | — | (1.3 | ) | ||||||||||||||||||
|
Special termination benefits
|
— | 0.1 | — | — | — | 0.3 | |||||||||||||||||||
|
Translation adjustment
|
— | 3.3 | — | 1.3 | — | 7.7 | |||||||||||||||||||
|
Benefit obligation at end of period
|
$ | 111.4 | $ | 66.7 | $ | 103.0 | $ | 53.4 | $ | 103.0 | $ | 52.4 | |||||||||||||
| Other Postretirement | |||||||||||||||||||||||||
| Successor | Predecessor | ||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
|||||||||||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
|||||||||||||||||||||||
| 2010 | 2009 | 2009 | |||||||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | ||||||||||||||||||||
|
Change in plan assets:
|
|||||||||||||||||||||||||
|
Fair value of plan assets at beginning of period
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
|
Employer contributions
|
5.6 | 1.7 | 0.9 | 0.4 | 5.9 | 2.5 | |||||||||||||||||||
|
Benefits paid
|
(5.6 | ) | (1.7 | ) | (0.9 | ) | (0.4 | ) | (5.9 | ) | (2.5 | ) | |||||||||||||
|
Fair value of plan assets at end of period
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
|
Funded Status
|
$ | (111.4 | ) | $ | (66.7 | ) | $ | (103.0 | ) | $ | (53.4 | ) | $ | (103.0 | ) | $ | (52.4 | ) | |||||||
94
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| Other Postretirement | ||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | |||||||||||||||||
|
Amounts recognized in the consolidated balance sheet:
|
||||||||||||||||||||
|
Accrued liabilities
|
$ | (8.2 | ) | $ | (2.8 | ) | $ | (7.4 | ) | $ | (2.7 | ) | ||||||||
|
Other long-term liabilities
|
(103.2 | ) | (63.9 | ) | (95.6 | ) | (50.7 | ) | ||||||||||||
As of December 31, 2010 and 2009, the accumulated benefit
obligation for all of the Company’s pension plans was
$915.6 million and $813.4 million, respectively. As of
December 31, 2010 and 2009, the majority of the
Company’s pension plans had accumulated benefit obligations
in excess of plan assets. The projected benefit obligation, the
accumulated benefit obligation and the fair value of plan assets
of pension plans with accumulated benefit obligations in excess
of plan assets were $647.4 million, $643.7 million and
$470.3 million, respectively, as of December 31, 2010,
and $581.7 million, $579.1 million and
$405.7 million, respectively, as of December 31, 2009.
Effective January 1, 2009, the Company elected to amend
certain of its U.S. salaried other postretirement benefit
plans to eliminate post-65 salaried retiree medical and life
insurance coverage and to increase the retiree contribution rate
for pre-65 salaried retiree medical coverage. In addition,
negotiated amendments to certain of the Company’s foreign
other postretirement benefit plans resulted in a reduction of
the other postretirement benefit obligation of
$39.5 million in the 2009 Predecessor Period.
Change
in Measurement Date
On January 1, 2008, the Company adopted new GAAP
provisions, which required the measurement of defined benefit
plan assets and liabilities as of the annual balance sheet date
beginning in the fiscal period ending after December 15,
2008. In previous years, the Company measured its defined
benefit plan assets and liabilities primarily using a
measurement date of September 30, as previously allowed
under GAAP. As of January 1, 2008, the required adjustment
to recognize the net periodic benefit cost for the transition
period from October 1, 2007 to December 31, 2007, was
determined using the
15-month
measurement approach. Under this approach, the net periodic
benefit cost was determined for the period from October 1,
2007 to December 31, 2008, and the adjustment for the
transition period was calculated on a pro-rata basis. The
Company recorded an after-tax transition adjustment of
$6.9 million as an increase to beginning retained deficit,
$1.0 million as an increase to beginning accumulated other
comprehensive income and $5.9 million as an increase to the
net pension and other postretirement liability related accounts,
including the deferred tax accounts, as of January 1, 2008.
Comprehensive
Income (Loss) and Accumulated Other Comprehensive
Loss
In connection with the adoption of fresh-start accounting,
amounts recorded in accumulated other comprehensive loss as of
November 7, 2009, were eliminated. For further information,
see Note 3, “Fresh-Start
95
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
Accounting.” Amounts recognized in comprehensive income
(loss) for the year ended December 31, 2010, the 2009
Successor Period and the 2009 Predecessor Period are shown below
(in millions):
| Pension | |||||||||||||||||||||||||
| Predecessor | |||||||||||||||||||||||||
| Successor |
Ten Month
|
||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
||||||||||||||||||||||||
|
December 31,
|
Two Month Period Ended
|
November 7,
|
|||||||||||||||||||||||
| 2010 | December 31, 2009 | 2009 | |||||||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | ||||||||||||||||||||
|
Actuarial gains recognized:
|
|||||||||||||||||||||||||
|
Reclassification adjustments
|
$ | (0.1 | ) | $ | — | $ | — | $ | — | $ | 4.5 | $ | 4.6 | ||||||||||||
|
Actuarial gain (loss) arising during the period
|
(24.7 | ) | (38.5 | ) | 6.8 | 5.9 | 33.0 | (8.2 | ) | ||||||||||||||||
|
Prior service credit (cost) recognized:
|
|||||||||||||||||||||||||
|
Reclassification adjustments
|
— | — | — | — | 3.1 | 10.2 | |||||||||||||||||||
|
Prior service cost arising during the period
|
— | — | — | — | — | 1.6 | |||||||||||||||||||
|
Translation adjustment
|
— | 0.3 | — | — | — | (8.9 | ) | ||||||||||||||||||
| $ | (24.8 | ) | $ | (38.2 | ) | $ | 6.8 | $ | 5.9 | $ | 40.6 | $ | (0.7 | ) | |||||||||||
| Other Postretirement | |||||||||||||||||||||||||
| Predecessor | |||||||||||||||||||||||||
|
Ten Month
|
|||||||||||||||||||||||||
| Successor |
Period Ended
|
||||||||||||||||||||||||
|
Year Ended
|
Two Month Period Ended
|
November 7,
|
|||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | 2009 | |||||||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | ||||||||||||||||||||
|
Actuarial gains recognized:
|
|||||||||||||||||||||||||
|
Reclassification adjustments
|
$ | — | $ | — | $ | — | $ | — | $ | 0.8 | $ | (0.6 | ) | ||||||||||||
|
Actuarial gain (loss) arising during the period
|
(8.0 | ) | (7.2 | ) | (0.1 | ) | 0.5 | (11.5 | ) | (0.9 | ) | ||||||||||||||
|
Prior service credit (cost) recognized:
|
|||||||||||||||||||||||||
|
Reclassification adjustments
|
— | — | — | — | (6.1 | ) | (3.2 | ) | |||||||||||||||||
|
Prior service cost arising during the period
|
— | — | — | — | — | 39.5 | |||||||||||||||||||
|
Transition obligation recognized:
|
|||||||||||||||||||||||||
|
Reclassification adjustment
|
— | — | — | — | — | 3.9 | |||||||||||||||||||
|
Translation adjustment
|
— | — | — | — | — | 5.0 | |||||||||||||||||||
| $ | (8.0 | ) | $ | (7.2 | ) | $ | (0.1 | ) | $ | 0.5 | $ | (16.8 | ) | $ | 43.7 | ||||||||||
Pension and other postretirement comprehensive income for the
2009 Predecessor Period includes $24.9 million and
$30.1 million, respectively, of income related to
fresh-start accounting adjustments.
Amounts recorded in accumulated other comprehensive loss not yet
recognized in net periodic benefit cost are shown below (in
millions):
| Pension — Successor | ||||||||||||||||||||
|
December 31,
|
||||||||||||||||||||
| 2010 | December 31, 2009 | |||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | |||||||||||||||||
|
Net unrecognized actuarial gain (loss)
|
$ | (18.0 | ) | $ | (32.3 | ) | $ | 6.8 | $ | 5.9 | ||||||||||
96
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| Other Postretirement — Successor | ||||||||||||||||
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| U.S. | Foreign | U.S. | Foreign | |||||||||||||
|
Net unrecognized actuarial gain (loss)
|
$ | (8.1 | ) | $ | (6.7 | ) | $ | (0.1 | ) | $ | 0.5 | |||||
Pretax amounts recorded in accumulated other comprehensive loss
as of December 31, 2010, that are expected to be recognized
as components of net periodic benefit cost in the year ending
December 31, 2011, are shown below (in millions):
| Pension | Other Postretirement | |||||||||||
| Foreign | U.S. | Foreign | ||||||||||
|
Net unrecognized actuarial loss
|
$ | (0.3 | ) | $ | (0.3 | ) | $ | (0.1 | ) | |||
Net
Periodic Benefit Cost
The components of the Company’s net periodic pension
benefit cost are shown below (in millions):
| Successor | Predecessor | ||||||||||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | November 7, 2009 | December 31, 2008 | ||||||||||||||||||||||||||||||
|
Pension
|
U.S. | Foreign | U.S | Foreign | U.S. | Foreign | U.S. | Foreign | |||||||||||||||||||||||||
|
Service cost
|
$ | 3.2 | $ | 4.7 | $ | 0.4 | $ | 0.9 | $ | 3.0 | $ | 4.9 | $ | 6.2 | $ | 9.8 | |||||||||||||||||
|
Interest cost
|
23.1 | 23.7 | 3.2 | 3.6 | 20.0 | 19.3 | 22.9 | 25.1 | |||||||||||||||||||||||||
|
Expected return on plan assets
|
(23.5 | ) | (27.4 | ) | (3.2 | ) | (4.0 | ) | (17.5 | ) | (17.6 | ) | (28.9 | ) | (25.8 | ) | |||||||||||||||||
|
Amortization of actuarial loss
|
— | — | — | — | 4.1 | 0.8 | — | 0.4 | |||||||||||||||||||||||||
|
Amortization of transition asset
|
— | — | — | — | — | — | — | (0.1 | ) | ||||||||||||||||||||||||
|
Amortization of prior service cost
|
— | — | — | — | 2.0 | 2.7 | 2.7 | 4.1 | |||||||||||||||||||||||||
|
Settlement (gain) loss
|
(0.1 | ) | — | — | — | 0.5 | 2.7 | 1.2 | — | ||||||||||||||||||||||||
|
Special termination benefits
|
— | — | — | — | — | 0.7 | — | 2.9 | |||||||||||||||||||||||||
|
Curtailment loss, net
|
— | 3.5 | — | — | 1.2 | 7.3 | 3.0 | 4.4 | |||||||||||||||||||||||||
|
Net periodic benefit cost
|
$ | 2.7 | $ | 4.5 | $ | 0.4 | $ | 0.5 | $ | 13.3 | $ | 20.8 | $ | 7.1 | $ | 20.8 | |||||||||||||||||
97
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
The components of the Company’s net periodic other
postretirement benefit cost are shown below (in millions):
| Successor | Predecessor | ||||||||||||||||||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | November 7, 2009 | December 31, 2008 | ||||||||||||||||||||||||||||||
|
Other Postretirement
|
U.S. | Foreign | U.S | Foreign | U.S. | Foreign | U.S. | Foreign | |||||||||||||||||||||||||
|
Service cost
|
$ | 0.5 | $ | 0.8 | $ | 0.1 | $ | 0.1 | $ | 0.7 | $ | 1.5 | $ | 1.7 | $ | 5.5 | |||||||||||||||||
|
Interest cost
|
5.5 | 3.6 | 0.7 | 0.5 | 4.4 | 5.2 | 6.8 | 8.6 | |||||||||||||||||||||||||
|
Amortization of actuarial (gain) loss
|
— | — | — | — | 0.8 | (0.6 | ) | 1.4 | 2.0 | ||||||||||||||||||||||||
|
Amortization of transition obligation
|
— | — | — | — | — | 0.5 | 0.1 | 0.7 | |||||||||||||||||||||||||
|
Amortization of prior service cost
|
— | — | — | — | (6.2 | ) | — | (3.5 | ) | — | |||||||||||||||||||||||
|
Special termination benefits
|
— | 0.1 | — | — | — | 0.3 | — | 0.3 | |||||||||||||||||||||||||
|
Curtailment gain, net
|
— | — | — | — | — | (1.1 | ) | — | (2.8 | ) | |||||||||||||||||||||||
|
Net periodic benefit cost
|
$ | 6.0 | $ | 4.5 | $ | 0.8 | $ | 0.6 | $ | (0.3 | ) | $ | 5.8 | $ | 6.5 | $ | 14.3 | ||||||||||||||||
For the year ended December 31, 2010, the 2009 Predecessor
Period and the year ended December 31, 2008, the Company
recognized net pension and other postretirement benefit
curtailment and other losses of $3.0 million,
$9.4 million and $7.5 million, respectively, related
to its restructuring actions.
Assumptions
The weighted average actuarial assumptions used in determining
the benefit obligations are shown below:
|
Other
|
||||||||||||||||
| Pension | Postretirement | |||||||||||||||
|
December 31,
|
2010 | 2009 | 2010 | 2009 | ||||||||||||
|
Discount rate:
|
||||||||||||||||
|
Domestic plans
|
5.45 | % | 5.93 | % | 5.00 | % | 5.50 | % | ||||||||
|
Foreign plans
|
5.20 | % | 5.88 | % | 5.60 | % | 6.60 | % | ||||||||
|
Rate of compensation increase:
|
||||||||||||||||
|
Foreign plans
|
3.63 | % | 3.71 | % | N/A | N/A | ||||||||||
98
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
The weighted average actuarial assumptions used in determining
the net periodic benefit cost are shown below:
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Pension
|
|||||||||||||||||
|
Discount rate:
|
|||||||||||||||||
|
Domestic plans
|
5.96 | % | 5.47 | % | 5.68 | % | 6.25 | % | |||||||||
|
Foreign plans
|
5.88 | % | 5.81 | % | 6.23 | % | 5.40 | % | |||||||||
|
Expected return on plan assets:
|
|||||||||||||||||
|
Domestic plans
|
8.00 | % | 8.25 | % | 8.25 | % | 8.25 | % | |||||||||
|
Foreign plans
|
6.92 | % | 6.90 | % | 6.90 | % | 6.90 | % | |||||||||
|
Rate of compensation increase:
|
|||||||||||||||||
|
Foreign plans
|
3.65 | % | 3.71 | % | 3.24 | % | 3.90 | % | |||||||||
|
Other postretirement
|
|||||||||||||||||
|
Discount rate:
|
|||||||||||||||||
|
Domestic plans
|
5.50 | % | 5.50 | % | 5.75 | % | 6.10 | % | |||||||||
|
Foreign plans
|
6.60 | % | 6.50 | % | 7.50 | % | 5.60 | % | |||||||||
The expected return on plan assets is determined based on
several factors, including adjusted historical returns,
historical risk premiums for various asset classes and target
asset allocations within the portfolio. Adjustments made to the
historical returns are based on recent return experience in the
equity and fixed income markets and the belief that deviations
from historical returns are likely over the relevant investment
horizon.
Assumed healthcare cost trend rates have a significant effect on
the amounts reported for the postretirement benefit plans. A 1%
increase in the assumed rate of healthcare cost increases each
year would increase the postretirement benefit obligation by
$24.2 million as of December 31, 2010, and increase
the net periodic postretirement benefit cost by
$1.5 million for the year then ended. A 1% decrease in the
assumed rate of healthcare cost increases each year would
decrease the postretirement benefit obligation by
$19.6 million as of December 31, 2010, and decrease
the net periodic postretirement benefit cost by
$1.3 million for the year then ended.
