UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 

 

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

 

 

SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended June 28, 2008.

 

 

 

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

LEAR CORPORATION
(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

 

48033

(Address of principal executive offices)

 

(Zip code)

(248) 447-1500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.                                                                                                         Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer x

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 Exchange Act).
Yes o No x                                      

As of July 31, 2008, the number of shares outstanding of the registrant’s common stock was 77,320,260 shares.




LEAR CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED JUNE 28, 2008

INDEX

 

 

 

 

 

 

Page No.

 


Part I – Financial Information

 

 

Item 1 – Condensed Consolidated Financial Statements

 

 

Introduction to the Condensed Consolidated Financial Statements

 

3

 

Condensed Consolidated Balance Sheets -
June 28, 2008 (Unaudited) and December 31, 2007

 

4

 

Condensed Consolidated Statements of Income (Unaudited) -
Three and Six Months Ended June 28, 2008 and June 30, 2007

 

5

 

Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 28, 2008 and June 30, 2007

 

6

 

Notes to the Condensed Consolidated Financial Statements

 

7

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk (included in Item 2)

 

 

 

Item 4 – Controls and Procedures

 

46

 

Part II – Other Information

 

 

Item 1 – Legal Proceedings

 

46

 

Item 1A – Risk Factors

 

46

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 

46

 

Item 4 – Submission of Matters to a Vote of Security Holders

 

47

 

Item 6 – Exhibits

 

47

 

Signatures

 

48

 

2



LEAR CORPORATION

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We have prepared the condensed consolidated financial statements of Lear Corporation and subsidiaries, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K/A, as filed with the Securities and Exchange Commission, for the year ended December 31, 2007.

The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations and cash flows and statements of financial position for the interim periods presented. These results are not necessarily indicative of a full year’s results of operations.

3



LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28,
2008

 

December 31,
2007

 

 

 


 


 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

623.5

 

 

 

$

601.3

 

 

Accounts receivable

 

 

 

2,454.7

 

 

 

 

2,147.6

 

 

Inventories

 

 

 

691.0

 

 

 

 

605.5

 

 

Other

 

 

 

438.4

 

 

 

 

363.6

 

 

 

 

 



 

 

 



 

 

Total current assets

 

 

 

4,207.6

 

 

 

 

3,718.0

 

 

 

 

 



 

 

 



 

 

LONG-TERM ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 

1,393.9

 

 

 

 

1,392.7

 

 

Goodwill, net

 

 

 

2,084.3

 

 

 

 

2,054.0

 

 

Other

 

 

 

661.8

 

 

 

 

635.7

 

 

 

 

 



 

 

 



 

 

Total long-term assets

 

 

 

4,140.0

 

 

 

 

4,082.4

 

 

 

 

 



 

 

 



 

 

 

 

 

$

8,347.6

 

 

 

$

7,800.4

 

 

 

 

 



 

 

 



 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

$

30.1

 

 

 

$

13.9

 

 

Accounts payable and drafts

 

 

 

2,579.9

 

 

 

 

2,263.8

 

 

Accrued liabilities

 

 

 

1,316.4

 

 

 

 

1,230.1

 

 

Current portion of long-term debt

 

 

 

53.9

 

 

 

 

96.1

 

 

 

 

 



 

 

 



 

 

Total current liabilities

 

 

 

3,980.3

 

 

 

 

3,603.9

 

 

 

 

 



 

 

 



 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

2,302.2

 

 

 

 

2,344.6

 

 

Other

 

 

 

764.8

 

 

 

 

761.2

 

 

 

 

 



 

 

 



 

 

Total long-term liabilities

 

 

 

3,067.0

 

 

 

 

3,105.8

 

 

 

 

 



 

 

 



 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 150,000,000 shares authorized; 82,549,501 shares and 82,547,651 shares issued as of June 28, 2008 and December 31, 2007, respectively

 

 

 

0.8

 

 

 

 

0.8

 

 

Additional paid-in capital

 

 

 

1,378.8

 

 

 

 

1,373.3

 

 

Common stock held in treasury, 5,236,809 shares as of June 28, 2008, and 5,357,686 shares as of December 31, 2007, at cost

 

 

 

(188.5

)

 

 

 

(194.5

)

 

Retained deficit

 

 

 

(32.3

)

 

 

 

(116.5

)

 

Accumulated other comprehensive income

 

 

 

141.5

 

 

 

 

27.6

 

 

 

 

 



 

 

 



 

 

Total stockholders’ equity

 

 

 

1,300.3

 

 

 

 

1,090.7

 

 

 

 

 



 

 

 



 

 

 

 

 

$

8,347.6

 

 

 

$

7,800.4

 

 

 

 

 



 

 

 



 

 

The accompanying notes are an integral part of these condensed consolidated balance sheets.

4



LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in millions, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

 

Net sales

 

$

3,979.0

 

$

4,155.3

 

$

7,836.6

 

$

8,561.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

3,717.9

 

 

3,817.7

 

 

7,279.4

 

 

7,912.9

 

Selling, general and administrative expenses

 

 

155.6

 

 

142.8

 

 

288.8

 

 

269.3

 

Divestiture of Interior business

 

 

 

 

(0.7

)

 

 

 

24.9

 

Interest expense

 

 

45.6

 

 

51.3

 

 

93.0

 

 

102.8

 

Other expense, net

 

 

4.1

 

 

0.3

 

 

10.1

 

 

25.3

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

55.8

 

 

143.9

 

 

165.3

 

 

226.2

 

Provision for income taxes

 

 

37.5

 

 

20.3

 

 

68.8

 

 

52.7

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18.3

 

$

123.6

 

$

96.5

 

$

173.5

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.24

 

$

1.61

 

$

1.25

 

$

2.27

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

0.23

 

$

1.58

 

$

1.23

 

$

2.22

 

 

 



 



 



 



 

The accompanying notes are an integral part of these condensed consolidated statements.

5



LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 


 

 

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

96.5

 

$

173.5

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Divestiture of Interior business

 

 

 

 

24.9

 

Depreciation and amortization

 

 

151.9

 

 

150.2

 

Net change in recoverable customer engineering and tooling

 

 

(4.0

)

 

22.3

 

Net change in working capital items

 

 

(161.4

)

 

(113.2

)

Net change in sold accounts receivable

 

 

114.4

 

 

7.3

 

Other, net

 

 

(3.2

)

 

(17.5

)

 

 



 



 

Net cash provided by operating activities

 

 

194.2

 

 

247.5

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(95.5

)

 

(68.3

)

Divestiture of Interior business

 

 

 

 

(55.9

)

Other, net

 

 

10.1

 

 

(30.1

)

 

 



 



 

Net cash used in investing activities

 

 

(85.4

)

 

(154.3

)

 

 



 



 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Primary credit facility repayments, net

 

 

 

 

(3.0

)

Repayment of senior notes

 

 

(87.0

)

 

 

Other long-term debt repayments, net

 

 

(4.4

)

 

(7.6

)

Short-term debt repayments, net

 

 

(1.0

)

 

(13.0

)

Proceeds from exercise of stock options

 

 

 

 

6.7

 

Repurchase of common stock

 

 

(1.6

)

 

 

Decrease in drafts

 

 

(3.8

)

 

(10.5

)

 

 



 



 

Net cash used in financing activities

 

 

(97.8

)

 

(27.4

)

 

 



 



 

 

 

 

 

 

 

 

 

Effect of foreign currency translation

 

 

11.2

 

 

(3.3

)

 

 



 



 

 

 

 

 

 

 

 

 

Net Change in Cash and Cash Equivalents

 

 

22.2

 

 

62.5

 

Cash and Cash Equivalents as of Beginning of Period

 

 

601.3

 

 

502.7

 

 

 



 



 

Cash and Cash Equivalents as of End of Period

 

$

623.5

 

$

565.2

 

 

 



 



 

 

 

 

 

 

 

 

 

Changes in Working Capital Items:

 

 

 

 

 

 

 

Accounts receivable

 

$

(272.8

)

$

(577.2

)

Inventories

 

 

(63.8

)

 

10.7

 

Accounts payable

 

 

161.8

 

 

339.4

 

Accrued liabilities and other

 

 

13.4

 

 

113.9

 

 

 



 



 

Net change in working capital items

 

$

(161.4

)

$

(113.2

)

 

 



 



 

 

 

 

 

 

 

 

 

Supplementary Disclosure:

 

 

 

 

 

 

 

Cash paid for interest

 

$

86.3

 

$

105.2

 

 

 



 



 

Cash paid for income taxes

 

$

42.5

 

$

62.4

 

 

 



 



 

The accompanying notes are an integral part of these condensed consolidated statements.

6



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The condensed consolidated financial statements include the accounts of Lear Corporation (“Lear” or the “Parent”), a Delaware corporation and the wholly owned and less than wholly owned subsidiaries controlled by Lear (collectively, the “Company”). In addition, Lear consolidates variable interest entities in which it bears a majority of the risk of the entities’ potential losses or stands to gain from a majority of the entities’ expected returns. Investments in affiliates in which Lear does not have control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method.

The Company and its affiliates design and manufacture complete automotive seat systems, electrical distribution systems and select electronic products. Through the first quarter of 2007, the Company also supplied automotive interior systems and components, including instrument panels and cockpit systems, headliners and overhead systems, door panels and flooring and acoustic systems (Note 2, “Divestiture of Interior Business”). The Company’s main customers are automotive original equipment manufacturers. The Company operates facilities worldwide.

Certain amounts in the prior period’s financial statements have been reclassified to conform to the presentation used in the quarter ended June 28, 2008.

(2) Divestiture of Interior Business

On March 31, 2007, the Company completed the transfer of substantially all of the assets of the Company’s North American interior business (as well as its interests in two China joint ventures and $27.4 million of cash) to International Automotive Components Group North America, Inc. and International Automotive Components Group North America, LLC (together, “IAC North America”). In connection with this transaction, the Company recorded a loss on divestiture of interior business of $611.5 million, of which $4.6 million was recognized in 2007 ($20.7 million in the first six months of 2007) and $606.9 million was recognized in 2006. The Company also recognized additional costs related to the divestiture, including $7.5 million recorded as cost of sales and $2.5 million recorded as selling, general and administrative expenses in the accompanying condensed consolidated statement of income for the six months ended June 30, 2007.

