UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 2006
LEAR CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware |
1-11311 |
13-3386776 |
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
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| 21557 Telegraph Road, Southfield, MI |
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48034 |
| (Address of principal executive offices) |
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(Zip Code) |
(248) 447-1500
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 2 – Financial Information
Item 2.02 Results of Operations and Financial Condition.
The following information is provided pursuant to Item 2.02 of Form 8-K, “Results of Operations and Financial Condition,” and Item 7.01 of Form 8-K, “Regulation FD Disclosure.”
On July 28, 2006, Lear Corporation issued a press release reporting its financial results for the second quarter of 2006 and earnings guidance for the full-year of 2006. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.
On July 28, 2006, Lear Corporation made available the presentation slides attached hereto as Exhibit 99.2 in a webcast of its second quarter 2006 earnings call. Exhibit 99.2 is incorporated by reference herein.
The information contained in Exhibits 99.1 and 99.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Section 7 – Regulation FD
Item 7.01 Regulation FD Disclosure.
See “Item 2.02 Results of Operations and Financial Condition” above.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
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Exhibits |
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99.1 |
Press release issued July 28, 2006, furnished herewith. |
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99.2 |
Presentation slides from the Lear Corporation webcast of its second quarter 2006 earnings call held on July 28, 2006, furnished herewith. |
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SIGNATURE
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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LEAR CORPORATION, | |
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a Delaware corporation |
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Date: |
July 28, 2006 |
By: |
/s/ James H. Vandenberghe | |||||
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Name: |
James H. Vandenberghe |
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Title: |
Vice Chairman and Chief Financial Officer |
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EXHIBIT INDEX
| Exhibit No. |
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Description |
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Exhibit 99.1
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FOR IMMEDIATE RELEASE |
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Investor Relations: | |||
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Mel Stephens |
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(248) 447-1624 |
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Media:
Andrea Puchalsky
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(248) 447-1651 |
Lear Reports Improved
Second-Quarter Financial Results
and Maintains Full Year Earnings Guidance
Southfield, Mich., July 28, 2006 -- Lear Corporation [NYSE: LEA], one of the world’s largest automotive interior systems and components suppliers, today reported financial results for the second quarter of 2006.
Highlights:
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Achieved record net sales of $4.8 billion versus $4.4 billion a year ago |
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Improved pretax income versus a year ago |
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Received customer awards for world-class quality and service |
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Entered definitive agreement to contribute European Interiors business to JV |
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Continued to win new business in Asia and with Asian automakers globally |
For the second quarter of 2006, Lear posted record net sales of $4.8 billion and pretax income of $31.5 million, which included costs related to restructuring actions, impairments, and other special items of $24.0 million. The results for the second quarter of 2006 compare to year-earlier net sales of $4.4 billion and a pretax loss of $50.4 million, including costs related to restructuring actions and other special items of $79.5 million. Net loss for the second quarter of 2006 was $6.4 million or $0.10 per share. This compares with a net loss of $44.4 million or $0.66 per share, for the second quarter of 2005.
Net sales were up from the prior year, primarily reflecting the addition of new business globally, offset in part by lower production on several Lear platforms in North America and Europe. Operating performance improved from the year earlier results primarily due to the increase in net sales as well as benefits from cost and operating efficiencies in our core businesses. These improvements were offset in part by higher raw material costs.
“The Lear team remains focused on improving quality and ensuring flawless launch execution while we aggressively implement cost improvement and operating efficiency initiatives,” said Bob Rossiter, Lear Chairman and Chief Executive Officer. “Although there are many challenges facing our industry, we are taking aggressive
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2
actions to address these issues and further improve our operating results. We will continue to be product-line focused; competitive on a global basis; and dedicated to working collaboratively with our customers.”
Free cash flow was positive $0.8 million for the second quarter of 2006. (Net cash provided by operating activities was $74.8 million. A reconciliation of free cash flow to net cash provided by operating activities is provided in the attached supplemental data page.)
Quality and customer satisfaction measures remain at high levels, and the Company continued to win recognition from customers around the world. Second quarter awards include “Supplier of the Year” from General Motors and Special Recognition for Customer Service from Ford Motor Company. Recognition was also received from Toyota, Mazda and Volkswagen for excellence in quality and customer service. Lear continues to be ranked as the highest quality major seat supplier in the 2006 J. D. Power Seat Quality Report.
Lear also made progress on important strategic initiatives, including the signing of a definitive agreement to contribute substantially all of its European Interiors business to International Automotive Components Group, LLC in return for a 34% equity interest, subject to adjustment, and the Company continued to aggressively expand its business in Asia and with Asian automakers globally.
During the quarter, Lear was awarded several new programs in China, and in India, Lear won its first business with Tata Motors. In addition, Lear opened a new TACLE joint venture facility in Sunderland, England with its Japanese partner Tachi-S, to support future vehicle programs with Nissan in Europe. This is Lear’s third TACLE joint venture facility, including a plant under construction in Mt. Juliet, Tennessee to serve Nissan in North America and a facility in China to serve Asia. Lear’s plant in Montgomery, Alabama is ramping up to full production to supply seats for the all-new Hyundai Santa Fe sport utility vehicle and another new location in San Antonio, Texas will be supplying interior trim for the 2007 Toyota Tundra.