For the measurement of postretirement benefit obligation as of
December 31, 2010, domestic healthcare costs were assumed
to increase 9% in 2011, grading down over time to 5% in seven
years. Foreign healthcare costs were assumed to increase 6% in
2011, grading down over time to 5% in 14 years on a
weighted average basis.
Plan
Assets
With the exception of investments in hedge funds, plan assets
are valued at fair value using a market approach and observable
inputs, such as quoted market prices in active markets
(Level 1 input based on the GAAP fair value hierarchy).
Investments in hedge funds are valued at fair value based on net
asset per share or unit provided for each investment fund. Net
asset value per share or unit is considered an unobservable
input (Level 3 input based on the GAAP fair value
hierarchy). As of December 31, 2010 and 2009, the
Company’s plan assets include investments in hedge funds of
$63.6 million and $58.1 million, respectively. During
the year ended December 31, 2010, changes in the fair value
of these plan assets were due to unrealized gains of
$2.7 million, realized gains of $0.1 million, net
purchases, sales and settlements of $1.6 million and the
impact of translation and other of $1.1 million. During the
2009 Successor Period, changes in the fair value of these plan
assets were due to unrealized gains of $0.9 million,
realized losses of ($0.1) million, net purchases, sales and
settlements of ($2.0) million and the impact of translation
and other of $0.7 million. During the 2009 Predecessor
Period, changes in the fair value of these plan assets were due
to unrealized gains of $2.9 million, net purchases, sales
and settlements of ($3.9) million and the impact of
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
translation and other of $3.2 million. For further
information on the GAAP fair value hierarchy, see Note 15,
“Financial Instruments.”
The Company’s pension plan assets by asset category are
shown below (in millions). Pension plan assets for the foreign
plans relate to the Company’s pension plans in Canada and
the United Kingdom.
| Successor | ||||||||
|
December 31,
|
2010 | 2009 | ||||||
|
Equity securities:
|
||||||||
|
Domestic plans
|
$ | 196.2 | $ | 191.5 | ||||
|
Foreign plans
|
240.7 | 191.0 | ||||||
|
Debt securities:
|
||||||||
|
Domestic plans
|
101.7 | 78.2 | ||||||
|
Foreign plans
|
154.5 | 130.2 | ||||||
|
Investments in hedge funds:
|
||||||||
|
Domestic plans
|
30.3 | 28.1 | ||||||
|
Foreign plans
|
33.3 | 30.0 | ||||||
|
Cash and other:
|
||||||||
|
Domestic plans
|
6.9 | 3.5 | ||||||
|
Foreign plans
|
18.9 | 33.5 | ||||||
The Company’s investment policies incorporate an asset
allocation strategy that emphasizes the long-term growth of
capital. The Company believes that this strategy is consistent
with the long-term nature of plan liabilities and ultimate cash
needs of the plans. For the domestic portfolio, the Company
targets an equity allocation of 50% — 80% of plan
assets, a fixed income allocation of 15% — 45% and a
cash allocation of 0% — 10%. For the foreign
portfolio, the Company targets an equity allocation of
45% — 75% of plan assets, a fixed income allocation of
30% — 50% and a cash allocation of 0% — 10%.
Differences in the target allocations of the domestic and
foreign portfolios are reflective of differences in the
underlying plan liabilities. Diversification within the
investment portfolios is pursued by asset class and investment
management style. The investment portfolios are reviewed on a
quarterly basis to maintain the desired asset allocations, given
the market performance of the asset classes and investment
management styles.
The Company utilizes investment management firms to manage these
assets in accordance with the Company’s investment
policies. Excluding investments in hedge funds, retained
investment managers are provided investment guidelines that
indicate prohibited assets, which include commodities contracts,
futures contracts, options, venture capital, real estate and
interest-only or principal-only strips. Derivative instruments
are also prohibited without the specific approval of the
Company. Investment managers are limited in the maximum size of
individual security holdings and the maximum exposure to any one
industry relative to the total portfolio. Fixed income managers
are provided further investment guidelines that indicate minimum
credit ratings for debt securities and limitations on weighted
average maturity and portfolio duration.
The Company evaluates investment manager performance against
market indices which the Company believes are appropriate to the
investment management style for which the investment manager has
been retained. The Company’s investment policies
incorporate an investment goal of aggregate portfolio returns
which exceed the returns of the appropriate market indices by a
reasonable spread over the relevant investment horizon.
Contributions
Based on minimum funding requirements, the Company expects
required contributions to be approximately $5 to
$10 million to its domestic and foreign pension plans in
2011. The Company may elect to make contributions in excess of
the minimum funding requirements in response to investment
performance or changes in interest rates or
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
when the Company believes that it is financially advantageous to
do so and based on its other cash requirements. The
Company’s minimum funding requirements after 2011 will
depend on several factors, including investment performance and
interest rates. The Company’s minimum funding requirements
may also be affected by changes in applicable legal requirements.
Benefit
Payments
As of December 31, 2010, the Company’s estimate of
expected benefit payments, excluding expected settlements
relating to its restructuring actions, in each of the five
succeeding years and in the aggregate for the five years
thereafter are shown below (in millions):
| Pension | Other Postretirement | |||||||||||||||
|
Year
|
U.S. | Foreign | U.S. | Foreign | ||||||||||||
|
2011
|
$ | 20.6 | $ | 18.3 | $ | 8.2 | $ | 2.8 | ||||||||
|
2012
|
18.6 | 17.9 | 8.5 | 2.7 | ||||||||||||
|
2013
|
15.9 | 31.6 | 8.7 | 2.8 | ||||||||||||
|
2014
|
17.6 | 17.7 | 8.8 | 2.9 | ||||||||||||
|
2015
|
18.6 | 18.2 | 8.8 | 3.0 | ||||||||||||
|
Five years thereafter
|
110.0 | 102.1 | 43.8 | 17.9 | ||||||||||||
Defined
Contribution and Multi-Employer Pension Plans
The Company also sponsors defined contribution plans and
participates in government-sponsored programs in certain foreign
countries. Contributions are determined as a percentage of each
covered employee’s salary. The Company also participates in
multi-employer pension plans for certain of its hourly
employees. Contributions are based on collective bargaining
agreements. For the year ended December 31, 2010, the 2009
Successor Period, the 2009 Predecessor Period and the year ended
December 31, 2008, the aggregate cost of the defined
contribution and multi-employer pension plans was
$8.4 million, $0.6 million, $5.3 million and
$6.8 million, respectively.
The Company also has a defined contribution retirement program
for its salaried employees. Contributions to this program are
determined as a percentage of each covered employee’s
eligible compensation. For the year ended December 31,
2010, the 2009 Successor Period, the 2009 Predecessor Period and
the year ended December 31, 2008, the Company recorded
expense of $16.0 million, $1.8 million,
$10.3 million and $12.3 million, respectively, related
to this program.
Adoption
of New Accounting Pronouncement
On January 1, 2008, the Company adopted new GAAP
provisions, which were effective for fiscal periods beginning
after December 15, 2007, requiring the recognition of a
liability for endorsement split-dollar life insurance
arrangements that provide postretirement benefits. In accordance
with the specified transition provisions, the Company recorded a
cumulative effect of a change in accounting principle of
$4.9 million as an increase to beginning retained deficit
and an increase to other long-term liabilities as of
January 1, 2008.
New
Legislation
The Patient Protection and Affordable Care Act and the Health
Care Education and Affordability Reconciliation Act is described
in Note 9, “Income Taxes.” The Acts contain
provisions which impact the Company’s accounting for
retiree medical benefits. The impact of these provisions was not
significant and has been included in the determination of the
Company’s other postretirement benefit plan obligation as
of December 31, 2010. The Company will continue to assess
the provisions of the Acts and may consider plan amendments to
respond to the provisions of the Acts.
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (11) | Capital Stock |
Common
Stock
The Company is authorized to issue up to 300,000,000 shares
of Common Stock. The Company’s Common Stock is listed on
the New York Stock Exchange under the symbol “LEA” and
has the following rights and privileges:
| • | Voting Rights — All shares of the Company’s common stock have identical rights and privileges. With limited exceptions, holders of common stock are entitled to one vote for each outstanding share of common stock held of record by each stockholder on all matters properly submitted for the vote of the Company’s stockholders. | |
| • | Dividend Rights — Subject to applicable law, any contractual restrictions and the rights of the holders of outstanding Series A Preferred Stock, if any, holders of common stock are entitled to receive ratably such dividends and other distributions that the Company’s board of directors, in its discretion, declares from time to time. | |
| • | Liquidation Rights — Upon the dissolution, liquidation or winding up of the Company, subject to the rights of the holders of outstanding Series A Preferred Stock, if any, holders of common stock are entitled to receive ratably the assets of the Company available for distribution to the Company’s stockholders in proportion to the number of shares of common stock held by each stockholder. | |
| • | Conversion, Redemption and Preemptive Rights — Holders of common stock have no conversion, redemption, sinking fund, preemptive, subscription or similar rights. | |
| • | Registration Rights — On the Effective Date, the Company entered into a Registration Rights Agreement with certain holders of common stock, that, subject to certain limitations contained therein, grants to such holders rights (i) to demand that the Company register, under the Securities Act, common stock held by such holders and issued on the Effective Date or thereafter acquired by such holders and (ii) to participate in the Company’s registrations of common stock. The Registration Rights Agreement will terminate on the third anniversary of the Effective Date. |
Series A
Preferred Stock
The Company is authorized to issue up to 100,000,000 shares
of preferred stock, in one or more series, and to fix the
designations, terms and relative rights and preferences,
including the dividend rate, voting rights, conversion rights,
redemption and sinking fund provisions and liquidation
preferences of each of these series. On November 9, 2009,
in connection with the Plan, the Company issued
10,896,250 shares of Series A Preferred Stock, par
value $0.01 per share to certain holders. On November 10,
2010, each issued and outstanding share of Series A
Preferred Stock converted on a
one-for-one
basis into 1,470,788 shares of newly issued common stock.
Prior to this conversion, 8,410,515 and 1,014,947 shares of
Series A Preferred Stock were converted on a
one-for-one
basis into shares of newly issued common stock in 2010 and in
the 2009 Successor Period, respectively. As of December 31,
2010, the Company does not have any shares of Series A
Preferred Stock outstanding.
Warrants
On November 9, 2009, in connection with the Plan, the
Company issued 8,157,249 Warrants. As of December 31, 2010,
there were 942,333 Warrants outstanding. In accordance with
GAAP, the Company accounts for the Warrants as equity
instruments. The Company estimated the initial fair value of the
Warrants issued to be
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
$305.9 million using a Monte Carlo simulation pricing
model, assuming volatility of 60%. The following is a
description of the Warrants:
| • | Exercise — Each Warrant entitles its holder to purchase one share of common stock at an exercise price of $0.01 per share of common stock (the “Exercise Price”), subject to adjustment. The Warrants are exercisable at any time during the period (a) commencing on the business day immediately following a period of 30 consecutive trading days during which the closing price of the common stock for at least 20 of the trading days is equal to or greater than $39.63 (as adjusted from time to time) and (b) ending on November 9, 2014 (warrant expiration date). On December 21, 2009, all of the Warrants became exercisable at an exercise price of $0.01 per share of common stock. | |
| • | No Rights as Stockholders — Prior to the exercise of the Warrants, no holder of Warrants (solely in its capacity as a holder of Warrants) is entitled to any rights as a stockholder of the Company, including, without limitation, the right to vote, receive notice of any meeting of stockholders or receive dividends, allotments or other distributions. | |
| • | Adjustments — The number of shares of common stock for which a Warrant is exercisable, the Exercise Price and the Trigger Price (as defined in the warrant agreement) will be subject to adjustment from time to time upon the occurrence of certain events, including an increase in the number of outstanding shares of common stock by means of a dividend consisting of shares of common stock, a subdivision of the Company’s outstanding shares of common stock into a larger number of shares of common stock or a combination of the Company’s outstanding shares of common stock into a smaller number of shares of common stock. In addition, upon the occurrence of certain events constituting a reorganization, recapitalization, reclassification, consolidation, merger or similar event, each holder of a Warrant will have the right to receive, upon exercise of a Warrant (if then exercisable), an amount of securities, cash or other property receivable by a holder of the number of shares of common stock for which a Warrant is exercisable immediately prior to such event. |
| (12) | Stock-Based Compensation |
Successor
As contemplated by the Plan, the Company adopted the Lear
Corporation 2009 Long-Term Stock Incentive Plan as of
November 9, 2009 (as amended, the “2009 LTSIP”).
The 2009 LTSIP reserves 5,907,874 shares of common stock
for issuance under stock option, restricted stock, restricted
stock unit, restricted unit, performance share, performance unit
and stock appreciation right awards.
On February 12, 2010, the Company granted 103,368
restricted stock units under the 2009 LTSIP to certain of its
employees. The restricted units were valued at $70.30 based on
the share price on the grant date. On November 9, 2009, the
Company granted 1,343,988 restricted stock units under the 2009
LTSIP to certain of its employees. The restricted stock units
were valued at $38.99 based on the reorganization value of the
Successor Common Stock (see Note 3, “Fresh-Start
Accounting”). Certain of the restricted stock unit awards
vest in equal monthly installments over 36 months beginning
one month following the grant date, certain of the restricted
stock unit awards vest in equal annual installments over three
years beginning one year following the grant date and the
remainder of the restricted stock unit awards vest in three
years following the grant date. In the year ended
December 31, 2010 and the 2009 Successor Period, the
Company recognized compensation expense related to the
restricted stock unit awards of $21.8 million and
$8.0 million, respectively. Unrecognized compensation
expense related to the restricted stock unit awards of
$29.0 million will be recognized over the next
1.5 years on a weighted average basis. In the year ended
December 31, 2010 and the 2009 Successor Period, restricted
stock units of 448,348 and 57,219, respectively, vested and were
settled in shares of common stock. In accordance with the
provisions of the restricted stock unit awards, the Company
withholds shares from the settlement of such awards to cover
minimum statutory tax withholding requirements. The withheld
shares are classified as common stock held in treasury in the
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
accompanying consolidated balance sheet as of December 31,
2010. As of December 31, 2010, 927,464 restricted stock
units were outstanding.
Predecessor
The Company had issued stock options under the 1996 Stock Option
Plan and stock options, performance shares, restricted stock
units and stock appreciation rights under the Long-Term Stock
Incentive Plan. Upon emergence from Chapter 11 bankruptcy
proceedings, all previously issued common stock and common stock
equivalents were extinguished under the Plan.