The divestiture of the Company’s North American interior business substantially completed the disposition of the Company’s interior business. In 2006, the Company completed the contribution of substantially all of its European interior business to International Automotive Components Group, LLC (“IAC Europe”), in exchange for a one-third equity interest in IAC Europe. In connection with this transaction, the Company recorded a loss on divestiture of interior business of $35.2 million, of which $6.1 million was recognized in 2007 ($4.2 million in the first six months of 2007) and $29.1 million was recognized in 2006.

(3) Restructuring Activities

In 2005, the Company implemented a comprehensive restructuring strategy intended to (i) better align the Company’s manufacturing capacity with the changing needs of its customers, (ii) eliminate excess capacity and lower the operating costs of the Company and (iii) streamline the Company’s organizational structure and reposition its business for improved long-term profitability. In connection with these restructuring actions, the Company incurred pretax restructuring costs of $350.9 million through 2007.

In 2008, the Company expects to incur restructuring and related manufacturing inefficiency costs of approximately $140 million. In light of current industry conditions and recent customer announcements in North America, the Company expects restructuring and related investments in 2009 to be consistent with those in 2008. Restructuring and related manufacturing inefficiency costs include employee termination benefits, 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 expects to 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 the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States. Generally, charges are recorded as elements of the restructuring strategy are finalized.

In connection with the Company’s prior restructuring actions and current activities, the Company recorded restructuring charges of $71.9 million in the first six months of 2008, including $60.7 million recorded as cost of sales and $11.2 million recorded as selling, general and administrative expenses. The 2008 charges consist of employee termination benefits of $57.5 million, fixed asset impairment charges of $3.3 million, contract termination costs of $1.2 million and other related costs of $9.9 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 machinery and equipment with carrying values of $3.3 million in excess of related estimated fair values. Contract termination costs include lease cancellation costs of $1.0 million, pension benefit

7



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

curtailment charges of $0.9 million, a reduction in previously recorded repayments of various government-sponsored grants of ($1.6) million and various other costs of $0.9 million.

A summary of 2008 charges, excluding pension benefit curtailment charges of $0.1 million, related to prior restructuring actions is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

 

 

 

 

 

 

 


 

 

 

 

 

Accrual as of
December 31, 2007

 

2008
Charges

 

Cash

 

Non-cash

 

Accrual as of
June 28, 2008

 

 

 


 


 


 


 


 

 

Employee termination benefits

 

 

$

68.7

 

 

 

$

14.3

 

 

$

(48.0

)

 

$

 

 

 

$

35.0

 

 

Asset impairments

 

 

 

 

 

 

 

2.2

 

 

 

 

 

 

(2.2

)

 

 

 

 

 

Contract termination costs (credits)

 

 

 

5.9

 

 

 

 

(0.6

)

 

 

 

 

 

 

 

 

 

5.3

 

 

Other related costs

 

 

 

 

 

 

 

7.3

 

 

 

(7.3

)

 

 

 

 

 

 

 

 

 

 

 



 

 

 



 

 



 

 



 

 

 



 

 

Total

 

 

$

74.6

 

 

 

$

23.2

 

 

$

(55.3

)

 

$

(2.2

)

 

 

$

40.3

 

 

 

 

 



 

 

 



 

 



 

 



 

 

 



 

 

A summary of 2008 charges, excluding pension benefit curtailment charges of $0.8 million, related to 2008 activities is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilization

 

 

 

 

 

 

 


 

 

 

 

 

2008
Charges

 

Cash

 

Non-cash

 

Accrual as of
June 28, 2008

 

 

 


 


 


 


 

 

Employee termination benefits

 

 

$

43.2

 

 

$

(15.2

)

 

$

 

 

 

$

28.0

 

 

Asset impairments

 

 

 

1.1

 

 

 

 

 

 

(1.1

)

 

 

 

 

 

Contract termination costs

 

 

 

0.9

 

 

 

 

 

 

 

 

 

 

0.9

 

 

Other related costs

 

 

 

2.6

 

 

 

(2.6

)

 

 

 

 

 

 

 

 

 

 

 



 

 



 

 



 

 

 



 

 

Total

 

 

$

47.8

 

 

$

(17.8

)

 

$

(1.1

)

 

 

$

28.9

 

 

 

 

 



 

 



 

 



 

 

 



 

 

(4) 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. A summary of inventories is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28,
2008

 

December 31,
2007

 

 

 


 


 

 

Raw materials

 

 

$

523.6

 

 

 

$

463.9

 

 

Work-in-process

 

 

 

39.8

 

 

 

 

37.5

 

 

Finished goods

 

 

 

127.6

 

 

 

 

104.1

 

 

 

 

 



 

 

 



 

 

Inventories

 

 

$

691.0

 

 

 

$

605.5

 

 

 

 

 



 

 

 



 

 

(5) Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciable property is depreciated over the estimated useful lives of the assets, principally using the straight-line method. A summary of property, plant and equipment is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28,
2008

 

December 31,
2007

 

 

 


 


 

 

Land

 

 

$

150.3

 

 

 

$

138.8

 

 

Buildings and improvements

 

 

 

658.9

 

 

 

 

619.9

 

 

Machinery and equipment

 

 

 

2,207.6

 

 

 

 

2,055.2

 

 

Construction in progress

 

 

 

6.8

 

 

 

 

6.9

 

 

 

 

 



 

 

 



 

 

Total property, plant and equipment

 

 

 

3,023.6

 

 

 

 

2,820.8

 

 

Less – accumulated depreciation

 

 

 

(1,629.7

)

 

 

 

(1,428.1

)

 

 

 

 



 

 

 



 

 

Net property, plant and equipment

 

 

$

1,393.9

 

 

 

$

1,392.7

 

 

 

 

 



 

 

 



 

 

8



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Depreciation expense was $76.0 million and $74.5 million in the three months ended June 28, 2008 and June 30, 2007, respectively, and $149.1 million and $147.7 million in the six months ended June 28, 2008 and June 30, 2007, 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.

(6) Goodwill

A summary of the changes in the carrying amount of goodwill, by reportable operating segment, for the six months ended June 28, 2008, is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seating

 

Electrical and
Electronic

 

Total

 

 

 


 


 


 

Balance as of January 1, 2008

 

$

1,097.5

 

 

$

956.5

 

 

$

2,054.0

 

Foreign currency translation and other

 

 

25.2

 

 

 

5.1

 

 

 

30.3

 

 

 



 

 



 

 



 

Balance as of June 28, 2008

 

$

1,122.7

 

 

$

961.6

 

 

$

2,084.3

 

 

 



 

 



 

 



 

(7) Long-Term Debt

A summary of long-term debt and the related weighted average interest rates, including the effect of hedging activities described in Note 17, “Financial Instruments,” is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28, 2008

 

December 31, 2007

 

 

 


 


 

 

 

Long-Term
Debt

 

Weighted Average
Interest Rate

 

Long-Term Debt

 

Weighted Average
Interest Rate

 

 

 


 


 


 


 

Primary Credit Facility

 

 

$

991.0

 

 

 

 

6.79

%

 

 

$

991.0

 

 

7.61

%

 

8.50% Senior Notes, due 2013

 

 

 

300.0

 

 

 

 

8.50

%

 

 

 

300.0

 

 

8.50

%

 

8.75% Senior Notes, due 2016

 

 

 

600.0

 

 

 

 

8.75

%

 

 

 

600.0

 

 

8.75

%

 

5.75% Senior Notes, due 2014

 

 

 

399.5

 

 

 

 

5.64

%

 

 

 

399.4

 

 

5.64

%

 

8.125% Euro-denominated Senior Notes, due 2008

 

 

 

 

 

 

 

N/A

 

 

 

 

81.0

 

 

8.125

%

 

8.11% Senior Notes, due 2009

 

 

 

41.4

 

 

 

 

8.11

%

 

 

 

41.4

 

 

8.11

%

 

Zero-coupon Convertible Senior Notes, due 2022

 

 

 

0.8

 

 

 

 

4.75

%

 

 

 

0.8

 

 

4.75

%

 

Other

 

 

 

23.4

 

 

 

 

6.65

%

 

 

 

27.1

 

 

7.04

%

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

2,356.1

 

 

 

 

 

 

 

 

 

2,440.7

 

 

 

 

 

Current portion

 

 

 

(53.9

)

 

 

 

 

 

 

 

 

(96.1

)

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 

 

Long-term debt

 

 

$

2,302.2

 

 

 

 

 

 

 

 

$

2,344.6

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 

 

Primary Credit Facility

As of June 28, 2008, the Company’s primary credit facility consisted of an amended and restated credit and guarantee agreement, which provided for maximum revolving borrowing commitments of $1.7 billion and a term loan facility of $1.0 billion. As of June 28, 2008 and December 31, 2007, the Company had $991.0 million in borrowings outstanding under the term loan facility, with no additional availability. There were no amounts outstanding under the revolving credit facility.

On July 3, 2008, the Company amended its primary credit facility (“amended primary credit facility”) to, among other things, extend certain of the revolving credit commitments thereunder from March 23, 2010 to January 31, 2012. The extension was offered to each revolving lender, and lenders consenting to the amendment had their revolving credit commitments reduced by 33.33% on July 11, 2008. After giving effect to the amendment, the Company had outstanding approximately $1.3 billion of revolving credit commitments, $467.5 million of which mature on March 23, 2010 and $821.7 million of which mature on January 31, 2012. The amendment had no effect on the Company’s term loan facility issued under the prior primary credit facility, which continues to have a maturity date of April 25, 2012. The amended primary credit facility provides for multicurrency borrowings in a maximum aggregate amount of $400 million, Canadian borrowings in a maximum aggregate amount of $100 million and swing-line borrowings in a maximum aggregate amount of $200 million, the commitments for which are part of the aggregate amended revolving credit facility commitment.