A summary of stock option, performance share, restricted stock
unit and stock appreciation right transactions during the 2009
Predecessor Period and the year ended December 31, 2008, is
shown below:
|
Restricted
|
Stock
|
|||||||||||||||||||
|
Performance
|
Stock
|
Appreciation
|
||||||||||||||||||
| Stock Options | Shares (1) | Units (2) | Rights (3) | |||||||||||||||||
| (Price Range) | ||||||||||||||||||||
|
Outstanding as of January 1, 2008
|
1,871,230 | $ | 22.12 - $55.33 | 258,025 | 1,631,987 | 2,179,675 | ||||||||||||||
|
Granted
|
— | N/A | — | 286,030 | 510,550 | |||||||||||||||
|
Distributed or exercised
|
(1,850 | ) | $22.12 | (42,013 | ) | (714,498 | ) | (98,965 | ) | |||||||||||
|
Expired or cancelled
|
(601,200 | ) | $ | 22.12 - $54.22 | (47,316 | ) | (162,779 | ) | (158,515 | ) | ||||||||||
|
Outstanding as of December 31, 2008
|
1,268,180 | $ | 22.12 - $55.33 | 168,696 | 1,040,740 | 2,432,745 | ||||||||||||||
|
Distributed or exercised
|
— | N/A | (75,755 | ) | (103,933 | ) | — | |||||||||||||
|
Expired or cancelled
|
(1,268,180 | ) | $ | 22.12 - $55.33 | (92,941 | ) | (936,807 | ) | (2,432,745 | ) | ||||||||||
|
Outstanding as of November 7, 2009
|
— | N/A | — | — | — | |||||||||||||||
| (1) | Performance shares reflected as “outstanding” were notional shares granted at the beginning of a three-year performance period whose eventual payout was subject to satisfaction of performance criteria. Performance shares reflected as “distributed” were those performance shares that were paid out in shares of common stock upon satisfaction of the performance criteria at the end of the three-year performance period. | |
| (2) | In 2008, eligible plan participants were provided the opportunity to exchange up to 50% of certain of their existing restricted stock units, in 25% increments, for either notional cash account credits or cash-settled stock appreciation rights. With respect to the notional cash account credit alternative, each eligible restricted stock unit was exchanged for a notional cash account credit in the amount of the closing stock price on the date of exchange. With respect to the cash-settled stock appreciation right alternative, each eligible restricted stock unit was exchanged for cash-settled stock appreciation rights covering three to four shares of the Company’s common stock. The notional cash account credits and the cash-settled stock appreciation rights vest in accordance with the terms of the original restricted stock units, generally three years from the original grant date. In connection with these transactions, restricted stock units reflected as “expired or cancelled” in 2008 include 75,084 of exchanged units. | |
| (3) | Excludes cash-settled stock appreciation rights. |
All outstanding options were exercisable. All outstanding
performance shares and restricted stock units were nonvested.
Performance shares and restricted stock units were distributed
when vested.
Performance shares vested in three years following the grant
date. Restricted stock units vested in two to five years
following the grant date. Stock appreciation rights vested in
six months to three years following the grant date and expired
three and a half years to seven years following the grant date.
The fair value of stock-settled stock appreciation rights was
estimated as of the grant dates using the Black-Scholes option
pricing model with the following weighted average assumptions in
2008: expected dividend yields
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
of 0.00%; expected life of four years; risk-free interest rate
of 2.2%; and expected volatility of 60%. The weighted average
fair value of stock-settled stock appreciation rights granted in
2008 was $1.13 per right.
| (13) | Commitments and Contingencies |
Legal
and Other Contingencies
As of December 31, 2010 and 2009, the Company had recorded
reserves for pending legal disputes, including commercial
disputes and other matters, of $23.4 million and
$18.8 million, respectively. Such reserves reflect amounts
recognized in accordance with GAAP and typically exclude the
cost of legal representation. Product liability and warranty
reserves are recorded separately from legal reserves, as
described below.
Commercial
Disputes
The Company is involved from time to time in legal proceedings
and claims, including, without limitation, commercial or
contractual disputes with its customers, suppliers and
competitors. These disputes vary in nature and are usually
resolved by negotiations between the parties.
On January 26, 2004, the Company filed a patent
infringement lawsuit against Johnson Controls Inc. and Johnson
Controls Interiors LLC (together, the “JCI Parties”)
in the U.S. District Court for the Eastern District of
Michigan alleging that the JCI Parties’ garage door opener
products infringed certain of the Company’s radio frequency
transmitter patents (which complaint was dismissed and
subsequently re-filed by the Company in September 2004). The
Company is seeking a declaration that the JCI Parties infringe
its patents and an order enjoining the JCI Parties from further
infringing those patents by making, selling or offering to sell
their garage door opener products, as well as an award of
compensatory damages, attorney fees and costs. The JCI Parties
counterclaimed seeking a declaration that the subject patents
are invalid and unenforceable and that the JCI Parties are not
infringing these patents, as well as an award of attorney fees
and costs. The JCI Parties have also filed motions for summary
judgment asserting that their garage door opener products do not
infringe the Company’s patents and that one of the
Company’s patents is invalid and unenforceable. In November
2007, the court issued an opinion and order granting in part and
denying in part the JCI Parties’ motion for summary
judgment on one of the Company’s patents and denying the
JCI Parties’ motion to hold the patent unenforceable. The
court’s opinion did not address the other two patents
involved in this matter. On March 11, 2010, the court
issued an opinion and order granting the JCI Parties’
motion for summary judgment on two of the three
patents-in-suit,
U.S. Patent No. Re 36,181 and U.S. Patent
No. Re 36,752. This order leaves for trial by jury the
issue of whether the JCI Parties infringed the third
patent-in-suit,
U.S. Patent No. 5,731,756. Trial of this matter began
on January 25, 2011. On February 9, 2011, the matter
was sent to the jury for deliberations, but the jury has not yet
returned a verdict.
On June 13, 2005, The Chamberlain Group
(“Chamberlain”) filed a lawsuit against the Company
and Ford Motor Company (“Ford”) in the
U.S. District Court for the Northern District of Illinois
alleging patent infringement (from which Ford was subsequently
dismissed) (the “Chamberlain Matter”). Two counts were
asserted against the Company based upon two Chamberlain
rolling-code garage door opener system patents (Patent Nos.
6,154,544 and 6,810,123). The Company denies that it has
infringed these patents and further contends that these patents
are invalid
and/or
unenforceable. The Chamberlain lawsuit was filed in connection
with the marketing of the Company’s universal garage door
opener system, which competes with a product offered by Johnson
Controls Interiors LLC (“JCI”). JCI obtained
technology from Chamberlain to operate its product. In October
2005, Chamberlain filed an amended complaint and joined JCI as a
plaintiff. The Company filed an answer and counterclaim seeking
a declaration that the patents were not infringed and were
invalid, as well as an award of attorney fees and costs.
Chamberlain and JCI are seeking a declaration that the Company
infringes Chamberlain’s patents and an order enjoining the
Company from making, selling or offering to sell products which,
they allege, infringe Chamberlain’s patents, as well as an
award of compensatory and treble damages and attorney fees and
costs. On August 12, 2008, a new patent (Patent
No. 7,412,056) was issued to Chamberlain relating to the
same technology as the patents disputed in this lawsuit. On
August 19, 2008, Chamberlain and JCI filed a second
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
amended complaint against the Company alleging patent
infringement with respect to the new patent and seeking the same
types of relief. The Company filed an answer and counterclaim
seeking a declaration that its products are non-infringing and
that the new patent is invalid and unenforceable due to
inequitable conduct, as well as an award of attorney fees and
costs. On April 16, 2009, the court denied the
Company’s motions for summary judgment with respect to the
three patents and ordered the Company to produce additional
discovery related to infringement. On June 19, 2009, the
Company moved for a protective order from further discovery
requested by Chamberlain and JCI. On June 26, 2009, JCI
moved for summary judgment with respect to the ‘544 and
‘056 patents, and on July 9, 2009, the court denied
these motions without prejudice as a result of the
Company’s Chapter 11 bankruptcy proceedings.
Following the Company’s emergence from Chapter 11
bankruptcy proceedings, litigation in the Chamberlain Matter
resumed. The Company filed motions for summary judgment on
non-infringement and on certain validity issues, and Chamberlain
and JCI filed motions for summary judgment on infringement and
on certain validity issues. In November 2010, the court granted
in part and denied in part the Company’s motions for
summary judgment and granted in part and denied in part the
plaintiffs’ motions for summary judgment. In December 2010,
the court denied the Company’s motion for summary judgment
on the accrual of damages.
The Chamberlain Matter subsequently was reassigned to Judge
Richard Posner of the U.S. Court of Appeals for the Seventh
Circuit sitting by designation as a trial judge in the Northern
District of Illinois. Following this reassignment, the court
denied (i) the parties’ motions to exclude various
expert testimony, (ii) plaintiffs’ motion for
reconsideration of the prior decisions on summary judgment,
(iii) JCI’s objections to the prior order granting the
Company’s motion for sanctions and (iv) JCI’s
motion to compel. On February 4, 2011, Judge Posner
reconsidered and reversed the prior judge’s opinion
granting the Company partial summary judgment of
non-infringement on two independent claims of the patents. A
trial date has been set for April 2011.
Pursuant to the Company’s Plan of Reorganization and a
stipulation among the Company, Chamberlain and JCI filed with
the Bankruptcy Court in the Company’s Chapter 11
bankruptcy proceedings, the Company agreed to reserve common
stock and warrants issued under the Plan, sufficient to provide
recoveries for an allowed claim of up to $50 million for
pre-petition damages. This reserve is not a loss contingency
reserve determined in accordance with GAAP and does not reflect
a determination by the Company or the Bankruptcy Court that
Chamberlain or JCI is entitled to any recovery.
On September 12, 2008, a consultant to the Company filed an
arbitration action against the Company seeking royalties under
the parties’ Joint Development Agreement (“JDA”)
for the Company’s sales of its garage door opener products.
The Company denies that it owes the consultant any royalty
payments under the JDA. If the Company is deemed liable to the
consultant, the total amount of the compensable damages must be
allocated between the pre-petition period and the post-petition
period. No dates have been set in this matter, and the Company
intends to vigorously defend this matter.
On August 6, 2009, Lear Automotive France (“Lear
France”), a wholly owned subsidiary of the Company, was
served with a writ by Proma France before the Orléans
Commercial Court. Proma France is a
sub-contractor
of Lear France in connection with its manufacture of seating
parts. Proma France claims that Lear France must indemnify it
for damages allegedly arising from Lear France’s obtaining
advantageous pricing without providing Proma France with a
written guarantee of purchase volumes. Proma France is seeking
damages of €6.8 million ($9.1 million based on
exchange rates in effect as of December 31, 2010). Lear
France filed its brief in response on October 20, 2010,
arguing that the issue is covered by a settlement agreement
previously entered into by Lear France and Proma France on
March 6, 2007. In November 2010, there was a hearing on the
merits, and on January 27, 2011, the court dismissed Proma
France’s claim against Lear on jurisdictional grounds.
Proma France may appeal this decision or refile its claims in a
court with proper jurisdiction. The Company believes that the
action by Proma France is without merit and intends to
vigorously defend this matter.
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
Product
Liability and Warranty Matters
In the event that use of the Company’s products results in,
or is alleged to result in, bodily injury
and/or
property damage or other losses, the Company may be subject to
product liability lawsuits and other claims. Such lawsuits
generally seek compensatory damages, punitive damages and
attorney fees and costs. In addition, the Company is a party to
warranty-sharing and other agreements with certain of its
customers related to its products. These customers may pursue
claims against the Company for contribution of all or a portion
of the amounts sought in connection with product liability and
warranty claims. The Company can provide no assurance that it
will not experience material claims in the future or that it
will not incur significant costs to defend such claims. In
addition, if any of the Company’s products are, or are
alleged to be, defective, the Company may be required or
requested by its customers to participate in a recall or other
corrective action involving such products. Certain of the
Company’s customers have asserted claims against the
Company for costs related to recalls or other corrective actions
involving its products.
In certain instances, allegedly defective products may be
supplied by tier 2 suppliers. The Company may seek recovery
from its suppliers of materials or services included within the
Company’s products that are associated with product
liability and warranty claims. The Company carries insurance for
certain legal matters, including product liability claims, but
such coverage may be limited. The Company does not maintain
insurance for product warranty or recall matters. Future
dispositions with respect to the Company’s product
liability claims that were subject to compromise under the
Chapter 11 bankruptcy proceedings will be satisfied out of
a common stock and warrant reserve established for that purpose.
The Company records product warranty reserves based on its
individual customer agreements. Product warranty reserves are
recorded for known warranty issues when liability for such
issues is probable and related amounts are reasonably estimable.
A summary of the changes in reserves for product liability and
warranty claims for each of the periods in the two years ended
December 31, 2010, is shown below (in millions):
|
Balance as of January 1, 2009 — Predecessor
|
$ | 21.6 | ||
|
Expense, net, including changes in estimates
|
11.0 | |||
|
Settlements
|
(6.7 | ) | ||
|
Foreign currency translation and other
|
1.4 | |||
|
Balance as of November 7, 2009 — Predecessor
|
27.3 | |||
|
Expense, net, including changes in estimates
|
1.4 | |||
|
Settlements
|
(2.2 | ) | ||
|
Foreign currency translation and other
|
— | |||
|
Balance as of December 31, 2009 — Successor
|
26.5 | |||
|
Expense, net, including changes in estimates
|
32.1 | |||
|
Settlements
|
(11.9 | ) | ||
|
Foreign currency translation and other
|
(3.1 | ) | ||
|
Balance as of December 31, 2010 — Successor
|
$ | 43.6 | ||
Environmental
Matters
The Company is subject to local, state, federal and foreign
laws, regulations and ordinances which govern activities or
operations that may have adverse environmental effects and which
impose liability for
clean-up
costs resulting from past spills, disposals or other releases of
hazardous wastes and environmental compliance. The
Company’s policy is to comply with all applicable
environmental laws and to maintain an environmental
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
management program based on ISO 14001 to ensure compliance with
this standard. However, the Company currently is, has been and
in the future may become the subject of formal or informal
enforcement actions or procedures.
The Company has been named as a potentially responsible party at
several third-party landfill sites and is engaged in the cleanup
of hazardous waste at certain sites owned, leased or operated by
the Company, including several properties acquired in its 1999
acquisition of UT Automotive, Inc. (“UT Automotive”).
Certain present and former properties of UT Automotive are
subject to environmental liabilities which may be significant.
The Company obtained agreements and indemnities with respect to
certain environmental liabilities from United Technologies
Corporation (“UTC”) in connection with its acquisition
of UT Automotive. UTC manages and directly funds these
environmental liabilities pursuant to its agreements and
indemnities with the Company.
As of December 31, 2010 and December 31, 2009, the
Company had recorded reserves of $2.7 million for
environmental matters. While the Company does not believe that
the environmental liabilities associated with its current and
former properties will have a material adverse impact on its
business, financial position, results of operations or cash
flows, no assurance can be given in this regard.
Other
Matters
Although the Company records reserves for legal disputes,
product liability and warranty claims and environmental and
other matters in accordance with GAAP, the ultimate outcomes of
these matters are inherently uncertain. Actual results may
differ materially from current estimates.
The Company is involved from time to time in various other legal
proceedings and claims, including, without limitation,
commercial and contractual disputes, intellectual property
matters, personal injury claims, tax claims and employment
matters. Although the outcome of any legal matter cannot be
predicted with certainty, the Company does not believe that any
of these other legal proceedings or claims in which the Company
is currently involved, either individually or in the aggregate,
will have a material adverse impact on its business, financial
position, results of operations or cash flows.
Employees
Approximately 59% of the Company’s employees are members of
industrial trade unions and are employed under the terms of
collective bargaining agreements. Collective bargaining
agreements covering approximately 72% of the Company’s
unionized workforce of approximately 52,000 employees,
including 18% of the Company’s unionized workforce in the
United States and Canada, are scheduled to expire in 2011.
Management does not anticipate any significant difficulties with
respect to the agreements as they are renewed.
Lease
Commitments
A summary of lease commitments as of December 31, 2010,
under non-cancelable operating leases with terms exceeding one
year is shown below (in millions):
|
2011
|
$ | 68.8 | ||
|
2012
|
48.6 | |||
|
2013
|
39.0 | |||
|
2014
|
28.9 | |||
|
2015
|
21.0 | |||
|
2016 and thereafter
|
33.8 | |||
|
Total
|
$ | 240.1 | ||
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
The Company’s operating leases cover principally buildings
and transportation equipment. Rent expense was
$80.2 million, $12.7 million, $78.2 million and
$109.8 million for the year ended December 31, 2010,
the 2009 Successor Period, the 2009 Predecessor Period and the
year ended December 31, 2008, respectively.
(14) Segment
Reporting
The Company has two reportable operating segments: seating,
which includes seat systems and related components, such as seat
frames, recliner mechanisms, seat tracks, seat trim covers,
headrests and seat foam, and EPMS, which includes wiring,
connectors, junction boxes and various other components of
electrical distribution systems for traditional powertrain
vehicles, as well as a new generation of hybrid and electric
vehicles. The Other category includes unallocated costs related
to corporate headquarters, geographic headquarters and the
elimination of intercompany activities, none of which meets the
requirements of being classified as an operating segment.
Each of the Company’s operating segments reports its
results from operations and makes its requests for capital
expenditures directly to the chief operating decision-making
group. The economic performance of each operating segment is
driven primarily by automotive production volumes in the
geographic regions in which it operates, as well as by the
success of the vehicle platforms for which it supplies products.
Also, each operating segment operates in the competitive
tier 1 automotive supplier environment and is continually
working with its customers to manage costs and improve quality.
The Company’s production processes generally make use of
unskilled labor, dedicated facilities, sequential manufacturing
processes and commodity raw materials. The Other category
includes unallocated costs related to corporate headquarters,
geographic headquarters and the elimination of intercompany
activities, none of which meets the requirements of being
classified as an operating segment.
The accounting policies of the Company’s operating segments
are the same as those described in Note 4, “Summary of
Significant Accounting Policies.” The Company evaluates the
performance of its operating segments based primarily on
(i) revenues from external customers, (ii) pretax
income (loss) before goodwill impairment charges, interest
expense, other (income) expense, reorganization items and
fresh-start accounting adjustments and equity in net (income)
loss of affiliates (“segment earnings”) and
(iii) cash flows, being defined as segment earnings less
capital expenditures plus depreciation and amortization.
A summary of revenues from external customers and other
financial information by reportable operating segment is shown
below (in millions):
| Successor — Year Ended December 31, 2010 | ||||||||||||||||
| Seating | EPMS | Other | Consolidated | |||||||||||||
|
Revenues from external customers
|
$ | 9,395.3 | $ | 2559.3 | $ | — | $ | 11,954.6 | ||||||||
|
Segment
earnings
(1)
|
655.0 | 100.5 | (217.1 | ) | 538.4 | |||||||||||
|
Depreciation and amortization
|
145.7 | 83.9 | 6.3 | 235.9 | ||||||||||||
|
Capital expenditures
|
114.2 | 71.1 | 8.0 | 193.3 | ||||||||||||
|
Total assets
|
3,491.1 | 1,052.2 | 2,077.8 | 6,621.1 | ||||||||||||
| Successor — Two Month Period Ended December 31, 2009 | ||||||||||||||||
| Seating | EPMS | Other | Consolidated | |||||||||||||
|
Revenues from external customers
|
$ | 1,251.1 | $ | 329.8 | $ | — | $ | 1,580.9 | ||||||||
|
Segment
earnings
(1)
|
52.4 | (24.5 | ) | (30.8 | ) | (2.9 | ) | |||||||||
|
Depreciation and amortization
|
24.9 | 14.0 | 0.9 | 39.8 | ||||||||||||
|
Capital expenditures
|
19.0 | 16.9 | 5.4 | 41.3 | ||||||||||||
|
Total assets
|
3,182.9 | 966.5 | 1,923.9 | 6,073.3 | ||||||||||||
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| Predecessor — Ten Month Period Ended November 7, 2009 | ||||||||||||||||
| Seating | EPMS | Other | Consolidated | |||||||||||||
|
Revenues from external customers
|
$ | 6,561.8 | $ | 1,596.9 | $ | — | $ | 8,158.7 | ||||||||
|
Segment
earnings
(1)
|
184.9 | (131.3 | ) | (147.0 | ) | (93.4 | ) | |||||||||
|
Depreciation and amortization
|
131.6 | 80.2 | 12.1 | 223.9 | ||||||||||||
|
Capital expenditures
|
46.5 | 27.9 | 3.1 | 77.5 | ||||||||||||
| Predecessor — Year Ended December 31, 2008 | ||||||||||||||||
| Seating | EPMS | Other | Consolidated | |||||||||||||
|
Revenues from external customers
|
$ | 10,726.9 | $ | 2,843.6 | $ | — | $ | 13,570.5 | ||||||||
|
Segment
earnings
(1)
|
386.7 | 44.7 | (200.6 | ) | 230.8 | |||||||||||
|
Depreciation and amortization
|
176.2 | 108.7 | 14.4 | 299.3 | ||||||||||||
|
Capital expenditures
|
106.3 | 60.8 | 0.6 | 167.7 | ||||||||||||
|
Total assets
|
3,349.5 | 1,385.7 | 2,137.7 | 6,872.9 | ||||||||||||
| (1) | See definition above. |
For the year ended December 31, 2010, segment earnings
include restructuring charges of $44.2 million,
$17.4 million and $2.3 million in the seating and EPMS
segments and in the other category, respectively (Note 5,
“Restructuring”).
For the 2009 Successor Period, segment earnings include
restructuring charges of $17.5 million, $23.6 million
and $2.1 million in the seating and EPMS segments and in
the other category, respectively (Note 5,
“Restructuring”).
For the 2009 Predecessor Period, segment earnings include
restructuring charges of $47.5 million, $53.3 million
and $4.0 million in the seating and EPMS segments and in
the other category, respectively (Note 5,
“Restructuring”).
For the year ended December 31, 2008, segment earnings
include restructuring charges of $124.6 million,
$23.0 million and $23.5 million in the seating and
EPMS segments and in the other category, respectively
(Note 5, “Restructuring”).
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
A reconciliation of segment earnings to consolidated income
(loss) before provision (benefit) for income taxes and equity in
net (income) loss of affiliates is shown below (in millions):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Segment earnings
|
$ | 755.5 | $ | 27.9 | $ | 53.6 | $ | 431.4 | |||||||||
|
Corporate and geographic headquarters and elimination of
intercompany activity (“Other”)
|
(217.1 | ) | (30.8 | ) | (147.0 | ) | (200.6 | ) | |||||||||
|
Consolidated income (loss) before goodwill impairment charges,
interest, other (income) expense, reorganization items and
fresh-start accounting adjustments, provision (benefit) for
income taxes and equity in net (income) loss of affiliates
|
538.4 | (2.9 | ) | (93.4 | ) | 230.8 | |||||||||||
|
Goodwill impairment charges
|
— | — | 319.0 | 530.0 | |||||||||||||
|
Interest expense
|
55.4 | 11.1 | 151.4 | 190.3 | |||||||||||||
|
Other (income) expense, net
|
34.2 | 19.8 | (16.6 | ) | 51.9 | ||||||||||||
|
Reorganization items and fresh-start accounting adjustments, net
|
— | — | (1,474.8 | ) | — | ||||||||||||
|
Consolidated income (loss) before provision (benefit) for income
taxes and equity in net (income) loss of affiliates
|
$ | 448.8 | $ | (33.8 | ) | $ | 927.6 | $ | (541.4 | ) | |||||||
Revenues from external customers and tangible long-lived assets
for each of the geographic areas in which the Company operates
is shown below (in millions):
| Successor | Predecessor | ||||||||||||||||
|
Two Month
|
Ten Month
|
||||||||||||||||
|
Year Ended
|
Period Ended
|
Period Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
November 7,
|
December 31,
|
||||||||||||||
| 2010 | 2009 | 2009 | 2008 | ||||||||||||||
|
Revenues from external customers:
|
|||||||||||||||||
|
United States
|
$ | 2,137.1 | $ | 242.7 | $ | 1,352.5 | $ | 2,820.0 | |||||||||
|
Germany
|
2,110.5 | 283.9 | 1,653.6 | 2,516.0 | |||||||||||||
|
Mexico
|
1,435.0 | 192.4 | 838.1 | 1,337.4 | |||||||||||||
|
China
|
1,144.9 | 175.9 | 727.6 | 520.3 | |||||||||||||
|
Other countries
|
5,127.1 | 686.0 | 3,586.9 | 6,376.8 | |||||||||||||
|
Total
|
$ | 11,954.6 | $ | 1,580.9 | $ | 8,158.7 | $ | 13,570.5 | |||||||||
111
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| Successor | ||||||||
|
December 31,
|
2010 | 2009 | ||||||
|
Tangible long-lived assets:
|
||||||||
|
United States
|
$ | 165.8 | $ | 175.1 | ||||
|
Germany
|
134.9 | 165.3 | ||||||
|
Mexico
|
162.6 | 162.5 | ||||||
|
China
|
59.8 | 63.1 | ||||||
|
Other countries
|
471.6 | 484.9 | ||||||
|
Total
|
$ | 994.7 | $ | 1,050.9 | ||||
In 2010, General Motors and Ford, two of the largest automotive
and light truck manufacturers in the world, accounted for 21%
and 18%, respectively, of the Company’s net sales. In
addition, BMW accounted for approximately 11% of net sales. The
following is a summary of the percentage of revenues from major
customers:
|
For the Year Ended December 31,
|
2010 | 2009 | 2008 | |||||||||
|
General Motors
|
20.9 | % | 19.8 | % | 23.1 | % | ||||||
|
Ford
|
18.2 | 19.0 | 19.1 | |||||||||
|
BMW
|
10.9 | 12.3 | 11.5 | |||||||||
In addition, a portion of the Company’s remaining revenues
are from the above automotive manufacturing companies through
various other automotive suppliers.
(15) Financial
Instruments
The carrying values of the Company’s debt instruments vary
from their fair values. The fair values were determined by
reference to the quoted market prices of these securities. As of
December 31, 2010, the aggregate carrying value of the
Company’s Notes was $694.9 million, as compared to an
estimated aggregate fair value of $755.6 million. As of
December 31, 2009, the aggregate carrying value of term
loans outstanding under the first and second lien credit
agreements was $925.0 million, as compared to an estimated
aggregate fair value of $932.6 million. As of
December 31, 2009, the carrying values of the
Company’s other financial instruments approximated their
fair values, which were determined based on related instruments
currently available to the Company for similar borrowings with
like maturities.
In 2008, certain of the Company’s European subsidiaries
entered into extended factoring agreements, which provided for
aggregate purchases of specified customer accounts receivable of
up to €315 million. In January 2009,
Standard & Poor’s Ratings Services downgraded the
Company’s corporate credit rating to CCC+ from B-, and as a
result, in February 2009, the use of these facilities was
suspended. In July 2009, these facilities were terminated in
connection with the Company’s bankruptcy filing under
Chapter 11. The Company cannot provide any assurance that
any other factoring facilities will be available or utilized in
the future. As of December 31, 2010 and 2009, there were no
factored receivables.
Derivative
Instruments and Hedging Activities
The Company has used derivative financial instruments, including
forwards, futures, options, swaps and other derivative contracts
to reduce the effects of fluctuations in foreign exchange rates,
interest rates and commodity prices and the resulting
variability of the Company’s operating results. The Company
is not a party to leveraged derivatives. On the date that a
derivative contract is entered into, the Company designates the
derivative as either (1) a hedge of a recognized asset or
liability or of an unrecognized firm commitment (a fair value
hedge), (2) a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a
recognized asset or liability (a cash flow hedge) or (3) a
hedge of a net investment in a foreign operation (a net
investment hedge).
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
For a fair value hedge, both the effective and ineffective
portions of the change in the fair value of the derivative are
recorded in earnings and reflected in the consolidated statement
of operations on the same line as the gain or loss on the hedged
item attributable to the hedged risk. For a cash flow hedge, the
effective portion of the change in the fair value of the
derivative is recorded in accumulated other comprehensive loss
in the consolidated balance sheet. When the underlying hedged
transaction is realized, the gain or loss included in
accumulated other comprehensive loss is recorded in earnings and
reflected in the consolidated statement of operations on the
same line as the gain or loss on the hedged item attributable to
the hedged risk. For a net investment hedge, the effective
portion of the change in the fair value of the derivative is
recorded in cumulative translation adjustment, which is a
component of accumulated other comprehensive loss in the
consolidated balance sheet. In addition, for both cash flow and
net investment hedges, changes in the fair value of the
derivative that are excluded from the Company’s
effectiveness assessments and the ineffective portion of changes
in the fair value of the derivative are recorded in earnings and
reflected in the consolidated statement of operations as other
(income) expense, net.
The Company formally documents its hedge relationships,
including the identification of the hedging instruments and the
related hedged items, as well as its risk management objectives
and strategies for undertaking the hedge transaction.
Derivatives are recorded at fair value in other current and
long-term assets and other current and long-term liabilities in
the consolidated balance sheet. The Company also formally
assesses, both at inception and at least quarterly thereafter,
whether a derivative used in a hedging transaction is highly
effective in offsetting changes in either the fair value or the
cash flows of the hedged item. When it is determined that a
derivative ceases to be highly effective, the Company
discontinues hedge accounting.
In connection with events and circumstances related to the
Company’s bankruptcy filing in 2009, all of the
Company’s outstanding foreign exchange, interest rate and
commodity swap contracts were terminated, and the Company
de-designated such contracts, previously accounted for as cash
flow hedges, for hedge accounting purposes. As the related
forecasted transactions remained probable, amounts recorded in
accumulated other comprehensive loss were reclassified to
earnings as the forecasted transactions occurred. Liabilities
related to the de-designated contracts were resolved under the
Plan, and as a result of the adoption of fresh-start accounting,
all remaining amounts recorded in accumulated other
comprehensive loss were eliminated. For further information on
the liabilities resolved under the Plan and the adoption of
fresh-start accounting, see Note 2, “Reorganization
under Chapter 11,” and Note 3, “Fresh-Start
Accounting.”
Foreign exchange —
The Company uses
forwards, swaps and other derivative contracts to reduce the
effects of fluctuations in foreign exchange rates on known
foreign currency exposures. Gains and losses on the derivative
instruments are intended to offset gains and losses on the
hedged transaction in an effort to reduce the earnings
volatility resulting from fluctuations in foreign exchange
rates. The principal currencies hedged by the Company include
the Mexican peso, various European currencies, the Chinese
renminbi, the Canadian dollar and the Japanese yen. Forward
foreign exchange, futures and option contracts are accounted for
as cash flow hedges when the hedged item is a forecasted
transaction or relates to the variability of cash flows to be
received or paid. As of December 31, 2010, contracts
designated as cash flow hedges with $174.7 million of
notional amount were outstanding with maturities of less than
12 months. As of December 31, 2010, the fair value of
these contracts was approximately ($1.3) million. As of
December 31, 2010, other foreign currency derivative
contracts that did not qualify for hedge accounting with
$140.6 million of notional amount were outstanding. These
foreign currency derivative contracts consist principally of
cash transactions of up to 12 months, hedges of
intercompany loans and hedges of certain other balance sheet
exposures. As of December 31, 2010, the fair value of these
contracts was approximately $0.4 million. As of
December 31, 2009, there were no foreign exchange contracts
outstanding.