The Company’s obligations under the amended primary credit facility are secured by a pledge of all or a portion of the capital stock of certain of its subsidiaries, including substantially all of its first-tier subsidiaries, and are partially secured by a security interest in the

9



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Company’s assets and the assets of certain of its domestic subsidiaries. In addition, the Company’s obligations under the amended primary credit facility are guaranteed, on a joint and several basis, by certain of its subsidiaries, all of which are directly or indirectly 100% owned by the Company.

The amended primary credit facility contains certain affirmative and negative covenants, including (i) limitations on fundamental changes involving the Company or its subsidiaries, asset sales and restricted payments, (ii) a limitation on indebtedness with a maturity shorter than the term loan facility, (iii) a limitation on aggregate subsidiary indebtedness to an amount which is no more than 5% of consolidated total assets, (iv) a limitation on aggregate secured indebtedness to an amount which is no more than $100 million and (v) requirements that the Company maintains a leverage ratio of not more than 3.50 to 1, as of June 28, 2008, with decreases over time and an interest coverage ratio of not less than 2.75 to 1, as of June 28, 2008, with increases over time. The amended primary credit facility also contains customary events of default, including an event of default triggered by a change of control of the Company.

The leverage and interest coverage ratios, as well as the related components of their computation, are defined in the amended primary credit facility. The leverage ratio is calculated as the ratio of consolidated indebtedness to consolidated operating profit. For the purpose of the covenant calculation, (i) consolidated indebtedness is generally defined as reported debt, net of cash and cash equivalents and excludes transactions related to the Company’s asset-backed securitization and factoring facilities and (ii) consolidated operating profit is generally defined as net income excluding income taxes, interest expense, depreciation and amortization expense, other income and expense, minority interests in income of subsidiaries in excess of net equity earnings in affiliates, certain historical restructuring and other non-recurring charges, extraordinary gains and losses and other specified non-cash items. Consolidated operating profit is a non-GAAP financial measure that is presented not as a measure of operating results, but rather as a measure used to determine covenant compliance under the Company’s amended primary credit facility. The interest coverage ratio is calculated as the ratio of consolidated operating profit to consolidated interest expense. For the purpose of the covenant calculation, consolidated interest expense is generally defined as interest expense plus any discounts or expenses related to the Company’s asset-backed securitization facility less amortization of deferred financing fees and interest income. As of June 28, 2008, the Company was in compliance with all covenants set forth in the amended primary credit facility and in its prior primary credit facility. The Company’s leverage and interest coverage ratios were 2.1 to 1 and 4.8 to 1, respectively.

Reconciliations of (i) consolidated indebtedness to reported debt, (ii) consolidated operating profit to income before provision for income taxes and (iii) consolidated interest expense to reported interest expense are shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28,
2008

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Consolidated indebtedness

 

 

$

1,762.7

 

 

 

 

 

 

 

Cash and cash equivalents (subject to $700 million limitation)

 

 

 

623.5

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Reported debt

 

 

$

2,386.2

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months
Ended
June 28, 2008

 

Six Months
Ended
June 28, 2008

 

 

 


 


 

 

 

 

 

 

 

Consolidated operating profit

 

 

$

189.1

 

 

 

$

434.4

 

 

Depreciation and amortization

 

 

 

(77.4

)

 

 

 

(151.9

)

 

Consolidated interest expense

 

 

 

(42.2

)

 

 

 

(86.4

)

 

Other expense, net (excluding certain amounts related to asset-backed securitization facility)

 

 

 

(4.0

)

 

 

 

(9.8

)

 

Other non-cash items

 

 

 

(9.7

)

 

 

 

(21.0

)

 

 

 

 



 

 

 



 

 

Income before provision for income taxes

 

 

$

55.8

 

 

 

$

165.3

 

 

 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated interest expense

 

 

$

42.2

 

 

 

$

86.4

 

 

Certain amounts related to asset-backed securitization facility

 

 

 

(0.1

)

 

 

 

(0.3

)

 

Amortization of deferred financing fees

 

 

 

2.1

 

 

 

 

4.3

 

 

Bank facility and other fees

 

 

 

1.4

 

 

 

 

2.6

 

 

 

 

 



 

 

 



 

 

Reported interest expense

 

 

$

45.6

 

 

 

$

93.0

 

 

 

 

 



 

 

 



 

 

10



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Senior Notes

All of the Company’s senior notes are guaranteed by the same subsidiaries that guarantee the amended primary credit facility. In the event that any such subsidiary ceases to be a guarantor under the amended primary credit facility, such subsidiary will be released as a guarantor of the senior notes. The Company’s obligations under the senior notes are not secured by the pledge of the assets or capital stock of any of its subsidiaries.

With the exception of the Company’s zero-coupon convertible senior notes, the Company’s senior notes contain covenants restricting the ability of the Company and its subsidiaries to incur liens and to enter into sale and leaseback transactions. As of June 28, 2008, the Company was in compliance with all covenants and other requirements set forth in its senior notes.

The senior notes due 2013 and 2016 (having an aggregate principal amount outstanding of $900 million as of June 28, 2008) provide holders of the notes the right to require the Company to repurchase all or any part of their notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, upon a “change of control” (as defined in the indenture governing the notes). The indentures governing the Company’s other senior notes do not contain a change of control repurchase obligation.

The Company repaid €55.6 million aggregate principal amount of senior notes on April 1, 2008, the maturity date.

In connection with the amendment of the Company’s primary credit facility discussed above, the Company issued an irrevocable call notice to redeem its outstanding senior notes due 2009 (the “2009 notes”) (having an aggregate principal amount outstanding of $41.4 million as of June 28, 2008) on August 4, 2008. The 2009 notes must be redeemed at the greater of (a) 100% of the principal amount to be redeemed or (b) the sum of the present value of the remaining scheduled payments of principal and interest thereon from the redemption date to the maturity date, discounted to the redemption date on a semiannual basis at the applicable treasury rate plus 50 basis points, together with any interest accrued but not yet paid to the redemption date. The Company estimates a loss on the extinguishment of the 2009 notes of approximately $2 million, which will be recognized in other expense, net in the third quarter of 2008.

(8) Pension and Other Postretirement Benefit Plans

Net Periodic Benefit Cost

The components of the Company’s net periodic benefit (gain) cost are shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension

 

Other Postretirement

 

 

 


 


 

 

 

Three Months Ended

 

Three Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

 

$

4.3

 

 

 

$

5.7

 

 

 

$

2.1

 

 

 

$

2.6

 

 

Interest cost

 

 

 

12.3

 

 

 

 

7.4

 

 

 

 

3.9

 

 

 

 

3.7

 

 

Expected return on plan assets

 

 

 

(13.9

)

 

 

 

(7.5

)

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

 

0.1

 

 

 

 

0.7

 

 

 

 

0.9

 

 

 

 

1.2

 

 

Amortization of transition (asset) obligation

 

 

 

(0.1

)

 

 

 

(0.1

)

 

 

 

0.2

 

 

 

 

0.3

 

 

Amortization of prior service (credit) cost

 

 

 

1.8

 

 

 

 

1.1

 

 

 

 

(0.9

)

 

 

 

(0.9

)

 

Special termination benefits

 

 

 

2.5

 

 

 

 

0.9

 

 

 

 

 

 

 

 

0.1

 

 

Settlement loss

 

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Curtailment loss, net

 

 

 

1.0

 

 

 

 

0.8

 

 

 

 

 

 

 

 

0.2

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

Net periodic benefit cost

 

 

$

8.4

 

 

 

$

9.0

 

 

 

$

6.2

 

 

 

$

7.2

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

11



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension

 

Other Postretirement

 

 

 


 


 

 

 

Six Months Ended

 

Six Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

Service cost

 

 

$

8.7

 

 

 

$

13.8

 

 

 

$

4.0

 

 

 

$

5.5

 

 

Interest cost

 

 

 

24.5

 

 

 

 

17.8

 

 

 

 

7.7

 

 

 

 

7.4

 

 

Expected return on plan assets

 

 

 

(27.8

)

 

 

 

(17.7

)

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

 

0.2

 

 

 

 

1.5

 

 

 

 

1.8

 

 

 

 

2.3

 

 

Amortization of transition (asset) obligation

 

 

 

(0.1

)

 

 

 

(0.1

)

 

 

 

0.4

 

 

 

 

0.5

 

 

Amortization of prior service (credit) cost

 

 

 

3.5

 

 

 

 

2.2

 

 

 

 

(1.8

)

 

 

 

(1.8

)

 

Special termination benefits

 

 

 

2.8

 

 

 

 

4.8

 

 

 

 

0.2

 

 

 

 

0.9

 

 

Settlement loss

 

 

 

1.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Curtailment (gain) loss, net

 

 

 

1.0

 

 

 

 

(32.7

)

 

 

 

 

 

 

 

(13.2

)

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

Net periodic benefit (gain) cost

 

 

$

13.8

 

 

 

$

(10.4

)

 

 

$

12.3

 

 

 

$

1.6

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

In the first quarter of 2007, the Company recorded a pension plan curtailment gain of $36.4 million and an other postretirement benefit plan curtailment gain of $14.7 million. The pension plan curtailment gain resulted from the suspension of the accrual of defined benefits related to the Company’s U.S. salaried defined benefit pension plan as the Company elected to freeze its U.S. salaried defined benefit plan effective December 31, 2006. The other postretirement benefit plan curtailment gain resulted from employee terminations associated with a facility closure in 2006. As both curtailment gains were incurred subsequent to the Company’s defined benefit plan measurement date of September 30, 2006, they were recorded in 2007.

Contributions

Employer contributions to the Company’s domestic and foreign pension plans for the six months ended June 28, 2008, were approximately $14.1 million, in aggregate. The Company expects to contribute an additional $20 million, in aggregate, to its domestic and foreign pension plans in 2008.

Effective January 1, 2007, the Company established a new defined contribution retirement program for its salaried employees in conjunction with the freeze of its U.S. salaried defined benefit pension plan. Contributions to this program are determined as a percentage of each covered employee’s eligible compensation and are expected to be approximately $20 million in 2008.