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
The fair value of outstanding foreign currency derivative
contracts and the related classification in the accompanying
consolidated balance sheet as of December 31, 2010, is
shown below (in millions):
|
Successor
|
||||
|
December 31,
|
||||
| 2010 | ||||
|
Contracts qualifying for hedge accounting:
|
||||
|
Other current assets
|
$ | 0.2 | ||
|
Other current liabilities
|
(1.5 | ) | ||
| (1.3 | ) | |||
|
Contracts not qualifying for hedge accounting:
|
||||
|
Other current assets
|
0.7 | |||
|
Other current liabilities
|
(0.3 | ) | ||
| 0.4 | ||||
| $ | (0.9 | ) | ||
Pretax amounts related to foreign currency derivative contracts
that were recognized in and reclassified from accumulated other
comprehensive loss are shown below (in millions):
| Successor | Predecessor | ||||||||||||
|
Ten Month
|
|||||||||||||
|
Year Ended
|
Period Ended
|
Year Ended
|
|||||||||||
|
December 31,
|
November 7,
|
December 31,
|
|||||||||||
| 2010 | 2009 | 2008 | |||||||||||
|
Contracts qualifying for hedge accounting:
|
|||||||||||||
|
Gains (losses) recognized in accumulated other comprehensive loss
|
$ | 9.5 | $ | (13.9 | ) | $ | (47.0 | ) | |||||
|
(Gains) losses reclassified from accumulated other comprehensive
loss
|
(10.8 | ) | 57.8 | (17.1 | ) | ||||||||
|
Comprehensive income (loss)
|
$ | (1.3 | ) | $ | 43.9 | $ | (64.1 | ) | |||||
Interest rate —
Historically, the Company
used interest rate swap and other derivative contracts to manage
its exposure to fluctuations in interest rates. Interest rate
swap and other derivative contracts which fix the interest
payments of certain variable rate debt instruments or fix the
market rate component of anticipated fixed rate debt instruments
were accounted for as cash flow hedges. Interest rate swap
contracts which hedge the change in fair value of certain fixed
rate debt instruments were accounted for as fair value hedges.
As of December 31, 2010 and 2009, there were no interest
rate contracts outstanding (as described above, all outstanding
interest rate contracts were terminated
and/or
de-designated in 2009). The Company will continue to evaluate,
and may use, derivative financial instruments, including
forwards, futures, options, swaps and other derivative contracts
to manage its exposures to fluctuations in interest rates in the
future.
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Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
Pretax amounts related to interest rate contracts that were
recognized in and reclassified from accumulated other
comprehensive loss are shown below (in millions):
| Predecessor | ||||||||
|
Ten Month
|
||||||||
|
Period Ended
|
Year Ended
|
|||||||
|
November 7,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
|
Contracts qualifying for hedge accounting:
|
||||||||
|
Losses recognized in accumulated other comprehensive loss
|
$ | (14.2 | ) | $ | (14.5 | ) | ||
|
Losses reclassified from accumulated other comprehensive loss
|
11.9 | 8.8 | ||||||
|
Comprehensive loss
|
$ | (2.3 | ) | $ | (5.7 | ) | ||
Commodity prices —
In certain periods, the
Company used derivative instruments to reduce its exposure to
fluctuations in certain commodity prices. These derivative
instruments were utilized to hedge forecasted inventory
purchases and to the extent that they qualified and met hedge
accounting criteria, they were accounted for as cash flow
hedges. Commodity swap contracts that were not designated as
cash flow hedges were marked to market with changes in fair
value recognized immediately in the consolidated statements of
operations (Note 4, “Summary of Significant Accounting
Policies”). As of December 31, 2010 and 2009, there
were no commodity swap contracts outstanding. The Company will
continue to evaluate, and may use, derivative financial
instruments, including forwards, futures, options, swaps and
other derivative contracts to manage its exposures to
fluctuations in commodity prices in the future.
Pretax amounts related to commodity swap contracts that were
recognized in and reclassified from accumulated other
comprehensive loss are shown below (in millions):
| Predecessor | ||||||||
|
Ten Month
|
||||||||
|
Period Ended
|
Year Ended
|
|||||||
|
November 7,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
|
Contracts qualifying for hedge accounting:
|
||||||||
|
Gains (losses) recognized in accumulated other comprehensive loss
|
$ | 1.8 | $ | (5.5 | ) | |||
|
Losses reclassified from accumulated other comprehensive loss
|
4.2 | — | ||||||
|
Comprehensive income (loss)
|
$ | 6.0 | $ | (5.5 | ) | |||
As of December 31, 2010, net losses of approximately
$1.3 million related to the Company’s derivative
instruments and hedging activities were recorded in accumulated
other comprehensive loss. During the year ended
December 31, 2010, the Company reclassified net gains of
approximately $10.8 million related to its hedging
activities from accumulated other comprehensive loss into
earnings. During the year ending December 31, 2011, the
Company expects to reclassify net losses of approximately
$1.3 million related to its hedging activities from
accumulated other comprehensive loss into earnings. Such losses
will be reclassified at the time that the underlying hedged
transactions are realized. During the year ended
December 31, 2010, the 2009 Predecessor Period and the year
ended December 31, 2008, amounts recognized in the
accompanying consolidated statements of operations related to
changes in the fair value of cash flow hedges that were excluded
from the Company’s effectiveness assessments and the
ineffective portion of changes in the fair value of cash flow
and fair value hedges were not material.
115
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Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
Fair
Value Measurements
GAAP provides that fair value is an exit price, defined as a
market-based measurement that represents the amount that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. Fair value
measurements are based on one or more of the following three
valuation techniques:
| Market: | This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. | |
| Income: | This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations. |
| Cost: | This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost). |
Further, GAAP prioritizes the inputs and assumptions used in the
valuation techniques described above into a three-tier fair
value hierarchy as follows:
| Level 1: | Observable inputs, such as quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. | |
| Level 2: | Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability. | |
| Level 3: | Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date. |
The Company discloses fair value measurements and the related
valuation techniques and fair value hierarchy level for its
assets and liabilities that are measured or disclosed at fair
value.
Items measured at fair value on a recurring
basis —
Fair value measurements and the
related valuation techniques and fair value hierarchy level for
the Company’s assets and liabilities measured or disclosed
at fair value on a recurring basis as of December 31, 2010,
are shown below (in millions):
| Successor — 2010 | ||||||||||||||||||||||||
|
Asset
|
Valuation
|
|||||||||||||||||||||||
| Frequency | (Liability) | Technique | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
|
Foreign currency derivative contracts
|
Recurring | $ | (0.9 | ) | Market/Income | $ | — | $ | (0.9 | ) | $ | — | ||||||||||||
The Company determines the fair value of its derivative
contracts using quoted market prices to calculate the forward
values and then discounts such forward values to the present
value. The discount rates used are based on quoted bank deposit
or swap interest rates. If a derivative contract is in a net
liability position, these discount rates are adjusted by an
estimate of the credit spread that would be applied by market
participants purchasing these contracts from the Company’s
counterparties. To estimate this credit spread, the Company uses
significant assumptions and factors other than quoted market
rates, which would result in the classification of its
derivative liabilities within Level 3 of the fair value
hierarchy. As of December 31, 2010, there were no
derivative contracts that were classified within Level 3 of
the fair value hierarchy. In addition, there were no transfers
in and out of Level 3 of the fair value hierarchy during
2010 as there were no derivative contracts outstanding as of
December 31, 2009.
For further information on fair value measurements and the
Company’s defined benefit pension plan assets, see
Note 10, “Pension and Other Postretirement Benefit
Plans.”
Items measured at fair value on a non-recurring
basis —
The Company measures certain assets
and liabilities, which are not included in the table above, at
fair value on a non-recurring basis. As these non-recurring fair
value
116
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
measurements are generally determined using unobservable inputs,
these fair value measurements are classified within Level 3
of the fair value hierarchy. For further information on assets
and liabilities measured at fair value on a non-recurring basis,
see Note 3, “Fresh-Start Accounting,”
Note 4, “Summary of Significant Accounting
Policies,” Note 5, “Restructuring,” and
Note 6, “Investments in Affiliates and Other Related
Party Transactions.”
(16) Quarterly
Financial Data (unaudited)
| Successor — Thirteen Weeks Ended | ||||||||||||||||
|
April 3,
|
July 3,
|
October 2,
|
December 31,
|
|||||||||||||
| 2010 | 2010 | 2010 | 2010 | |||||||||||||
| (In millions, except per share data) | ||||||||||||||||
|
Net sales
|
$ | 2,938.5 | $ | 3,039.3 | $ | 2,820.3 | $ | 3,156.5 | ||||||||
|
Gross profit
|
254.8 | 292.8 | 235.8 | 234.9 | ||||||||||||
|
Consolidated net income
|
73.8 | 165.3 | 98.5 | 123.8 | ||||||||||||
|
Net income attributable to Lear
|
66.1 | 159.8 | 95.3 | 117.1 | ||||||||||||
|
Basic net income per share attributable to Lear
|
1.35 | 3.16 | 1.83 | 2.23 | ||||||||||||
|
Diluted net income per share attributable to Lear
|
1.22 | 2.96 | 1.76 | 2.16 | ||||||||||||
| Predecessor | Successor | ||||||||||||||||||||
|
One Month
|
Two Month
|
||||||||||||||||||||
| Thirteen Weeks Ended |
Period Ended
|
Period Ended
|
|||||||||||||||||||
|
April 4,
|
July 4,
|
October 3,
|
November 7,
|
December 31,
|
|||||||||||||||||
| 2009 | 2009 | 2009 | 2009 | 2009 | |||||||||||||||||
|
Net sales
|
$ | 2,168.3 | $ | 2,281.0 | $ | 2,547.9 | $ | 1,161.5 | $ | 1,580.9 | |||||||||||
|
Gross profit (loss)
|
(74.7 | ) | 35.9 | 234.6 | 91.6 | 72.8 | |||||||||||||||
|
Goodwill impairment charges
|
— | — | — | 319.0 | — | ||||||||||||||||
|
Reorganizations items and fresh-start accounting adjustments, net
|
— | — | 38.6 | (1,513.4 | ) | — | |||||||||||||||
|
Consolidated net income (loss)
|
(262.8 | ) | (168.4 | ) | 30.3 | 1,235.3 | (7.7 | ) | |||||||||||||
|
Net income (loss) attributable to Lear
|
(264.8 | ) | (173.6 | ) | 24.6 | 1,232.0 | (3.8 | ) | |||||||||||||
|
Basic net income (loss) per share attributable to Lear
|
(3.42 | ) | (2.24 | ) | 0.32 | 15.89 | (0.11 | ) | |||||||||||||
|
Diluted net income (loss) per share attributable to Lear
|
(3.42 | ) | (2.24 | ) | 0.32 | 15.89 | (0.11 | ) | |||||||||||||
| (17) | Accounting Pronouncements |
Fair Value Measurements and Financial
Instruments —
The FASB amended ASC 860,
“Transfers and Servicing,” with Accounting Standards
Update (“ASU”)
2009-16,
“Accounting for Transfers of Financial Assets,” to,
among other things, eliminate the concept of qualifying special
purpose entities, provide additional sale accounting
requirements and require enhanced disclosures. The provisions of
this update are effective for annual reporting periods beginning
after November 15, 2009. The effects of adoption were not
significant as the Company’s previous asset-backed
securitization facility expired in 2008. The Company will assess
the impact of this update on any future securitizations.
The FASB amended ASC 820, “Fair Value Measurements and
Disclosures,” with ASU
2010-06,
“Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements,” to
require additional disclosures regarding fair value
measurements, including the amount and reasons for transfers
between
117
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
levels within the fair value hierarchy and more detailed
information regarding the inputs and valuation techniques used
in determining the fair value of assets and liabilities
classified as Level 2 or Level 3 within the fair value
hierarchy. In addition, this update clarifies previous guidance
related to the level at which fair value disclosures should be
disaggregated. With the exception of additional disclosures
related to activity within Level 3 of the fair value
hierarchy, which are effective for fiscal years beginning after
December 15, 2010, the provisions of this update are
effective as of January 1, 2010. The effects of adoption
were not significant. For further information, see Note 15,
“Financial Instruments.”
The FASB amended ASC 310, “Receivables,” with ASU
2010-20,
“Receivables (Topic 310): Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit
Losses,” to require additional information related to
financing receivables, including loans and trade accounts
receivable with contractual maturities exceeding one year. With
the exception of disclosures related to activity occurring
during a reporting period, which are effective for fiscal years
beginning after December 15, 2010, the provisions of this
update are effective as of December 31, 2010. The effects
of adoption were not significant.
Consolidation of Variable Interest Entities
—
The FASB amended ASC 810, “Consolidations,” with
ASU
2009-17,
“Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities.” This update
significantly changes the model for determining whether an
entity is the primary beneficiary and should thus consolidate a
variable interest entity. In addition, this update requires
additional disclosures and an ongoing assessment of whether a
variable interest entity should be consolidated. The provisions
of this update are effective for annual reporting periods
beginning after November 15, 2009. The Company has
ownership interests in consolidated and non-consolidated
variable interest entities. The effects of adoption were not
significant.
Revenue Recognition
— The FASB amended
ASC 605, “Revenue Recognition,” with ASU
2009-13,
“Revenue Recognition (Topic 605) —
Multiple-Deliverable Revenue Arrangements.” If a revenue
arrangement has multiple deliverables, this update requires the
allocation of revenue to the separate deliverables based on
relative selling prices. In addition, this update requires
additional ongoing disclosures about an entity’s
multiple-element revenue arrangements. The provisions of this
update are effective no later than January 1, 2011. The
Company does not expect the effects of adoption to be
significant.