Adoption of Accounting Pronouncements

Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R),” requires the measurement of defined benefit plan assets and liabilities as of the annual balance sheet date beginning in the fiscal period ending after December 15, 2008. In previous years, the Company measured its plan assets and liabilities using an early measurement date of September 30, as allowed by the original provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” In the first quarter of 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 $7.0 million as an increase to beginning retained deficit, $1.0 million as an increase to accumulated other comprehensive income and $6.0 million as an increase to the net pension and other postretirement liability related accounts in the accompanying condensed consolidated balance sheet as of June 28, 2008.

The Emerging Issues Task Force (“EITF”) issued EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” EITF 06-4 requires the recognition of a liability, in accordance with SFAS No. 106, for endorsement split-dollar life insurance arrangements that provide postretirement benefits. This EITF is effective for the fiscal period beginning after December 15, 2007. In accordance with the EITF’s transition provisions, the Company recorded $5.3 million as a cumulative effect of a change in accounting principle as of January 1, 2008. The cumulative effect adjustment was recorded as an increase to beginning retained deficit and an increase to other long-term liabilities in the accompanying condensed consolidated balance sheet as of June 28, 2008. In addition, the Company expects to record additional postretirement benefit expenses of $0.3 million in 2008 associated with the adoption of this EITF.

12



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(9) 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, research and development and administrative costs not directly associated with the manufacture and distribution of the Company’s products.

(10) Other Expense, Net

Other expense, net includes non-income related taxes, foreign exchange gains and losses, discounts and expenses associated with the Company’s asset-backed securitization and factoring facilities, gains and losses related to derivative instruments and hedging activities, minority interests in consolidated subsidiaries, equity in net income of affiliates, gains and losses on the sales of assets and other miscellaneous income and expense. A summary of other expense, net is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense

 

 

$

17.4

 

 

 

$

19.9

 

 

 

$

33.2

 

 

 

$

43.6

 

 

Other income

 

 

 

(13.3

)

 

 

 

(19.6

)

 

 

 

(23.1

)

 

 

 

(18.3

)

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

Other expense, net

 

 

$

4.1

 

 

 

$

0.3

 

 

 

$

10.1

 

 

 

$

25.3

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

For the three and six months ended June 28, 2008, other income includes equity in net income of affiliates of $8.0 million and $11.9 million, respectively. For the three and six months ended June 30, 2007, other income includes equity in net income of affiliates of $13.4 million and $14.7 million, respectively. For the six months ended June 30, 2007, other expense includes a loss of $3.9 million related to the acquisition of the minority interest in an affiliate.

(11) Income Taxes

The provision for income taxes was $37.5 million and $20.3 million in the three months ended June 28, 2008 and June 30, 2007, respectively, and $68.8 million and $52.7 million in the six months ended June 28, 2008 and June 30, 2007, respectively. The effective tax rate was 67.2% and 14.1% for the three months ended June 28, 2008 and June 30, 2007, respectively, and 41.6% and 23.3% for the six months ended June 28, 2008 and June 30, 2007. The provision for income taxes in the first half of 2008 was impacted by a portion of the Company’s 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. Excluding these items, the effective tax rate in the first half of 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. The provision for income taxes in the first half of 2007 was impacted by costs of $34.9 million related to the divestiture of the Company’s interior business, a significant portion of which provided no tax benefit as they were incurred in the United States. The provision was also impacted by a portion of the Company’s restructuring charges and costs related to an Agreement and Plan of Merger, as amended (the “AREP merger agreement”), with AREP Car Holdings Corp. and AREP Car Acquisition Corp. (subsequently terminated in the third quarter of 2007), 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. This was offset by the impact of the U.S. salaried pension plan curtailment gain of $36.4 million, for which no tax expense was provided as it was incurred in the United States, and the impact of a one-time tax benefit of $12.5 million related to a reversal of a valuation allowance in a European subsidiary. Further, 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 income tax expense 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. Accordingly, income taxes are impacted by the U.S. and foreign valuation allowances and the mix of earnings among jurisdictions.

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 could decrease the amount of its gross unrecognized tax benefits by $60.9 million, of which $29.2 million, if recognized,

13



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

would affect the Company’s 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.

(12) Net Income Per Share

Basic net income per share is computed using the weighted average common shares outstanding during the period. Diluted net income per share includes the dilutive effect of common stock equivalents using the average share price during the period, as well as the dilutive effect of shares issuable upon conversion of the Company’s outstanding zero-coupon convertible senior notes. A summary of shares outstanding is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

 

Weighted average common shares outstanding

 

77,308,548

 

76,681,355

 

77,266,350

 

76,546,667

 

Dilutive effect of common stock equivalents

 

1,043,666

 

1,489,202

 

1,114,394

 

1,544,737

 

 

 


 


 


 


 

Diluted shares outstanding

 

78,352,214

 

78,170,557

 

78,380,744

 

78,091,404

 

 

 


 


 


 


 

The shares issuable upon conversion of the Company’s outstanding zero-coupon convertible debt and the effect of certain common stock equivalents, including options, restricted stock units, performance units and stock appreciation rights, were excluded from the computation of diluted shares outstanding for the three and six months ended June 28, 2008 and June 30, 2007, as inclusion would have resulted in antidilution. A summary of these options and their exercise prices, as well as these restricted stock units, performance units and stock appreciation rights, is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

Options

 

 

 

 

 

 

 

 

 

Antidilutive options

 

1,457,080

 

1,691,705

 

1,457,080

 

1,691,705

 

Exercise price

 

$27.25 – $55.33

 

$37.00 – $55.33

 

$27.25 – $55.33

 

$37.00 – $55.33

 

Restricted stock units

 

262,994

 

 

 

 

Stock appreciation rights

 

2,041,007

 

642,285

 

2,041,007

 

642,285

 

(13) Comprehensive Income

Comprehensive income is defined as all changes in the Company’s net assets except changes resulting from transactions with stockholders. It differs from net income in that certain items currently recorded in equity are included in comprehensive income. A summary of comprehensive income is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

18.3

 

 

 

$

123.6

 

 

 

$

96.5

 

 

 

$

173.5

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments and hedging activities

 

 

 

23.3

 

 

 

 

7.2

 

 

 

 

15.2

 

 

 

 

2.2

 

 

Defined benefit plan adjustments

 

 

 

1.5

 

 

 

 

5.4

 

 

 

 

6.0

 

 

 

 

5.4

 

 

Foreign currency translation adjustment

 

 

 

2.3

 

 

 

 

(2.2

)

 

 

 

91.7

 

 

 

 

11.4

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

Other comprehensive income

 

 

 

27.1

 

 

 

 

10.4

 

 

 

 

112.9

 

 

 

 

19.0

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

Comprehensive income

 

 

$

45.4

 

 

 

$

134.0

 

 

 

$

209.4

 

 

 

$

192.5

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

(14) Pre-Production Costs Related to Long-Term Supply Agreements

The Company incurs pre-production engineering, research and development (“ER&D”) and tooling costs related to the products produced for its customers under long-term supply agreements. The Company expenses all pre-production ER&D costs for which reimbursement is not contractually guaranteed by the customer. In addition, the Company expenses all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which the customer has not provided a non-cancelable right to use the tooling. During the first six months of 2008 and 2007, the Company capitalized $79.1 million and $43.4 million, respectively, of pre-production ER&D costs for which reimbursement is contractually guaranteed by the customer. In addition, during the first six months of 2008 and 2007, the Company capitalized $73.6 million and $80.8 million,

14



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling. These amounts are included in other current and long-term assets in the accompanying condensed consolidated balance sheets. During the six months ended June 28, 2008 and June 30, 2007, the Company collected $157.3 million and $147.2 million, respectively, of cash related to ER&D and tooling costs.

During the first six months of 2008 and 2007, the Company did not capitalize any Company-owned tooling. Amounts capitalized as Company-owned tooling are included in property, plant and equipment, net in the accompanying condensed consolidated balance sheets.

The classification of recoverable customer engineering and tooling is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28,
2008

 

December 31,
2007

 

 

 


 


 

 

Current

 

 

$

82.3

 

 

 

$

73.0

 

 

Long-term

 

 

 

97.1

 

 

 

 

94.5

 

 

 

 

 



 

 

 



 

 

Recoverable customer engineering and tooling

 

 

$

179.4

 

 

 

$

167.5

 

 

 

 

 



 

 

 



 

 

Gains and losses related to ER&D and tooling projects are reviewed on an aggregated program basis. Net gains on projects are deferred and recognized over the life of the long-term supply agreement. Net losses on projects are recognized as costs are incurred.

(15) Legal and Other Contingencies

As of June 28, 2008 and December 31, 2007, the Company had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $34.2 million and $37.5 million, respectively. Such reserves reflect amounts recognized in accordance with accounting principles generally accepted in the United States and typically exclude the cost of legal representation. Product warranty liabilities are recorded separately from legal liabilities, as described below.

Commercial Disputes

The Company is involved from time to time in legal proceedings and claims, including, without limitation, commercial or contractual disputes with its suppliers, competitors and customers. These disputes vary in nature and are usually resolved by negotiations between the parties.

On January 26, 2004, the Company filed a patent infringement lawsuit against Johnson Controls Inc. and Johnson Controls Interiors LLC (together, “JCI”) in the U.S. District Court for the Eastern District of Michigan alleging that JCI’s garage door opener products infringed certain of the Company’s radio frequency transmitter patents. JCI counterclaimed seeking a declaratory judgment that the subject patents are invalid and unenforceable, and that JCI is not infringing these patents. JCI also has filed motions for summary judgment asserting that its garage door opener products do not infringe the Company’s patents and that one of the Company’s patents is invalid and unenforceable. The Company is pursuing its claims against JCI. On November 2, 2007, the court issued an opinion and order granting, in part, and denying, in part, JCI’s motion for summary judgment on one of the Company’s patents. The court found that JCI’s product does not literally infringe the patent, however, there are issues of fact that precluded a finding as to whether JCI’s product infringes under the doctrine of equivalents. The court also ruled that one of the claims the Company has asserted is invalid. Finally, the court denied JCI’s motion to hold the patent unenforceable. The opinion and order does not address the other two patents involved in the lawsuit and JCI’s motion for summary judgment has not yet been subject to a court hearing. On May 22, 2008, JCI filed a motion seeking reconsideration of the court’s ruling of November 2, 2007. On June 9, 2008, the Company filed its opposition to this motion and, on June 23, 2008, JCI filed its reply brief. A trial date has not been scheduled.

After the Company filed its patent infringement action against JCI, affiliates of JCI sued one of the Company’s vendors and certain of the vendor’s employees in Ottawa County, Michigan Circuit Court on July 8, 2004, alleging misappropriation of trade secrets and disclosure of confidential information. The suit alleges that the defendants misappropriated and shared with the Company trade secrets involving JCI’s universal garage door opener product. JCI sought to enjoin the defendants from selling or attempting to sell a competing product, as well as compensatory damages and attorney fees. The Company was not a defendant in this lawsuit; however, the agreements between the Company and the defendants contain customary indemnification provisions. The Company does not believe that its garage door opener product benefited from any allegedly misappropriated trade secrets or technology. However, JCI sought discovery of certain information which the Company believes is confidential and proprietary, and the Company intervened in

15



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

the case as a non-party for the limited purpose of protecting its rights with respect to JCI’s discovery efforts. The parties to the lawsuit recently settled the litigation on a confidential basis. The settlement amount was immaterial.

On June 13, 2005, The Chamberlain Group (“Chamberlain”) filed a lawsuit against the Company and Ford Motor Company (“Ford”) in the Northern District of Illinois alleging patent infringement. Two counts were asserted against the Company and Ford based upon two Chamberlain rolling-code garage door opener system patents. Two additional counts were asserted against Ford only (not the Company) based upon different Chamberlain patents. The Chamberlain lawsuit was filed in connection with the marketing of the Company’s universal garage door opener system, which competes with a product offered by JCI. JCI obtained technology from Chamberlain to operate its product. In October 2005, JCI joined the lawsuit as a plaintiff along with Chamberlain. In October 2006, Ford was dismissed from the suit. JCI and Chamberlain filed a motion for a preliminary injunction, and on March 30, 2007, the court issued a decision granting plaintiffs’ motion for a preliminary injunction but did not enter an injunction at that time. In response, the Company filed a motion seeking to stay the effectiveness of any injunction that may be entered and General Motors Corporation (“GM”) moved to intervene. On April 25, 2007, the court granted GM’s motion to intervene, entered a preliminary injunction order that exempts the Company’s existing GM programs and denied the Company’s motion to stay the effectiveness of the preliminary injunction order pending appeal. On April 27, 2007, the Company filed its notice of appeal from the granting of the preliminary injunction and the denial of its motion to stay its effectiveness. On May 7, 2007, the Company filed a motion for stay with the Federal Circuit Court of Appeals, which the court denied on June 6, 2007. On February 19, 2008, the Federal Circuit Court of Appeals issued a decision in the Company’s favor that vacated the preliminary injunction and reversed the district court’s interpretation of a key claim term. A petition by JCI for a rehearing on the matter was denied on April 10, 2008. The case is now remanded to the district court. The Company intends to vigorously defend this matter through, among other things, a motion for summary judgment that was filed in June 2008.

Product Liability 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. In addition, the Company is a party to warranty-sharing and other agreements with its customers relating to its products. These customers may pursue claims against the Company for contribution of all or a portion of the amounts sought in connection with product liability and warranty claims. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend such claims. In addition, if any of the Company’s products are, or are alleged to be, defective, the Company may be required or requested by its customers to participate in a recall or other corrective action involving such products. Certain of the Company’s customers have asserted claims against the Company for costs related to recalls or other corrective actions involving its products. In certain instances, the allegedly defective products were supplied by tier II suppliers against whom the Company has sought or will seek contribution. The Company carries insurance for certain legal matters, including product liability claims, but such coverage may be limited. The Company does not maintain insurance for product warranty or recall matters.

The Company records product warranty liabilities based on its individual customer agreements. Product warranty liabilities are recorded for known warranty issues when amounts related to such issues are probable and reasonably estimable. In certain product liability and warranty matters, the Company may seek recovery from its suppliers that supply materials or services included within the Company’s products that are associated with the related claims.

A summary of the changes in product warranty liabilities for the six months ended June 28, 2008, is shown below (in millions):

 

 

 

 

 

Balance as of January 1, 2008

 

$

40.7

 

Expense, net

 

 

1.4

 

Settlements

 

 

(8.2

)

Foreign currency translation and other

 

 

3.5

 

 

 



 

Balance as of June 28, 2008

 

$

37.4

 

 

 



 

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 management program based on ISO 14001 to ensure compliance. However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures.

16



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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 June 28, 2008 and December 31, 2007, the Company had recorded reserves for environmental matters of $3.1 million and $2.7 million, respectively. While the Company does not believe that the environmental liabilities associated with its current and former properties will have a material adverse effect on its business, consolidated financial position, results of operations or cash flows, no assurances can be given in this regard.

Other Matters

In April 2006, a former employee of the Company filed a purported class action lawsuit in the U.S. District Court for the Eastern District of Michigan against the Company, members of its Board of Directors, members of its Employee Benefits Committee (the “EBC”) and certain members of its human resources personnel alleging violations of the Employment Retirement Income Security Act (“ERISA”) with respect to the Company’s retirement savings plans for salaried and hourly employees. In the second quarter of 2006, the Company was served with three additional purported class action ERISA lawsuits, each of which contained similar allegations against the Company, members of its Board of Directors, members of its EBC and certain members of its senior management and its human resources personnel. At the end of the second quarter of 2006, the court entered an order consolidating these four lawsuits as In re: Lear Corp. ERISA Litigation. During the third quarter of 2006, plaintiffs filed their consolidated complaint, which alleges breaches of fiduciary duties substantially similar to those alleged in the four individually filed lawsuits. The consolidated complaint continues to name certain current and former members of the Board of Directors and the EBC and certain members of senior management and adds certain other current and former members of the EBC. The consolidated complaint generally alleges that the defendants breached their fiduciary duties to plan participants in connection with the administration of the Company’s retirement savings plans for salaried and hourly employees. The fiduciary duty claims are largely based on allegations of breaches of the fiduciary duties of prudence and loyalty and of over-concentration of plan assets in the Company’s common stock. The plaintiffs purport to bring these claims on behalf of the plans and all persons who were participants in or beneficiaries of the plans from October 21, 2004, to the present and seek to recover losses allegedly suffered by the plans. The consolidated complaint does not specify the amount of damages sought. During the fourth quarter of 2006, the defendants filed a motion to dismiss all defendants and all counts in the consolidated complaint. During the second quarter of 2007, the court denied defendants’ motion to dismiss and defendants’ answer to the consolidated complaint was filed in August 2007. On August 8, 2007, the court ordered that discovery be completed by April 30, 2008. During the first quarter of 2008, the parties exchanged written discovery requests, the defendants filed with the court a motion to compel plaintiffs to provide more complete discovery responses, which was granted in part and denied in part, and the plaintiffs filed their motion for class certification. In mid-April 2008, the parties entered into an agreement to stay all matters pending mediation. The mediation took place on May 12, 2008, but has not resulted in a settlement to date. Defendants took the named plaintiffs’ depositions in June 2008. Discovery closed on June 23, 2008, and defendants filed their opposition to plaintiffs’ motion for class certification on July 7, 2008. The plaintiffs have requested additional time for discovery, and the court has not yet ruled on that request. The Company will continue to vigorously defend the consolidated lawsuit.

Between February 9, 2007 and February 21, 2007, certain stockholders filed three purported class action lawsuits against the Company, certain members of the Company’s Board of Directors and American Real Estate Partners, L.P. (currently known as Icahn Enterprises, L.P.) and certain of its affiliates (collectively, “AREP”) in the Delaware Court of Chancery. On February 21, 2007, these lawsuits were consolidated into a single action. The amended complaint in the consolidated action generally alleges that the AREP merger agreement with AREP Car Holdings Corp. and AREP Car Acquisition Corp. (collectively the “AREP Entities”) unfairly limited the process of selling the Company and that certain members of the Company’s Board of Directors breached their fiduciary duties in connection with the AREP merger agreement and acted with conflicts of interest in approving the AREP merger agreement. The amended complaint in the consolidated action further alleges that Lear’s preliminary and definitive proxy statements for the AREP merger agreement were misleading and incomplete, and that Lear’s payments to AREP as a result of the termination of the AREP merger agreement constituted unjust enrichment and waste. On February 23, 2007, the plaintiffs filed a motion for expedited proceedings and a motion to preliminarily enjoin the transactions contemplated by the AREP merger agreement. On March 27, 2007, the plaintiffs filed an amended complaint. On June 15, 2007, the Delaware court issued an order entering a limited injunction of Lear’s planned shareholder vote on the AREP merger agreement until the Company made supplemental proxy disclosure. That

17



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

supplemental proxy disclosure was approved by the Delaware court and made on June 18, 2007. On June 26, 2007, the Delaware court granted the plaintiffs’ motion for leave to file a second amended complaint. On September 11, 2007, the plaintiffs filed a third amended complaint. On January 30, 2008, the Delaware court granted the plaintiffs’ motion for leave to file a fourth amended complaint leaving only derivative claims against the Lear directors and AREP based on the payment by Lear to AREP of a termination fee pursuant to the AREP merger agreement. On March 14, 2008, the plaintiffs filed an interim petition for an award of fees and expenses related to the supplemental proxy disclosure. On April 14, 2008, the defendants filed a motion to dismiss the remaining claims in the fourth amended complaint. A hearing on both the defendants’ motion to dismiss and the plaintiffs’ interim fee petition was held on June 3, 2008. The Delaware court granted the plaintiffs’ interim fee petition, awarding the plaintiffs $800,000 in attorneys’ fees and expenses. The Delaware court intends to issue a written ruling on the defendants’ motion to dismiss. The Company believes that this lawsuit is without merit and intends to defend against it vigorously.

Although the Company records reserves for legal disputes, product liability claims and environmental and other matters in accordance with SFAS No. 5, “Accounting for Contingencies,” the ultimate outcomes of these matters are inherently uncertain. Actual results may differ significantly from current estimates.

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 effect on its business, consolidated financial position, results of operations or cash flows.