118
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements |
| Successor — December 31, 2010 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Current Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 808.8 | $ | 0.4 | $ | 844.9 | $ | — | $ | 1,654.1 | ||||||||||
|
Accounts receivable
|
37.1 | 248.4 | 1,472.9 | — | 1,758.4 | |||||||||||||||
|
Inventories
|
7.5 | 204.7 | 342.0 | — | 554.2 | |||||||||||||||
|
Other
|
115.5 | 10.5 | 292.8 | — | 418.8 | |||||||||||||||
|
Total current assets
|
968.9 | 464.0 | 2,952.6 | — | 4,385.5 | |||||||||||||||
|
Long-Term Assets:
|
||||||||||||||||||||
|
Property, plant and equipment, net
|
96.2 | 154.1 | 744.4 | — | 994.7 | |||||||||||||||
|
Goodwill
|
23.5 | 303.9 | 287.2 | — | 614.6 | |||||||||||||||
|
Investments in subsidiaries
|
599.1 | 783.7 | — | (1,382.8 | ) | — | ||||||||||||||
|
Other
|
194.8 | 28.7 | 402.8 | — | 626.3 | |||||||||||||||
|
Total long-term assets
|
913.6 | 1,270.4 | 1,434.4 | (1,382.8 | ) | 2,235.6 | ||||||||||||||
| $ | 1,882.5 | $ | 1,734.4 | $ | 4,387.0 | $ | (1,382.8 | ) | $ | 6,621.1 | ||||||||||
|
Liabilities and Equity
|
||||||||||||||||||||
|
Current Liabilities:
|
||||||||||||||||||||
|
Short-term borrowings
|
$ | — | $ | — | $ | 4.1 | $ | — | $ | 4.1 | ||||||||||
|
Accounts payable and drafts
|
97.0 | 395.3 | 1,346.1 | — | 1,838.4 | |||||||||||||||
|
Accrued liabilities
|
128.3 | 161.7 | 686.0 | — | 976.0 | |||||||||||||||
|
Total current liabilities
|
225.3 | 557.0 | 2,036.2 | — | 2,818.5 | |||||||||||||||
|
Long-Term Liabilities:
|
||||||||||||||||||||
|
Long-term debt
|
694.9 | — | — | — | 694.9 | |||||||||||||||
|
Intercompany accounts, net
|
(1,645.6 | ) | 553.4 | 1,092.2 | — | — | ||||||||||||||
|
Other
|
147.7 | 102.1 | 289.1 | — | 538.9 | |||||||||||||||
|
Total long-term liabilities
|
(803.0 | ) | 655.5 | 1,381.3 | — | 1,233.8 | ||||||||||||||
|
Equity:
|
||||||||||||||||||||
|
Lear Corporation stockholders’ equity
|
2,460.2 | 521.9 | 860.9 | (1,382.8 | ) | 2,460.2 | ||||||||||||||
|
Noncontrolling interests
|
— | — | 108.6 | — | 108.6 | |||||||||||||||
|
Equity
|
2,460.2 | 521.9 | 969.5 | $ | (1,382.8 | ) | 2,568.8 | |||||||||||||
| $ | 1,882.5 | $ | 1,734.4 | $ | 4,387.0 | $ | (1,382.8 | ) | $ | 6,621.1 | ||||||||||
119
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Successor December 31, 2009 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Current Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 584.9 | $ | 0.1 | $ | 969.0 | $ | — | $ | 1,554.0 | ||||||||||
|
Accounts receivable
|
23.5 | 206.0 | 1,250.4 | — | 1,479.9 | |||||||||||||||
|
Inventories
|
4.0 | 166.0 | 277.4 | — | 447.4 | |||||||||||||||
|
Other
|
25.9 | 15.0 | 264.8 | — | 305.7 | |||||||||||||||
|
Total current assets
|
638.3 | 387.1 | 2,761.6 | — | 3,787.0 | |||||||||||||||
|
Long-Term Assets:
|
||||||||||||||||||||
|
Property, plant and equipment, net
|
97.0 | 160.1 | 793.8 | — | 1,050.9 | |||||||||||||||
|
Goodwill
|
23.5 | 303.9 | 294.0 | — | 621.4 | |||||||||||||||
|
Investments in subsidiaries
|
1,059.6 | 703.1 | — | (1,762.7 | ) | — | ||||||||||||||
|
Other
|
160.5 | 32.0 | 421.5 | — | 614.0 | |||||||||||||||
|
Total long-term assets
|
1,340.6 | 1,199.1 | 1,509.3 | (1,762.7 | ) | 2,286.3 | ||||||||||||||
| $ | 1,978.9 | $ | 1,586.2 | $ | 4,270.9 | $ | (1,762.7 | ) | $ | 6,073.3 | ||||||||||
|
Liabilities and Equity
|
||||||||||||||||||||
|
Current Liabilities:
|
||||||||||||||||||||
|
Short-term borrowings
|
$ | — | $ | — | $ | 37.1 | $ | — | $ | 37.1 | ||||||||||
|
Accounts payable and drafts
|
37.3 | 335.1 | 1,175.1 | — | 1,547.5 | |||||||||||||||
|
Accrued liabilities
|
97.6 | 100.4 | 610.1 | — | 808.1 | |||||||||||||||
|
Current portion of long-term debt
|
3.8 | — | 4.3 | — | 8.1 | |||||||||||||||
|
Total current liabilities
|
138.7 | 435.5 | 1,826.6 | — | 2,400.8 | |||||||||||||||
|
Long-Term Liabilities:
|
||||||||||||||||||||
|
Long-term debt
|
921.2 | — | 5.9 | — | 927.1 | |||||||||||||||
|
Intercompany accounts, net
|
(1,289.3 | ) | 65.3 | 1,224.0 | — | — | ||||||||||||||
|
Other
|
119.2 | 92.2 | 352.2 | — | 563.6 | |||||||||||||||
|
Total long-term liabilities
|
(248.9 | ) | 157.5 | 1,582.1 | — | 1,490.7 | ||||||||||||||
|
Equity:
|
||||||||||||||||||||
|
Lear Corporation stockholders’ equity
|
2,089.1 | 993.2 | 769.5 | (1,762.7 | ) | 2,089.1 | ||||||||||||||
|
Noncontrolling interests
|
— | — | 92.7 | — | 92.7 | |||||||||||||||
|
Equity
|
2,089.1 | 993.2 | 862.2 | (1,762.7 | ) | 2,181.8 | ||||||||||||||
| $ | 1,978.9 | $ | 1,586.2 | $ | 4,270.9 | $ | (1,762.7 | ) | $ | 6,073.3 | ||||||||||
120
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Successor — Year Ended December 31, 2010 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantor | Guarantor | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net sales
|
$ | 291.0 | $ | 4,373.0 | $ | 10,719.3 | $ | (3,428.7 | ) | $ | 11,954.6 | |||||||||
|
Cost of sales
|
382.0 | 3,946.8 | 10,036.2 | (3,428.7 | ) | 10,936.3 | ||||||||||||||
|
Selling, general and administrative expenses
|
159.6 | 77.3 | 215.8 | — | 452.7 | |||||||||||||||
|
Amortization of intangible assets
|
1.3 | 0.4 | 25.5 | — | 27.2 | |||||||||||||||
|
Intercompany charges
|
4.1 | (22.0 | ) | 17.9 | — | — | ||||||||||||||
|
Interest expense
|
10.1 | 14.8 | 30.5 | — | 55.4 | |||||||||||||||
|
Other intercompany (income) expense, net
|
(286.1 | ) | 150.1 | 136.0 | — | — | ||||||||||||||
|
Other (income) expense, net
|
22.1 | (9.1 | ) | 21.2 | — | 34.2 | ||||||||||||||
|
Consolidated income (loss) before provision for income taxes and
equity in net (income) loss of affiliates and subsidiaries
|
(2.1 | ) | 214.7 | 236.2 | — | 448.8 | ||||||||||||||
|
Provision for income taxes
|
13.3 | 1.1 | 10.2 | — | 24.6 | |||||||||||||||
|
Equity in net (income) loss of affiliates
|
(3.7 | ) | 0.2 | (33.7 | ) | — | (37.2 | ) | ||||||||||||
|
Equity in net income of subsidiaries
|
(450.0 | ) | (162.6 | ) | — | 612.6 | — | |||||||||||||
|
Consolidated net income
|
438.3 | 376.0 | 259.7 | (612.6 | ) | 461.4 | ||||||||||||||
|
Less: Net income attributable to noncontrolling interests
|
— | — | 23.1 | — | 23.1 | |||||||||||||||
|
Net income attributable to Lear
|
$ | 438.3 | $ | 376.0 | $ | 236.6 | $ | (612.6 | ) | $ | 438.3 | |||||||||
121
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Successor — Two Month Period Ended December 31, 2009 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantor | Guarantor | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net sales
|
$ | 32.7 | $ | 523.3 | $ | 1,457.1 | $ | (432.2 | ) | $ | 1,580.9 | |||||||||
|
Cost of sales
|
49.8 | 474.0 | 1,416.5 | (432.2 | ) | 1,508.1 | ||||||||||||||
|
Selling, general and administrative expenses
|
22.8 | 20.1 | 28.3 | — | 71.2 | |||||||||||||||
|
Amortization of intangible assets
|
0.2 | 0.1 | 4.2 | — | 4.5 | |||||||||||||||
|
Intercompany charges
|
1.4 | (8.9 | ) | 7.5 | — | — | ||||||||||||||
|
Interest expense
|
2.5 | 3.3 | 5.3 | — | 11.1 | |||||||||||||||
|
Other intercompany (income) expense, net
|
(7.2 | ) | 29.4 | (22.2 | ) | — | — | |||||||||||||
|
Other (income) expense, net
|
18.6 | 1.6 | (0.4 | ) | — | 19.8 | ||||||||||||||
|
Consolidated income (loss) before benefit for income taxes and
equity in net income of affiliates and subsidiaries
|
(55.4 | ) | 3.7 | 17.9 | — | (33.8 | ) | |||||||||||||
|
Benefit for income taxes
|
(0.6 | ) | (1.1 | ) | (22.5 | ) | — | (24.2 | ) | |||||||||||
|
Equity in net income of affiliates
|
(0.3 | ) | 0.3 | (1.9 | ) | — | (1.9 | ) | ||||||||||||
|
Equity in net income of subsidiaries
|
(50.7 | ) | (47.4 | ) | — | 98.1 | — | |||||||||||||
|
Consolidated net income (loss)
|
(3.8 | ) | 51.9 | 42.3 | (98.1 | ) | (7.7 | ) | ||||||||||||
|
Less: Net loss attributable to noncontrolling interests
|
— | — | (3.9 | ) | — | (3.9 | ) | |||||||||||||
|
Net income (loss) attributable to Lear
|
$ | (3.8 | ) | $ | 51.9 | $ | 46.2 | $ | (98.1 | ) | $ | (3.8 | ) | |||||||
122
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Predecessor — Ten Month Period Ended November 7, 2009 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantor | Guarantor | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net sales
|
$ | 191.9 | $ | 2,485.1 | $ | 7,569.2 | $ | (2,087.5 | ) | $ | 8,158.7 | |||||||||
|
Cost of sales
|
236.1 | 2,342.3 | 7,380.4 | (2,087.5 | ) | 7,871.3 | ||||||||||||||
|
Selling, general and administrative expenses
|
118.9 | 47.4 | 210.4 | — | 376.7 | |||||||||||||||
|
Amortization of intangible assets
|
0.2 | 0.2 | 3.7 | — | 4.1 | |||||||||||||||
|
Intercompany charges
|
4.5 | (11.1 | ) | 6.6 | — | — | ||||||||||||||
|
Goodwill impairment charges
|
— | — | 319.0 | — | 319.0 | |||||||||||||||
|
Interest expense
|
102.7 | 11.0 | 37.7 | — | 151.4 | |||||||||||||||
|
Other intercompany (income) expense, net
|
(68.0 | ) | 125.2 | (57.2 | ) | — | — | |||||||||||||
|
Other (income) expense, net
|
(65.7 | ) | 0.4 | 48.7 | — | (16.6 | ) | |||||||||||||
|
Reorganization items and fresh-start accounting adjustments, net
|
(1,274.1 | ) | 275.5 | (476.2 | ) | — | (1,474.8 | ) | ||||||||||||
|
Consolidated income (loss) before provision (benefit) for income
taxes and equity in net loss of affiliates and subsidiaries
|
1,137.3 | (305.8 | ) | 96.1 | — | 927.6 | ||||||||||||||
|
Provision (benefit) for income taxes
|
(24.2 | ) | (2.0 | ) | 55.4 | — | 29.2 | |||||||||||||
|
Equity in net loss of affiliates
|
54.5 | 1.8 | 7.7 | — | 64.0 | |||||||||||||||
|
Equity in net loss of subsidiaries
|
288.8 | 24.2 | — | (313.0 | ) | — | ||||||||||||||
|
Consolidated net income (loss)
|
818.2 | (329.8 | ) | 33.0 | 313.0 | 834.4 | ||||||||||||||
|
Less: Net income attributable to noncontrolling interests
|
— | — | 16.2 | — | 16.2 | |||||||||||||||
|
Net income (loss) attributable to Lear
|
$ | 818.2 | $ | (329.8 | ) | $ | 16.8 | $ | 313.0 | $ | 818.2 | |||||||||
123
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Predecessor — Year Ended December 31, 2008 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantor | Guarantor | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net sales
|
$ | 479.7 | $ | 4,194.3 | $ | 12,515.1 | $ | (3,618.6 | ) | $ | 13,570.5 | |||||||||
|
Cost of sales
|
558.2 | 3,877.5 | 12,005.8 | (3,618.6 | ) | 12,822.9 | ||||||||||||||
|
Selling, general and administrative expenses
|
154.9 | 75.2 | 281.4 | — | 511.5 | |||||||||||||||
|
Amortization of intangible assets
|
0.2 | 0.3 | 4.8 | — | 5.3 | |||||||||||||||
|
Intercompany charges
|
5.2 | (31.9 | ) | 26.7 | — | — | ||||||||||||||
|
Goodwill impairment charges
|
— | 4.0 | 526.0 | — | 530.0 | |||||||||||||||
|
Interest (income) expense
|
166.9 | (12.6 | ) | 36.0 | — | 190.3 | ||||||||||||||
|
Other intercompany (income) expense, net
|
(193.7 | ) | 218.7 | (25.0 | ) | — | — | |||||||||||||
|
Other (income) expense, net
|
(14.0 | ) | 0.7 | 65.2 | — | 51.9 | ||||||||||||||
|
Consolidated income (loss) before provision for income taxes and
equity in net (income) loss of affiliates and subsidiaries
|
(198.0 | ) | 62.4 | (405.8 | ) | — | (541.4 | ) | ||||||||||||
|
Provision for income taxes
|
11.4 | — | 74.4 | — | 85.8 | |||||||||||||||
|
Equity in net (income) loss of affiliates
|
51.9 | (4.1 | ) | (10.6 | ) | — | 37.2 | |||||||||||||
|
Equity in net (income) loss of subsidiaries
|
428.6 | (13.2 | ) | — | (415.4 | ) | — | |||||||||||||
|
Consolidated net income (loss)
|
(689.9 | ) | 79.7 | (469.6 | ) | 415.4 | (664.4 | ) | ||||||||||||
|
Less: Net income attributable to noncontrolling interests
|
— | — | 25.5 | — | 25.5 | |||||||||||||||
|
Net income (loss) attributable to Lear
|
$ | (689.9 | ) | $ | 79.7 | $ | (495.1 | ) | $ | 415.4 | $ | (689.9 | ) | |||||||
124
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Successor — Year Ended December 31, 2010 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantor | Guarantor | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net Cash Provided by (Used in) Operating Activities
|
$ | (7.1 | ) | $ | 316.6 | $ | 312.4 | $ | — | $ | 621.9 | |||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||||||||||
|
Additions to property, plant and equipment
|
(15.5 | ) | (42.3 | ) | (135.5 | ) | — | (193.3 | ) | |||||||||||
|
Cost of acquisitions, net of cash acquired
|
— | — | (12.3 | ) | — | (12.3 | ) | |||||||||||||
|
Net proceeds from disposition of businesses and other assets
|
1.3 | 2.1 | 15.2 | — | 18.6 | |||||||||||||||
|
Other, net
|
(5.1 | ) | — | — | — | (5.1 | ) | |||||||||||||
|
Net cash used in investing activities
|
(19.3 | ) | (40.2 | ) | (132.6 | ) | — | (192.1 | ) | |||||||||||
|
Cash Flows from Financing Activities:
|
||||||||||||||||||||
|
Proceeds from the issuance of successor senior notes
|
694.5 | — | — | — | 694.5 | |||||||||||||||
|
First lien credit agreement repayments
|
(375.0 | ) | — | — | — | (375.0 | ) | |||||||||||||
|
Second lien credit agreement repayments
|
(550.0 | ) | — | — | — | (550.0 | ) | |||||||||||||
|
Payment of debt issuance and other financing costs
|
(17.6 | ) | — | — | — | (17.6 | ) | |||||||||||||
|
Other long-term debt repayments, net
|
— | — | (9.3 | ) | — | (9.3 | ) | |||||||||||||
|
Short-term repayments, net
|
— | — | (34.0 | ) | — | (34.0 | ) | |||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | (16.2 | ) | — | (16.2 | ) | |||||||||||||
|
Change in intercompany accounts
|
511.5 | (276.2 | ) | (235.3 | ) | — | — | |||||||||||||
|
Other, net
|
(13.1 | ) | — | — | — | (13.1 | ) | |||||||||||||
|
Net cash provided by (used in) financing activities
|
250.3 | (276.2 | ) | (294.8 | ) | — | (320.7 | ) | ||||||||||||
|
Effect of foreign currency translation
|
— | — | (9.0 | ) | — | (9.0 | ) | |||||||||||||
|
Net Change in Cash and Cash Equivalents
|
223.9 | 0.2 | (124.0 | ) | — | 100.1 | ||||||||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
584.9 | 0.1 | 969.0 | — | 1,554.0 | |||||||||||||||
|
Cash and Cash Equivalents at End of Period
|
$ | 808.8 | $ | 0.3 | $ | 845.0 | $ | — | $ | 1,654.1 | ||||||||||
125
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Successor — Two Month Period Ended December 31, 2009 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantor | Guarantor | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net Cash Provided by (Used in) Operating Activities