(16) Segment Reporting

Historically, the Company has had three reportable operating segments: seating, electrical and electronic and interior. The seating segment includes seat systems and components thereof. The electrical and electronic segment includes electrical distribution systems and electronic products, primarily wire harnesses, junction boxes, terminals and connectors and various electronic control modules, as well as audio sound systems and in-vehicle television and video entertainment systems. The interior segment, which has been divested, included instrument panels and cockpit systems, headliners and overhead systems, door panels, flooring and acoustic systems and other interior products (Note 2, “Divestiture of Interior Business”). 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 Company evaluates the performance of its operating segments based primarily on (i) revenues from external customers, (ii) income before divestiture of Interior business, interest expense, other expense and provision for income taxes (“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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 28, 2008

 

 

 


 

 

 

Seating

 

Electrical and
Electronic

 

Other

 

Consolidated

 

 

 


 


 


 


 

 

Revenues from external customers

 

$

3,141.2

 

 

$

837.8

 

 

$

 

 

$

3,979.0

 

 

Segment earnings

 

 

130.0

 

 

 

31.2

 

 

 

(55.7

)

 

 

105.5

 

 

Depreciation and amortization

 

 

45.4

 

 

 

28.3

 

 

 

3.7

 

 

 

77.4

 

 

Capital expenditures

 

 

32.6

 

 

 

17.4

 

 

 

 

 

 

50.0

 

 

Total assets

 

 

4,708.9

 

 

 

2,380.6

 

 

 

1,258.1

 

 

 

8,347.6

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2007

 

 

 


 

 

 

Seating

 

Electrical and
Electronic

 

Interior

 

Other

 

Consolidated

 

 

 


 


 


 


 


 

 

Revenues from external customers

 

$

3,264.5

 

 

$

825.1

 

 

$

65.7

 

$

 

 

$

4,155.3

 

 

Segment earnings

 

 

238.8

 

 

 

23.5

 

 

 

(0.6

)

 

(66.9

)

 

 

194.8

 

 

Depreciation and amortization

 

 

42.5

 

 

 

28.1

 

 

 

1.0

 

 

4.1

 

 

 

75.7

 

 

Capital expenditures

 

 

26.3

 

 

 

11.6

 

 

 

1.1

 

 

0.1

 

 

 

39.1

 

 

Total assets

 

 

4,460.5

 

 

 

2,234.8

 

 

 

77.0

 

 

1,149.5

 

 

 

7,921.8

 

 

18



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 28, 2008

 

 

 


 

 

 

Seating

 

Electrical and
Electronic

 

Other

 

Consolidated

 

 

 


 


 


 


 

 

Revenues from external customers

 

$

6,177.3

 

 

$

1,659.3

 

 

$

 

 

$

7,836.6

 

 

Segment earnings

 

 

313.3

 

 

 

66.5

 

 

 

(111.4

)

 

 

268.4

 

 

Depreciation and amortization

 

 

88.7

 

 

 

55.9

 

 

 

7.3

 

 

 

151.9

 

 

Capital expenditures

 

 

61.2

 

 

 

34.1

 

 

 

0.2

 

 

 

95.5

 

 

Total assets

 

 

4,708.9

 

 

 

2,380.6

 

 

 

1,258.1

 

 

 

8,347.6

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2007

 

 

 


 

 

 

Seating

 

Electrical and
Electronic

 

Interior

 

Other

 

Consolidated

 

 

 


 


 


 


 


 

 

Revenues from external customers

 

$

6,258.7

 

 

$

1,613.8

 

 

$

688.9

 

$

 

 

$

8,561.4

 

 

Segment earnings

 

 

435.9

 

 

 

41.0

 

 

 

8.2

 

 

(105.9

)

 

 

379.2

 

 

Depreciation and amortization

 

 

83.3

 

 

 

56.4

 

 

 

2.3

 

 

8.2

 

 

 

150.2

 

 

Capital expenditures

 

 

46.5

 

 

 

20.2

 

 

 

1.2

 

 

0.4

 

 

 

68.3

 

 

Total assets

 

 

4,460.5

 

 

 

2,234.8

 

 

 

77.0

 

 

1,149.5

 

 

 

7,921.8

 

 

For the three months ended June 28, 2008, segment earnings include restructuring charges of $39.8 million, $6.2 million and $5.7 million in the seating and electrical and electronic segments and in the other category, respectively. For the six months ended June 28, 2008, segment earnings include restructuring charges of $52.7 million, $13.0 million and $6.2 million in the seating and electrical and electronic segments and in the other category, respectively. For the three months ended June 30, 2007, segment earnings include restructuring charges of $10.8 million, $13.4 million, $5.0 million and $3.1 million in the seating, electrical and electronic and interior segments and in the other category, respectively. For the six months ended June 30, 2007, segment earnings include restructuring charges of $6.1 million, $31.3 million, $5.0 million and $3.5 million in the seating, electrical and electronic and interior segments and in the other category, respectively (Note 3, “Restructuring Activities”).

A reconciliation of consolidated segment earnings to consolidated income before provision for income taxes is shown below (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

 

Segment earnings

 

 

$

105.5

 

 

 

$

194.8

 

 

 

$

268.4

 

 

 

$

379.2

 

 

Divestiture of Interior business

 

 

 

 

 

 

 

(0.7

)

 

 

 

 

 

 

 

24.9

 

 

Interest expense

 

 

 

45.6

 

 

 

 

51.3

 

 

 

 

93.0

 

 

 

 

102.8

 

 

Other expense, net

 

 

 

4.1

 

 

 

 

0.3

 

 

 

 

10.1

 

 

 

 

25.3

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

$

55.8

 

 

 

$

143.9

 

 

 

$

165.3

 

 

 

$

226.2

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

(17) Financial Instruments

Certain of the Company’s European and Asian subsidiaries periodically factor their accounts receivable with financial institutions. Such receivables are factored without recourse to the Company and are excluded from accounts receivable in the accompanying condensed consolidated balance sheets. In the second quarter of 2008, certain of the Company’s European subsidiaries entered into extended factoring agreements which provide for aggregate purchases of specified customer accounts receivable of up to €315 million through April 30, 2011. The level of funding utilized under this European factoring facility is based on the credit ratings of each specified customer. In addition, the facility provider can elect to discontinue the facility in the event that the Company’s corporate credit rating declines below B- by Standard & Poor’s Ratings Services. As of June 28, 2008 and December 31, 2007, the amount of factored receivables was $227.3 million and $103.5 million, respectively. The Company cannot provide any assurances that these factoring facilities will be available or utilized in the future.

19



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Asset-Backed Securitization Facility

Prior to April 30, 2008, the Company and several of its U.S. subsidiaries sold certain accounts receivable to a wholly-owned, consolidated, bankruptcy-remote special purpose corporation (Lear ASC Corporation) under an asset-backed securitization facility (the “ABS facility”). In turn, Lear ASC Corporation transferred undivided interests in up to $150 million of the receivables to bank-sponsored commercial-paper conduits. The ABS facility expired on April 30, 2008, and the Company did not elect to renew the existing facility. As of December 31, 2007, accounts receivable totaling $543.7 million had been transferred to Lear ASC Corporation, but no undivided interests in the receivables were transferred to the conduits. Prior to the expiration of the ABS facility, the Company continued to service the transferred accounts receivable for an annual servicing fee. The conduit investors and Lear ASC Corporation had no recourse to the Company or its subsidiaries for the failure of the accounts receivable obligors to pay timely on the accounts receivable.

The following table summarizes certain cash flows received from and paid to Lear ASC Corporation (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 


 


 

 

 

June 28,
2008

 

June 30,
2007

 

June 28,
2008

 

June 30,
2007

 

 

 


 


 


 


 

 

Proceeds from collections reinvested in securitizations

 

 

$

336.2

 

 

 

$

820.1

 

 

 

$

1,214.4

 

 

 

$

1,752.8

 

 

Servicing fees received

 

 

 

0.5

 

 

 

 

1.3

 

 

 

 

1.7

 

 

 

 

2.5

 

 

Derivative Instruments and Hedging Activities

Forward foreign exchange, futures and option contracts — The Company uses forward foreign exchange, futures and option contracts to reduce the effect of fluctuations in foreign exchange rates on known foreign currency exposures. Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuations in foreign exchange rates. The principal currencies hedged by the Company include the Mexican peso and various European currencies. Forward foreign exchange, futures and option contracts are accounted for as cash flow hedges when the hedged item is a forecasted transaction or relates to the variability of cash flows to be received or paid. As of June 28, 2008 and December 31, 2007, contracts designated as cash flow hedges with $324.5 million and $554.4 million, respectively, of notional amount were outstanding with maturities of less than six months and 12 months, respectively. As of June 28, 2008 and December 31, 2007, the fair market value of these contracts was approximately $22.0 million and $10.5 million, respectively. As of June 28, 2008 and December 31, 2007, other foreign currency derivative contracts that did not qualify for hedge accounting with $70.4 million and $107.0 million, respectively, of notional amount were outstanding. These foreign currency derivative contracts consist principally of cash transactions with maturities of less than thirty days, hedges of intercompany loans and hedges of certain other balance sheet exposures. As of June 28, 2008 and December 31, 2007, the fair market value of these contracts was approximately negative $0.1 million and $0.7 million, respectively.

Interest rate swap and other derivative contracts — The Company uses interest rate swap and other derivative contracts to manage its exposure to fluctuations in interest rates. Interest rate swap and other derivative contracts which fix the interest payments of certain variable rate debt instruments or fix the market rate component of anticipated fixed rate debt instruments are accounted for as cash flow hedges. Interest rate swap contracts which hedge the change in fair market value of certain fixed rate debt instruments are accounted for as fair value hedges. As of June 28, 2008 and December 31, 2007, contracts with $600.0 million of notional amount were outstanding with maturities through September 2011. All of these contracts modify the variable rate characteristics of the Company’s variable rate debt instruments, which are generally set at three-month LIBOR rates, such that the interest rates do not exceed a weighted average of 5.32%. As of June 28, 2008 and December 31, 2007, the fair market value of these contracts was approximately negative $20.7 million and negative $17.8 million, respectively. The fair market value of all outstanding interest rate swap and other derivative contracts is subject to changes in value due to changes in interest rates.

Commodity swap contracts — The Company uses derivative instruments to reduce its exposure to fluctuations in certain commodity prices. These derivatives are utilized to hedge forecasted inventory purchases and to the extent they qualify and meet special hedge accounting criteria, they are accounted for as cash flow hedges. All other commodity derivative contracts that are not designated as hedges are marked to market with changes in fair value recognized immediately in the condensed consolidated statements of income (Note 10, “Other Expense, Net”). As of June 28, 2008 and December 31, 2007, commodity swap contracts with $57.1 million and $48.7 million, respectively, of notional amount were outstanding with maturities of less than 18 months and 12 months, respectively. As of June 28, 2008 and December 31, 2007, the fair market value of these contracts was $3.3 million and negative $4.3 million, respectively.

20



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

As of June 28, 2008 and December 31, 2007, net gains (losses) of approximately ($9.5) million and $5.5 million, respectively, related to derivative instruments and hedging activities were recorded in accumulated other comprehensive income. Net gains of $6.2 million and $7.2 million in the three months ended June 28, 2008 and June 30, 2007, respectively, and $9.8 million and $10.8 million in the six months ended June 28, 2008 and June 30, 2007, respectively, were reclassified from accumulated other comprehensive income into earnings. During the twelve month period ending June 27, 2009, the Company expects to reclassify into earnings net gains of approximately $13.8 million recorded in accumulated other comprehensive income. Such gains will be reclassified at the time the underlying hedged transactions are realized. During the three and six months ended June 28, 2008 and June 30, 2007, amounts recognized in the accompanying condensed consolidated statements of income related to changes in the fair value of cash flow and fair value hedges excluded from the effectiveness assessments and the ineffective portion of changes in the fair value of cash flow and fair value hedges were not material.

Non-U.S. dollar financing transactions — The Company designated its Euro-denominated senior notes (Note 7, “Long-Term Debt”) as a net investment hedge of long-term investments in its Euro-functional subsidiaries. As of June 28, 2008, the amount recorded in accumulated other comprehensive income related to the effective portion of the net investment hedge of foreign operations was approximately negative $160.6 million. Although the Euro-denominated senior notes were repaid on April 1, 2008, this amount will be included in accumulated other comprehensive income until the Company liquidates its related investment in its designated foreign operations.

Fair Value Measurements

The Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Company adopted the provisions of SFAS No. 157 for its financial assets and liabilities and certain nonfinancial assets and liabilities that are measured and/or disclosed at fair value on a recurring basis as of January 1, 2008. The provisions of SFAS No. 157 are effective for nonfinancial assets and liabilities that are measured and/or disclosed at fair value on a nonrecurring basis in the fiscal year beginning after November 15, 2008.

SFAS No. 157 clarifies that fair value is an exit price, defined as a market-based measurement that represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are based on one or more of the following three valuation techniques noted in SFAS No. 157:

 

 

 

 

Market:

This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

 

 

 

 

Income:

This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations.

 

 

 

 

Cost:

This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).

SFAS No. 157 prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows:

 

 

 

 

Level 1:

Observable inputs, such as quoted market prices in active markets for the identical asset or liability that are accessible at the measurement date.

 

 

 

 

Level 2:

Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability.

 

 

 

 

Level 3:

Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date.

Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’s assets and liabilities measured or disclosed at fair value on a recurring basis as of June 28, 2008, are shown below (in millions):

21



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Frequency

 

Asset (Liability)

 

Valuation
Technique

 

Level 1

 

Level 2

 

Level 3

 

 

 


 


 


 


 


 


 

 

Derivative instruments

 

 

Recurring

 

 

$ 4.5

 

 

Market/Income

 

 

$ —

 

 

$ 4.5

 

 

$ —

 

(18) Accounting Pronouncements

Fair Value Option

The FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115.” This statement provides entities with the option to measure eligible financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The provisions of this statement are effective as of the beginning of the first fiscal year beginning after November 15, 2007. The Company did not apply the provisions of SFAS No. 159 to any of its existing financial assets or liabilities.

Business Combinations and Noncontrolling Interests

The FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” This statement significantly changes the financial accounting for and reporting of business combination transactions. The provisions of this statement are to be applied prospectively to business combination transactions in the first annual reporting period beginning on or after December 15, 2008. The Company will evaluate the impact of this statement on future business combinations.

The FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests in subsidiaries. This statement requires the reporting of all noncontrolling interests as a separate component of stockholders’ equity, the reporting of consolidated net income as the amount attributable to both the parent and the noncontrolling interests and the separate disclosure of net income attributable to the parent and to the noncontrolling interests. In addition, this statement provides accounting and reporting guidance related to changes in noncontrolling ownership interests. With the exception of the reporting requirements described above which require retrospective application, the provisions of SFAS No. 160 are to be applied prospectively in the first annual reporting period beginning on or after December 15, 2008. As of June 28, 2008 and December 31, 2007, noncontrolling interests of $35.2 million and $26.8 million, respectively, are recorded in other long-term liabilities in the accompanying condensed consolidated balance sheets. Net income attributable to noncontrolling interests of $6.5 million and $10.5 million in the three and six months ended June 28, 2008, respectively, and $7.2 million and $17.3 million in the three and six months ended June 30, 2007, respectively, are recorded in other expense, net in the accompanying condensed consolidated statements of income.

Derivative Instruments and Hedging Activities

The FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures regarding (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, performance and cash flows. The provisions of this statement are effective for the fiscal year and interim periods beginning after November 15, 2008. The Company is currently evaluating the provisions of this statement.

Hierarchy of Generally Accepted Accounting Principles

The FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the accounting principles to be used in the preparation of financial statements presented in conformity with generally accepted accounting principles in the United States. This statement is effective sixty days after approval by the Securities and Exchange Commission. The Company does not expect the effects of adoption to be significant.

22



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(19) Supplemental Guarantor Condensed Consolidating Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28, 2008

 

 

 


 

 

 

Parent

 

Guarantors

 

Non-
guarantors

 

Eliminations

 

Consolidated

 

 

 


 


 


 


 


 

 

 

(Unaudited; in millions)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

205.6

 

$

4.5

 

 

$

413.4

 

 

 

$

 

 

 

$

623.5

 

 

Accounts receivable

 

 

16.2

 

 

261.5

 

 

 

2,177.0

 

 

 

 

 

 

 

 

2,454.7

 

 

Inventories

 

 

10.4

 

 

104.4

 

 

 

576.2

 

 

 

 

 

 

 

 

691.0

 

 

Other

 

 

58.4

 

 

53.0

 

 

 

327.0

 

 

 

 

 

 

 

 

438.4

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

Total current assets

 

 

290.6

 

 

423.4

 

 

 

3,493.6

 

 

 

 

 

 

 

 

4,207.6

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

LONG-TERM ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

155.4

 

 

200.6

 

 

 

1,037.9

 

 

 

 

 

 

 

 

1,393.9

 

 

Goodwill, net

 

 

454.5

 

 

551.1

 

 

 

1,078.7

 

 

 

 

 

 

 

 

2,084.3

 

 

Investments in subsidiaries

 

 

4,436.8

 

 

3,919.7

 

 

 

 

 

 

 

(8,356.5

)

 

 

 

 

 

Other

 

 

238.3

 

 

41.0

 

 

 

382.5

 

 

 

 

 

 

 

 

661.8

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

Total long-term assets

 

 

5,285.0

 

 

4,712.4

 

 

 

2,499.1

 

 

 

 

(8,356.5

)

 

 

 

4,140.0

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

 

 

$

5,575.6

 

$

5,135.8

 

 

$

5,992.7

 

 

 

$

(8,356.5

)

 

 

$

8,347.6

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

 

$

2.0

 

 

$

28.1

 

 

 

$

 

 

 

$

30.1

 

 

Accounts payable and drafts

 

 

97.3

 

 

267.5

 

 

 

2,215.1

 

 

 

 

 

 

 

 

2,579.9

 

 

Accrued liabilities

 

 

211.8

 

 

199.7

 

 

 

904.9

 

 

 

 

 

 

 

 

1,316.4

 

 

Current portion of long-term debt

 

 

47.4

 

 

 

 

 

6.5

 

 

 

 

 

 

 

 

53.9

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

Total current liabilities

 

 

356.5

 

 

469.2

 

 

 

3,154.6

 

 

 

 

 

 

 

 

3,980.3

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

2,289.5

 

 

 

 

 

12.7

 

 

 

 

 

 

 

 

2,302.2

 

 

Intercompany accounts, net

 

 

1,520.4

 

 

823.0

 

 

 

(2,343.4

)

 

 

 

 

 

 

 

 

 

Other

 

 

108.9

 

 

79.3

 

 

 

576.6

 

 

 

 

 

 

 

 

764.8

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

Total long-term liabilities

 

 

3,918.8

 

 

902.3

 

 

 

(1,754.1

)

 

 

 

 

 

 

 

3,067.0

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

STOCKHOLDERS’ EQUITY

 

 

1,300.3

 

 

3,764.3

 

 

 

4,592.2

 

 

 

 

(8,356.5

)

 

 

 

1,300.3

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

 

 

$

5,575.6

 

$

5,135.8

 

 

$

5,992.7

 

 

 

$

(8,356.5

)

 

 

$

8,347.6

 

 

 

 



 



 

 



 

 

 



 

 

 



 

 

23



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(19) Supplemental Guarantor Condensed Consolidating Financial Statements – (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2007

 

 

 


 

 

 

Parent

 

Guarantors

 

Non-
guarantors

 

Eliminations

 

Consolidated

 

 

 


 


 


 


 


 

 

 

(In millions)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

189.9

 

 

$

6.1

 

 

 

$

405.3

 

 

 

$

 

 

 

$

601.3

 

 

Accounts receivable

 

 

10.0

 

 

 

229.8

 

 

 

 

1,907.8

 

 

 

 

 

 

 

 

2,147.6

 

 

Inventories

 

 

11.7

 

 

 

104.8

 

 

 

 

489.0

 

 

 

 

 

 

 

 

605.5

 