|
$ | (35.1 | ) | $ | 140.5 | $ | 218.6 | $ | — | $ | 324.0 | |||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||||||||||
|
Additions to property, plant and equipment
|
(7.6 | ) | (7.9 | ) | (25.8 | ) | — | (41.3 | ) | |||||||||||
|
Net proceeds from disposition of businesses and other assets
|
2.4 | 0.1 | 1.5 | — | 4.0 | |||||||||||||||
|
Other, net
|
(2.2 | ) | — | — | — | (2.2 | ) | |||||||||||||
|
Net cash used in investing activities
|
(7.4 | ) | (7.8 | ) | (24.3 | ) | — | (39.5 | ) | |||||||||||
|
Cash Flows from Financing Activities:
|
||||||||||||||||||||
|
Other long-term debt repayments, net
|
— | — | (1.9 | ) | — | (1.9 | ) | |||||||||||||
|
Short-term borrowings, net
|
— | — | 6.6 | — | 6.6 | |||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | (7.0 | ) | — | (7.0 | ) | |||||||||||||
|
Change in intercompany accounts
|
303.2 | (132.6 | ) | (170.6 | ) | — | ||||||||||||||
|
Other, net
|
33.1 | (0.1 | ) | (0.5 | ) | — | 32.5 | |||||||||||||
|
Net cash provided by (used in) financing activities
|
336.3 | (132.7 | ) | (173.4 | ) | — | 30.2 | |||||||||||||
|
Effect of foreign currency translation
|
— | — | (15.1 | ) | — | (15.1 | ) | |||||||||||||
|
Net Change in Cash and Cash Equivalents
|
293.8 | — | 5.8 | — | 299.6 | |||||||||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
291.1 | 0.1 | 963.2 | — | 1,254.4 | |||||||||||||||
|
Cash and Cash Equivalents at End of Period
|
$ | 584.9 | $ | 0.1 | $ | 969.0 | $ | — | $ | 1,554.0 | ||||||||||
126
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Predecessor — Ten Month Period Ended November 7, 2009 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantor | Guarantor | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net Cash Used in Operating Activities
|
$ | (14.8 | ) | $ | (341.4 | ) | $ | (143.0 | ) | $ | — | $ | (499.2 | ) | ||||||
|
Cash Flows from Investing Activities:
|
||||||||||||||||||||
|
Additions to property, plant and equipment
|
(7.2 | ) | (10.9 | ) | (59.4 | ) | — | (77.5 | ) | |||||||||||
|
Cost of acquisitions, net of cash acquired
|
— | — | (4.4 | ) | — | (4.4 | ) | |||||||||||||
|
Net proceeds from disposition of businesses and other assets
|
1.5 | 7.7 | 20.5 | — | 29.7 | |||||||||||||||
|
Other, net
|
0.5 | (1.0 | ) | — | — | (0.5 | ) | |||||||||||||
|
Net cash used in investing activities
|
(5.2 | ) | (4.2 | ) | (43.3 | ) | — | (52.7 | ) | |||||||||||
|
Cash Flows from Financing Activities:
|
||||||||||||||||||||
|
Debtor-in-possession
term loan borrowings
|
500.0 | — | — | — | 500.0 | |||||||||||||||
|
Debtor-in-possession
term loan repayments
|
(500.0 | ) | — | — | — | (500.0 | ) | |||||||||||||
|
First lien credit agreement borrowings
|
375.0 | — | — | — | 375.0 | |||||||||||||||
|
Second lien credit agreement repayments
|
(50.0 | ) | — | — | — | (50.0 | ) | |||||||||||||
|
Payment of debt issuance and other financing costs
|
(70.6 | ) | — | — | — | (70.6 | ) | |||||||||||||
|
Other long-term debt repayments, net
|
— | — | (0.5 | ) | — | (0.5 | ) | |||||||||||||
|
Short-term repayments, net
|
— | — | (11.4 | ) | — | (11.4 | ) | |||||||||||||
|
Prepayment of Series A convertible preferred stock in
connection with emergence from Chapter 11
|
(50.0 | ) | — | — | — | (50.0 | ) | |||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | (16.8 | ) | — | (16.8 | ) | |||||||||||||
|
Change in intercompany accounts
|
(1,192.5 | ) | 345.5 | 847.0 | — | — | ||||||||||||||
|
Other, net
|
(11.4 | ) | (0.4 | ) | 1.1 | — | (10.7 | ) | ||||||||||||
|
Net cash provided by (used in) financing activities
|
(999.5 | ) | 345.1 | 819.4 | — | 165.0 | ||||||||||||||
|
Effect of foreign currency translation
|
— | — | 49.2 | — | 49.2 | |||||||||||||||
|
Net Change in Cash and Cash Equivalents
|
(1,019.5 | ) | (0.5 | ) | 682.3 | — | (337.7 | ) | ||||||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
1,310.6 | 0.6 | 280.9 | — | 1,592.1 | |||||||||||||||
|
Cash and Cash Equivalents at End of Period
|
$ | 291.1 | $ | 0.1 | $ | 963.2 | $ | — | $ | 1,254.4 | ||||||||||
127
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
| Predecessor — Year Ended December 31, 2008 | ||||||||||||||||||||
|
Non-
|
||||||||||||||||||||
| Lear | Guarantor | Guarantor | Eliminations | Consolidated | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net Cash Provided by (Used in) Operating Activities
|
$ | (219.2 | ) | $ | (49.0 | ) | $ | 431.8 | $ | — | $ | 163.6 | ||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||||||||||
|
Additions to property, plant and equipment
|
(5.9 | ) | (28.9 | ) | (132.9 | ) | — | (167.7 | ) | |||||||||||
|
Cost of acquisitions, net of cash acquired
|
— | (4.0 | ) | (23.9 | ) | — | (27.9 | ) | ||||||||||||
|
Net proceeds from disposition of businesses and other assets
|
3.7 | 40.2 | 8.0 | — | 51.9 | |||||||||||||||
|
Other, net
|
(10.2 | ) | (14.1 | ) | 23.6 | — | (0.7 | ) | ||||||||||||
|
Net cash used in investing activities
|
(12.4 | ) | (6.8 | ) | (125.2 | ) | — | (144.4 | ) | |||||||||||
|
Cash Flows from Financing Activities:
|
||||||||||||||||||||
|
Payment of debt issuance and other financing costs
|
(17.6 | ) | — | — | — | (17.6 | ) | |||||||||||||
|
Predecessor primary credit facility borrowings
|
1,186.0 | — | — | — | 1,186.0 | |||||||||||||||
|
Repayment/repurchase of predecessor senior notes
|
(133.5 | ) | — | — | — | (133.5 | ) | |||||||||||||
|
Other long-term debt repayments, net
|
(0.1 | ) | (2.6 | ) | (2.6 | ) | — | (5.3 | ) | |||||||||||
|
Short-term borrowings (repayments), net
|
— | (0.1 | ) | 12.7 | — | 12.6 | ||||||||||||||
|
Dividends paid to noncontrolling interests
|
— | — | (19.4 | ) | — | (19.4 | ) | |||||||||||||
|
Change in intercompany accounts
|
349.8 | 60.1 | (409.9 | ) | — | — | ||||||||||||||
|
Other, net
|
(32.3 | ) | (1.4 | ) | (1.8 | ) | — | (35.5 | ) | |||||||||||
|
Net cash provided by (used in) financing activities
|
1,352.3 | 56.0 | (421.0 | ) | — | 987.3 | ||||||||||||||
|
Effect of foreign currency translation
|
— | — | (15.7 | ) | — | (15.7 | ) | |||||||||||||
|
Net Change in Cash and Cash Equivalents
|
1,120.7 | 0.2 | (130.1 | ) | — | 990.8 | ||||||||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
189.9 | 0.4 | 411.0 | — | 601.3 | |||||||||||||||
|
Cash and Cash Equivalents at End of Period
|
$ | 1,310.6 | $ | 0.6 | $ | 280.9 | $ | — | $ | 1,592.1 | ||||||||||
128
Table of Contents
Lear
Corporation and Subsidiaries
Notes to
Consolidated Financial Statements (continued)
| (18) | Supplemental Guarantor Condensed Consolidating Financial Statements — (continued) |
Basis of Presentation
— Certain of Lear’s
domestic 100% owned subsidiaries (the “Guarantors”)
have jointly and severally unconditionally guaranteed, on a
senior unsecured basis, the performance and the full and
punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of the Company’s obligations
under the Revolving Credit Facility and the indenture governing
the Notes, including the Company’s obligations to pay
principal, premium, if any, and interest with respect to the
Notes. The Notes consist of $350 million in aggregate
principal amount at maturity of 7.875% senior unsecured
notes due 2018 and $350 million in aggregate principal
amount at maturity of 8.125% senior unsecured notes due
2020. The Guarantors include Lear #50 Holdings, LLC, Lear
Automotive Dearborn, Inc., Lear Automotive Manufacturing, LLC,
Lear Corporation EEDS and Interiors, Lear Corporation Global
Development, Inc., Lear European Operations Corporation, Lear
Mexican Holdings Corporation, Lear Mexican Holdings, L.L.C.,
Lear Mexican Seating Corporation, Lear Operations Corporation,
Lear South American Holdings Corporation and Lear Trim L.P. In
2010, Lear Corporation (Germany) Ltd. and Lear Seating Holdings
Corp. #50, which were Guarantors, were merged into Lear. In
addition, Lear Argentine Holdings Corporation #2, Lear EEDS
Holdings, LLC, Lear Holdings, LLC, Lear Investments Company,
L.L.C. and Renosol Seating, LLC, which were Guarantors, were
merged into other Guarantor entities. In lieu of providing
separate financial statements for the Guarantors, the Company
has included the supplemental guarantor condensed consolidating
financial statements above. These financial statements reflect
the Guarantors listed above for all periods presented.
Management does not believe that separate financial statements
of the Guarantors are material to investors. Therefore, separate
financial statements and other disclosures concerning the
Guarantors are not presented.
As of December 31, 2009, and for the 2009 Successor Period,
the 2009 Predecessor Period and the year ended December 31,
2008, the supplemental guarantor condensed consolidating
financial statements have been restated to reflect certain
changes to the equity investments of the Guarantors.
Distributions
— There are no significant
restrictions on the ability of the Guarantors to make
distributions to the Company.
Selling, General and Administrative Expenses
—
Corporate and division selling, general and administrative
expenses are allocated to the operating subsidiaries based on
various factors, which estimate usage of particular corporate
and division functions, and in certain instances, other relevant
factors, such as the revenues or the number of employees of the
Company’s subsidiaries. During the year ended
December 31, 2010, the 2009 Successor Period, the 2009
Predecessor Period and the year ended December 31, 2008,
$15.3 million, $3.2 million, ($9.6) million and
$13.0 million, respectively, of selling, general
administrative expenses were allocated (to) from Lear.
Long-Term Debt of Lear and the Guarantors
— A
summary of long-term debt of Lear and the Guarantors on a
combined basis is shown below (in millions):
|
December 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Senior notes
|
$ | 694.9 | $ | — | ||||
|
First lien credit agreement — term loan
|
— | 375.0 | ||||||
|
Second lien credit agreement — term loan
|
— | 550.0 | ||||||
| 694.9 | 925.0 | |||||||
|
Less — current portion
|
— | (3.8 | ) | |||||
| $ | 694.9 | $ | 921.2 | |||||
129
Table of Contents
LEAR
CORPORATION AND SUBSIDIARIES
SCHEDULE II —
VALUATION AND QUALIFYING ACCOUNTS
|
Balance
|
Balance
|
|||||||||||||||||||
|
as of Beginning
|
Other
|
as of End
|
||||||||||||||||||
| of Period | Additions | Retirements | Changes | of Period | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
SUCCESSOR — FOR THE YEAR ENDED DECEMBER 31, 2010
|
||||||||||||||||||||
|
Valuation of accounts deducted from related assets:
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | — | $ | 19.0 | $ | (4.2 | ) | $ | (0.3 | ) | $ | 14.5 | ||||||||
|
Reserve for unmerchantable inventory
|
— | 105.5 | (19.6 | ) | (2.4 | ) | 83.5 | |||||||||||||
|
Restructuring reserves
|
83.1 | 60.9 | (101.9 | ) | — | 42.1 | ||||||||||||||
|
Allowance for deferred tax assets
|
1,166.4 | 318.0 | (61.6 | ) | (15.5 | ) | 1,407.3 | |||||||||||||
| $ | 1,249.5 | $ | 503.4 | $ | (187.3 | ) | $ | (18.2 | ) | $ | 1,547.4 | |||||||||
|
SUCCESSOR — FOR THE TWO MONTH PERIOD ENDED
DECEMBER 31, 2009
|
||||||||||||||||||||
|
Valuation of accounts deducted from related assets:
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
|
Reserve for unmerchantable inventory
|
— | — | — | — | — | |||||||||||||||
|
Restructuring reserves
|
52.5 | 43.5 | (12.9 | ) | — | 83.1 | ||||||||||||||
|
Allowance for deferred tax assets
|
1,111.6 | 117.1 | (62.3 | ) | — | 1,166.4 | ||||||||||||||
| $ | 1,164.1 | $ | 160.6 | $ | (75.2 | ) | $ | — | $ | 1,249.5 | ||||||||||
|
PREDECESSOR — FOR THE TEN MONTH PERIOD ENDED
NOVEMBER 7, 2009
|
||||||||||||||||||||
|
Valuation of accounts deducted from related assets:
|
||||||||||||||||||||
|
Allowance for doubtful
accounts
(1)
|
$ | 16.0 | $ | 7.3 | $ | (4.7 | ) | $ | (18.6 | ) | $ | — | ||||||||
|
Reserve for unmerchantable
inventory
(2)
|
93.7 | 19.9 | (13.9 | ) | (99.7 | ) | — | |||||||||||||
|
Restructuring reserves
|
80.6 | 91.0 | (119.1 | ) | — | 52.5 | ||||||||||||||
|
Allowance for deferred tax assets
|
928.3 | 187.4 | (19.2 | ) | 15.1 | 1,111.6 | ||||||||||||||
| $ | 1,118.6 | $ | 305.6 | $ | (156.9 | ) | $ | (103.2 | ) | $ | 1,164.1 | |||||||||
|
PREDECESSOR — FOR THE YEAR ENDED DECEMBER 31, 2008
|
||||||||||||||||||||
|
Valuation of accounts deducted from related assets:
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 16.9 | $ | 6.8 | $ | (6.0 | ) | $ | (1.7 | ) | $ | 16.0 | ||||||||
|
Reserve for unmerchantable inventory
|
83.4 | 28.3 | (16.6 | ) | (1.4 | ) | 93.7 | |||||||||||||
|
Restructuring reserves
|
74.6 | 152.4 | (146.4 | ) | — | 80.6 | ||||||||||||||
|
Allowance for deferred tax assets
|
769.4 | 221.6 | (28.7 | ) | (34.0 | ) | 928.3 | |||||||||||||
| $ | 944.3 | $ | 409.1 | $ | (197.7 | ) | $ | (37.1 | ) | $ | 1,118.6 | |||||||||
| (1) | “Other Changes” includes fresh-start accounting adjustments of $18.5 million. | |
| (2) | “Other Changes” includes fresh-start accounting adjustments of $97.7 million. |
130
Table of Contents
| CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
(a) Disclosure
Controls and Procedures
The Company has evaluated, under the supervision and with the
participation of the Company’s management, including the
Company’s Chief Executive Officer and President along with
the Company’s Senior Vice President and Chief Financial
Officer, the effectiveness of the Company’s disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of the end of the period covered
by this Report. The Company’s disclosure controls and
procedures are designed to provide reasonable assurance of
achieving their objectives. Because of the inherent limitations
in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. Based on
the evaluation described above, the Company’s Chief
Executive Officer and President along with the Company’s
Senior Vice President and Chief Financial Officer have concluded
that the Company’s disclosure controls and procedures were
effective to provide reasonable assurance that the desired
control objectives were achieved as of the end of the period
covered by this Report.