 

Other

 

 

67.4

 

 

 

36.3

 

 

 

 

259.9

 

 

 

 

 

 

 

 

363.6

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

Total current assets

 

 

279.0

 

 

 

377.0

 

 

 

 

3,062.0

 

 

 

 

 

 

 

 

3,718.0

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

LONG-TERM ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

170.5

 

 

 

220.5

 

 

 

 

1,001.7

 

 

 

 

 

 

 

 

1,392.7

 

 

Goodwill, net

 

 

454.5

 

 

 

551.2

 

 

 

 

1,048.3

 

 

 

 

 

 

 

 

2,054.0

 

 

Investments in subsidiaries

 

 

4,558.7

 

 

 

3,702.2

 

 

 

 

 

 

 

 

(8,260.9

)

 

 

 

 

 

Other

 

 

240.1

 

 

 

17.3

 

 

 

 

378.3

 

 

 

 

 

 

 

 

635.7

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

Total long-term assets

 

 

5,423.8

 

 

 

4,491.2

 

 

 

 

2,428.3

 

 

 

 

(8,260.9

)

 

 

 

4,082.4

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

 

 

$

5,702.8

 

 

$

4,868.2

 

 

 

$

5,490.3

 

 

 

$

(8,260.9

)

 

 

$

7,800.4

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

 

 

$

2.1

 

 

 

$

11.8

 

 

 

$

 

 

 

$

13.9

 

 

Accounts payable and drafts

 

 

117.3

 

 

 

291.7

 

 

 

 

1,854.8

 

 

 

 

 

 

 

 

2,263.8

 

 

Accrued liabilities

 

 

202.3

 

 

 

219.1

 

 

 

 

808.7

 

 

 

 

 

 

 

 

1,230.1

 

 

Current portion of long-term debt

 

 

87.0

 

 

 

 

 

 

 

9.1

 

 

 

 

 

 

 

 

96.1

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

Total current liabilities

 

 

406.6

 

 

 

512.9

 

 

 

 

2,684.4

 

 

 

 

 

 

 

 

3,603.9

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

2,331.0

 

 

 

 

 

 

 

13.6

 

 

 

 

 

 

 

 

2,344.6

 

 

Intercompany accounts, net

 

 

1,751.8

 

 

 

(7.1

)

 

 

 

(1,744.7

)

 

 

 

 

 

 

 

 

 

Other

 

 

122.7

 

 

 

124.7

 

 

 

 

513.8

 

 

 

 

 

 

 

 

761.2

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

Total long-term liabilities

 

 

4,205.5

 

 

 

117.6

 

 

 

 

(1,217.3

)

 

 

 

 

 

 

 

3,105.8

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

STOCKHOLDERS’ EQUITY

 

 

1,090.7

 

 

 

4,237.7

 

 

 

 

4,023.2

 

 

 

 

(8,260.9

)

 

 

 

1,090.7

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

 

 

$

5,702.8

 

 

$

4,868.2

 

 

 

$

5,490.3

 

 

 

$

(8,260.9

)

 

 

$

7,800.4

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

24



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(19) Supplemental Guarantor Condensed Consolidating Financial Statements – (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 28, 2008

 

 

 


 

 

 

Parent

 

Guarantors

 

Non-
guarantors

 

Eliminations

 

Consolidated

 

 

 


 


 


 


 


 

 

 

(Unaudited; in millions)

 

 

 

 

 

Net sales

 

$

125.4

 

 

$

933.3

 

 

 

$

3,957.2

 

 

 

$

(1,036.9

)

 

 

$

3,979.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

152.9

 

 

 

918.4

 

 

 

 

3,683.5

 

 

 

 

(1,036.9

)

 

 

 

3,717.9

 

 

Selling, general and administrative expenses

 

 

43.3

 

 

 

7.2

 

 

 

 

105.1

 

 

 

 

 

 

 

 

155.6

 

 

Interest (income) expense

 

 

42.3

 

 

 

10.5

 

 

 

 

(7.2

)

 

 

 

 

 

 

 

45.6

 

 

Intercompany (income) expense, net

 

 

(45.9

)

 

 

1.3

 

 

 

 

44.6

 

 

 

 

 

 

 

 

 

 

Other (income) expense, net

 

 

1.5

 

 

 

(4.2

)

 

 

 

6.8

 

 

 

 

 

 

 

 

4.1

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and equity in net income of subsidiaries

 

 

(68.7

)

 

 

0.1

 

 

 

 

124.4

 

 

 

 

 

 

 

 

55.8

 

 

Provision for income taxes

 

 

 

 

 

1.8

 

 

 

 

35.7

 

 

 

 

 

 

 

 

37.5

 

 

Equity in net income of subsidiaries

 

 

(87.0

)

 

 

(71.5

)

 

 

 

 

 

 

 

158.5

 

 

 

 

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18.3

 

 

$

69.8

 

 

 

$

88.7

 

 

 

$

(158.5

)

 

 

$

18.3

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2007

 

 

 


 

 

 

Parent

 

Guarantors

 

Non-
guarantors

 

Eliminations

 

Consolidated

 

 

 


 


 


 


 


 

 

 

(Unaudited; in millions)

 

 

 

 

 

Net sales

 

$

276.5

 

 

$

1,317.6

 

 

 

$

3,655.0

 

 

 

$

(1,093.8

)

 

 

$

4,155.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

265.3

 

 

 

1,261.0

 

 

 

 

3,385.2

 

 

 

 

(1,093.8

)

 

 

 

3,817.7

 

 

Selling, general and administrative expenses

 

 

49.3

 

 

 

15.8

 

 

 

 

77.7

 

 

 

 

 

 

 

 

142.8

 

 

Divestiture of Interior business

 

 

0.1

 

 

 

 

 

 

 

(0.8

)

 

 

 

 

 

 

 

(0.7

)

 

Interest (income) expense

 

 

25.2

 

 

 

30.0

 

 

 

 

(3.9

)

 

 

 

 

 

 

 

51.3

 

 

Intercompany (income) expense, net

 

 

(19.0

)

 

 

(1.8

)

 

 

 

20.8

 

 

 

 

 

 

 

 

 

 

Other (income) expense, net

 

 

(5.0

)

 

 

10.3

 

 

 

 

(5.0

)

 

 

 

 

 

 

 

0.3

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

Income (loss) before income taxes and equity in net income of subsidiaries

 

 

(39.4

)

 

 

2.3

 

 

 

 

181.0

 

 

 

 

 

 

 

 

143.9

 

 

Provision for income taxes

 

 

1.2

 

 

 

 

 

 

 

19.1

 

 

 

 

 

 

 

 

20.3

 

 

Equity in net income of subsidiaries

 

 

(164.2

)

 

 

(56.2

)

 

 

 

 

 

 

 

220.4

 

 

 

 

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

123.6

 

 

$

58.5

 

 

 

$

161.9

 

 

 

$

(220.4

)

 

 

$

123.6

 

 

 

 



 

 



 

 

 



 

 

 



 

 

 



 

 

25



LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 

 

(19)

Supplemental Guarantor Condensed Consolidating Financial Statements – (continued)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 28, 2008

 

 

 


 

 

 

Parent

 

Guarantors

 

Non-
guarantors

 

Eliminations

 

Consolidated

 

 

 


 


 


 


 


 

 

 

(Unaudited; in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

$

275.9

 

 

 

$

1,963.1

 

 

 

$

7,640.9

 

 

 

$

(2,043.3

)

 

 

$

7,836.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

316.8

 

 

 

 

1,897.3

 

 

 

 

7,108.6

 

 

 

 

(2,043.3

)

 

 

 

7,279.4

 

 

Selling, general and administrative expenses

 

 

 

77.0

 

 

 

 

14.1

 

 

 

 

197.7

 

 

 

 

 

 

 

 

288.8

 

 

Interest (income) expense

 

 

 

70.1

 

 

 

 

39.3

 

 

 

 

(16.4

)

 

 

 

 

 

 

 

93.0

 

 

Intercompany (income) expense, net

 

 

 

(125.7

)

 

 

 

6.7

 

 

 

 

119.0

 

 

 

 

 

 

 

 

 

 

Other expense, net

 

 

 

0.6

 

 

 

 

7.3

 

 

 

 

2.2

 

 

 

 

 

 

 

 

10.1

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and equity in net income of subsidiaries

 

 

 

(62.9

)

 

 

 

(1.6

)

 

 

 

229.8

 

 

 

 

 

 

 

 

165.3

 

 

Provision for income taxes

 

 

 

 

 

 

 

1.9

 

 

 

 

66.9

 

 

 

 

 

 

 

 

68.8

 

 

Equity in net income of subsidiaries

 

 

 

(159.4

)

 

 

 

(135.3

)

 

 

 

 

 

 

 

294.7

 

 

 

 

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

96.5

 

 

 

$

131.8

 

 

 

$

162.9

 

 

 

$

(294.7

)

 

 

$

96.5

 

 

 

 




 

 

 



 

 

 



 

 

 



 

 

 



 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2007

 

 

 


 

 

 

Parent

 

Guarantors

 

Non-
guarantors

 

Eliminations

 

Consolidated

 

 

 


 


 


 


 


 

 

 

(Unaudited; in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

$

564.8

 

 

 

$

2,843.1

 

 

 

$

7,269.7

 

 

 

$

(2,116.2

)

 

 

$

8,561.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

557.8

 

 

 

 

2,766.1

 

 

 

 

6,705.2

 

 

 

 

(2,116.2

)

 

 

 

7,912.9

 

 

Selling, general and administrative expenses

 

 

 

84.0

 

 

 

 

29.2

 

 

 

 

156.1

 

 

 

 

 

 

 

 

269.3

 

 

Divestiture of Interior business

 

 

 

(17.1

)

 

 

 

28.2

 

 

 

 

13.8

 

 

 

 

 

 

 

 

24.9

 

 

Interest (income) expense

 

 

 

47.0

 

 

 

 

58.3

 

 

 

 

(2.5

)

 

 

 

 

 

 

 

102.8

 

 

Intercompany (income) expense, net

 

 

 

(98.6

)

 

 

 

15.0

 

 

 

 

83.6