(b) Management’s
Annual Report on Internal Control Over Financial
Reporting
The Company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rule 13a-15(f).
Under the supervision and with the participation of the
Company’s management, including the Company’s Chief
Executive Officer and President along with the Company’s
Senior Vice President and Chief Financial Officer, the Company
conducted an evaluation of the effectiveness of internal control
over financial reporting based on the framework in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
the evaluation under the framework in Internal
Control — Integrated Framework, management concluded
that the Company’s internal control over financial
reporting was effective as of December 31, 2010.
(c) Attestation
Report of the Registered Public Accounting Firm
The attestation report of the Company’s independent
registered public accounting firm regarding internal control
over financial reporting is set forth in Item 8,
“Consolidated Financial Statements and Supplementary
Data,” under the caption “Report of Independent
Registered Public Accounting Firm on Internal Control over
Financial Reporting” and incorporated herein by reference.
(d) Changes
in Internal Control over Financial Reporting
There was no change in the Company’s internal control over
financial reporting that occurred during the fiscal quarter
ended December 31, 2010, that has materially affected, or
is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
None.
131
Table of Contents
| ITEM 10 — | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by Item 10 regarding our directors
and corporate governance matters is incorporated by reference
herein to the Proxy Statement sections entitled “Election
of Directors” and “Directors and Corporate
Governance.” The information required by Item 10
regarding our executive officers appears as a supplementary item
following Item 4 under Part I of this Report. The
information required by Item 10 regarding compliance with
section 16(a) of the Securities Exchange Act of 1934, as
amended, is incorporated by reference herein to the Proxy
Statement section entitled “Directors and Corporate
Governance — Section 16(a) Beneficial Ownership
Reporting Compliance.”
Code of
Ethics
We have adopted a code of ethics that applies to our executive
officers, including our Principal Executive Officer, our
Principal Financial Officer and our Principal Accounting
Officer. This code of ethics is entitled “Specific
Provisions for Executive Officers” within our Code of
Business Conduct and Ethics, which can be found on our website
at
http://www.lear.com.
We will post any amendment to or waiver from the provisions of
the Code of Business Conduct and Ethics that applies to the
executive officers above on the same website and will provide it
to shareholders free of charge upon written request by
contacting Lear Corporation at 21557 Telegraph Road, Southfield,
Michigan 48033, Attention: Investor Relations.
| ITEM 11 — | EXECUTIVE COMPENSATION |
The information required by Item 11 is incorporated by
reference herein to the Proxy Statement sections entitled
“Directors and Corporate Governance — Director
Compensation,” “Compensation Discussion and
Analysis,” “Executive Compensation,”
“Compensation Committee Interlocks and Insider
Participation” and “Compensation Committee
Report.” Notwithstanding anything indicating the contrary
set forth in this Report, the “Compensation Committee
Report” section of the Proxy Statement shall be deemed to
be “furnished” not “filed” for purposes of
the Securities Exchange Act of 1934, as amended.
| ITEM 12 — | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Except as set forth herein, the information required by
Item 12 is incorporated by reference herein to the Proxy
Statement section entitled “Security Ownership of Certain
Beneficial Owners, Directors and Management.”
Equity
Compensation Plan Information
|
Number of Securities
|
||||||||||||
|
Available for Future
|
||||||||||||
|
Number of securities to be
|
Weighted Average
|
Issuance Under Equity
|
||||||||||
|
Issued Upon Exercise of
|
Exercise Price of
|
Compensation Plans
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
(Excluding Securities
|
||||||||||
|
Warrants and Rights
|
Warrants and Rights
|
Reflected in Column (a))
|
||||||||||
|
As of December 31, 2010
|
(a) | (b) | (c) | |||||||||
|
Equity compensation plans approved by security
holders
(1)
|
927,464 | (2) | $ | — | (3) | 4,474,843 | ||||||
|
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
927,464 | $ | — | 4,474,843 | ||||||||
| (1) | Includes the Lear Corporation 2009 Long-Term Stock Incentive Plan (LTSIP). As discussed above, the Bankruptcy Court approved the LTSIP, which became effective November 9, 2009. Plans approved by the Bankruptcy Court as part of our Plan of Reorganization are deemed to be approved by the stockholders of the Company under Delaware General Corporation Law. |
132
Table of Contents
| (2) | Includes 927,464 of outstanding restricted stock units. | |
| (3) | Reflects outstanding restricted stock units at a weighted average price of zero. |
| CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by Item 13 is incorporated by
reference herein to the Proxy Statement sections entitled
“Certain Relationships and Related-Party Transactions”
and “Directors and Corporate Governance —
Independence of Directors.”
The information required by Item 14 is incorporated by
reference herein to the Proxy Statement section entitled
“Fees of Independent Accountants.”
| EXHIBITS AND FINANCIAL STATEMENT SCHEDULE |
(a) The following documents are filed as part of this
Form 10-K.
1. Consolidated Financial Statements:
Reports of Ernst & Young LLP, Independent Registered
Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Operations for the year ended
December 31, 2010, the two month period ended
December 31, 2009, the ten month period ended
November 7, 2009, and the year ended December 31, 2008
Consolidated Statements of Cash Flows for the year ended
December 31, 2010, the two month period ended
December 31, 2009, the ten month period ended
November 7, 2009, and the year ended December 31, 2008
Consolidated Statements of Equity for the year ended
December 31, 2010, the two month period ended
December 31, 2009, the ten month period ended
November 7, 2009, and the year ended December 31, 2008
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts
All other financial statement schedules are omitted because such
schedules are not required or the information required has been
presented in the aforementioned financial statements.
| 3. | The exhibits listed on the “Index to Exhibits” on pages 135 through 137 are filed with this Form 10-K or incorporated by reference as set forth below. |
| (b) | The exhibits listed on the “Index to Exhibits” on pages 135 through 137 are filed with this Form 10-K or incorporated by reference as set forth below. |
| (c) | Additional Financial Statement Schedules |
None.
133
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on February 10, 2011.
LEAR CORPORATION
| By: |
/s/ Robert
E. Rossiter
|
Robert E. Rossiter
Chief Executive Officer and President
and a Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of Lear Corporation and in the
capacities indicated on February 10, 2011.
|
/s/ Robert
E. Rossiter
Chief Executive Officer and President and a Director (Principal Executive Officer) |
/s/ Conrad
L. Mallett, Jr.
a Director |
|
|
/s/ Matthew
J. Simoncini
Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
/s/ Donald
L. Runkle
a Director |
|
|
/s/ Thomas
P. Capo
a Director |
/s/ Gregory
C. Smith
a Director |
|
|
/s/ Curtis
J. Clawson
a Director |
/s/ Henry
D.G. Wallace
Non-Executive Chairman of the Board of Directors and a Director |
|
|
/s/ Jonathan
F. Foster
a Director |
134
Table of Contents
Index to
Exhibits
|
Exhibit
|
||||
|
Number
|
Exhibit
|
|||
| 3 | .1 | Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 9, 2009). | ||
| 3 | .2 | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated November 9, 2009). | ||
| 3 | .3 | Certificate of Designations of Series A Convertible Participating Preferred Stock of the Company, as filed with the Secretary of State of the State of Delaware on November 9, 2009 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K dated November 9, 2009). | ||
| 4 | .1 | Warrant Agreement by and between the Company and Mellon Investor Services LLC, as Warrant Agent, dated as of November 9, 2009 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 9, 2009). | ||
| 4 | .2 | Registration Rights Agreement made as of November 9, 2009, by and among the Company and each of the other parties thereto (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009). | ||
| 4 | .3 | Indenture, dated March 26, 2010, among the Company, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated March 23, 2010). | ||
| 4 | .4 | First Supplemental Indenture, dated March 26, 2010, among the Company, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated March 23, 2010). | ||
| 10 | .1 | Amended and Restated Credit Agreement, dated as of March 18, 2010, among the Company, the several Lenders from time to time parties thereto, Barclays Bank, PLC, as Documentation Agent, and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 19, 2010). | ||
| 10 | .2 | First Amendment to Amended and Restated Credit Agreement, dated as of March 18, 2010, among the Company, the several Lenders from time to time parties thereto, Barclays Bank PLC, as Documentation Agent, and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 19, 2010). | ||
| 10 | .3 | Second Lien Credit Agreement, dated as of November 9, 2009, among the Company, the several Lenders from time to time parties thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 9, 2009). | ||
| 10 | .4* | Terms of Lear Corporation Key Management Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2009). | ||
| 10 | .5* | Lear Corporation 2009 Long-Term Stock Incentive Plan (including the 2009 Restricted Stock Unit Terms and Conditions set forth in Annex A thereto) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 9, 2009). | ||
| 10 | .6* | Form of 2010 Restricted Stock Unit Terms and Conditions under the Lear Corporation 2009 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2010). | ||
| 10 | .7* | Form of Performance Unit Terms and Conditions under the Lear Corporation 2009 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2010). | ||
| 10 | .8* | Lear Corporation Annual Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated November 9, 2009). | ||
| 10 | .9* | Lear Corporation PSP Excess Plan (f/k/a Lear Corporation Executive Supplemental Savings Plan), as amended and restated (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 4, 2005). | ||
135
Table of Contents
|
Exhibit
|
||||
|
Number
|
Exhibit
|
|||
| 10 | .10* | First Amendment to the Lear Corporation PSP Excess Plan, dated as of November 10, 2005 (incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005). | ||
| 10 | .11* | Second Amendment to the Lear Corporation PSP Excess Plan, dated as of December 21, 2006 (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006). | ||
| 10 | .12* | Third Amendment to the Lear Corporation PSP Excess Plan, dated as of May 9, 2007 (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007). | ||
| 10 | .13* | Fourth Amendment to the Lear Corporation PSP Excess Plan, effective as of December 18, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 18, 2007). | ||
| 10 | .14* | Fifth Amendment to the Lear Corporation PSP Excess Plan, dated as of February 14, 2008 (incorporated by reference to Exhibit 10.68 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007). | ||
| 10 | .15* | Sixth Amendment to the Lear Corporation PSP Excess Plan, effective as of July 1, 2008 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008). | ||
| 10 | .16* | Seventh Amendment to the Lear Corporation PSP Excess Plan, dated as of November 5, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 5, 2008). | ||
| 10 | .17* | Lear Corporation Estate Preservation Plan (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004). | ||
| 10 | .18* | Lear Corporation Pension Equalization Program, as amended through August 15, 2003 (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004). | ||
| 10 | .19* | First Amendment to the Lear Corporation Pension Equalization Program, dated as of December 21, 2006 (incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006). | ||
| 10 | .20* | Second Amendment to the Lear Corporation Pension Equalization Program, dated as of May 9, 2007 (incorporated by reference to Exhibit 10.49 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007). | ||
| 10 | .21* | Third Amendment to the Lear Corporation Pension Equalization Program, effective as of December 18, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 18, 2007). | ||
| 10 | .22* | Lear Corporation Outside Directors Compensation Plan, amended and restated effective January 1, 2010 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2010). | ||
| 10 | .23* | Employment Agreement, dated June 30, 2009, between the Company and Robert E. Rossiter (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 6, 2009). | ||
| 10 | .24* | Employment Agreement, dated June 30, 2009, between the Company and Matthew J. Simoncini (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated July 6, 2009). | ||
| 10 | .25* | Employment Agreement, dated June 30, 2009, between the Company and Raymond E. Scott (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated July 6, 2009). | ||
| 10 | .26* | Employment Agreement, dated June 30, 2009, between the Company and Louis R. Salvatore (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated July 6, 2009). | ||
136
Table of Contents
|
Exhibit
|
||||
|
Number
|
Exhibit
|
|||
| 10 | .27* | Employment Agreement, dated June 30, 2009, between the Company and Terrence B. Larkin (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009). | ||
| 10 | .28* | 2009 Restricted Stock Unit Terms and Conditions for Robert E. Rossiter (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009). | ||
| 10 | .29* | Non-Executive Chairman Compensation (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2010). | ||
| **12 | .1 | Computation of ratios of earnings to fixed charges. | ||
| **21 | .1 | List of subsidiaries of the Company. | ||
| **23 | .1 | Consent of Ernst & Young LLP. | ||
| **31 | .1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. | ||
| **31 | .2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. | ||
| **32 | .1 | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| **32 | .2 | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 99 | .1 | Debtors’ First Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated September 18, 2009 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated November 5, 2009). | ||
| * | Compensatory plan or arrangement. | |
| ** | Filed herewith. |
137
TABLE OF CONTENTS
Part IItem 1 BusinessItem 1A Risk FactorsItem 1B Unresolved Staff CommentsItem 2 PropertiesItem 3 Legal ProceedingsPart IIItem 5 Market For The Company S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6 Selected Financial DataItem 7 Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 8 Consolidated Financial Statements and Supplementary DataItem 9 Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A Controls and ProceduresItem 9B Other InformationPart IIIItem 10 Directors, Executive Officers and Corporate GovernanceItem 11 Executive CompensationItem 12 Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13 Certain Relationships and Related Transactions, and Director IndependenceItem 14 Principal Accountant Fees and ServicesPart IVItem 15 Exhibits and Financial Statement Schedule