Full-Year 2006 Outlook
For the full year of 2006, Lear expects record worldwide net sales of approximately $18 billion, reflecting primarily the addition of new business globally, partially offset by unfavorable platform mix. Net sales guidance is up about $300 million from the prior guidance reflecting primarily the forecast for a stronger Euro ($1.25/Euro vs. $1.20/Euro).
Lear anticipates 2006 income before interest, other expense, income taxes, impairments, restructuring costs and other special items (core operating earnings) to be in the range of $400 to $440 million, unchanged from the prior guidance. This compares with $325 million a year ago. Restructuring costs for 2006 are estimated to be in the range of $120 to $150 million. A reconciliation of core operating earnings to pretax loss
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for 2005 as determined by generally accepted accounting principles is provided in the attached supplemental data pages.
Interest expense is estimated to be in the range of $220 to $230 million in 2006, compared with $183 million last year. Pretax income before impairments, restructuring costs and other special items is estimated to be in the range of $120 to $160 million. This compares with $97 million last year. A reconciliation of pretax income before impairments, restructuring costs and other special items to pretax loss for 2005 as determined by generally accepted accounting principles is provided in the attached supplemental data pages. Cash taxes are estimated to be within a range of $80 to $100 million, compared with $113 million last year.
Free cash flow is expected to be in the range of positive $50 to $100 million, compared with negative $419 million a year ago. This reflects improved earnings, lower capital spending, reduced tooling and engineering costs and improved net working capital, offset in part by higher cash costs for restructuring. (Net cash provided by operating activities for 2005 was $561 million. A reconciliation of free cash flow to net cash provided by operating activities for 2005 is provided in the attached supplemental data pages.)
Capital spending in 2006 is estimated at approximately $400 million, down from last year’s peak level due primarily to lower launch activity. Depreciation and amortization are expected to be in the range of $410 to $420 million, compared with $393 million last year.
Industry production assumptions underlying Lear’s financial outlook include 15.7 million units in North America, which is down slightly from a year ago, and 19 million units in Europe, roughly flat with a year ago. The financial outlook includes all existing Lear operations for the full year (including the European Interiors business, with annual net sales of about $750 million). See the “Forward-Looking Statements” section at the end of this release.
Lear Corporation is one of the world’s largest suppliers of automotive interior systems and components. Lear provides complete seat systems, electronic products and electrical distribution systems and other interior products. With annual net sales of $17.1 billion in 2005, Lear ranks #127 among the Fortune 500. Lear’s world-class products are designed, engineered and manufactured by a diverse team of 115,000 employees at 282 locations in 34 countries. Lear’s headquarters are in Southfield, Michigan, and Lear is traded on the New York Stock Exchange under the symbol [LEA]. Further information about Lear is available on the Internet at http://www.lear.com.
Lear Corporation [NYSE: LEA] will hold a conference call to review the Company’s second-quarter 2006 financial results and related matters on Friday, July 28, 2006, at 8:00 a.m. EDT. To participate in the conference call, dial 1-800-789-4751 (domestic) or 1-706-679-3323 (international). You may also listen to the live audio webcast of the call, in listen-only mode, on the corporate website at www.lear.com.
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An audio replay will be available two hours following the call at 1-800-642-1687 (domestic) and 1-706-645-9291 (international). The audio replay will be available until August 10, 2006 (Conference I.D. 9785873).
Use of Non-GAAP Financial Information
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included throughout this press release, the Company has provided information regarding certain non-GAAP financial measures. These measures include “income before interest, other expense, income taxes, impairments, restructuring costs and other special items (core operating earnings)”, “pretax income before impairments, restructuring costs and other special items” and “free cash flow.” Free cash flow represents net cash provided by operating activities before the net change in sold accounts receivable, less capital expenditures. The Company believes it is appropriate to exclude the net change in sold accounts receivable in the calculation of free cash flow since the sale of receivables may be viewed as a substitute for borrowing activity.
Management believes that the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company’s financial position and results of operations. In particular, management believes that core operating earnings and pretax income before impairments, restructuring costs and other special items are useful measures in assessing the Company’s financial performance by excluding certain items that are not indicative of the Company’s core operating earnings or that may obscure trends useful in evaluating the Company’s continuing operating activities. Management also believes that these measures are useful to both management and investors in their analysis of the Company’s results of operations and provide improved comparability between fiscal periods. Management believes that free cash flow is useful to both management and investors in their analysis of the Company’s ability to service and repay its debt. Further, management uses these non-GAAP financial measures for planning and forecasting in future periods.
Core operating earnings, pretax income before impairments, restructuring costs and other special items and free cash flow should not be considered in isolation or as substitutes for net income (loss), pretax income (loss), cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as measures of profitability or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and therefore, does not reflect funds available for investment or other discretionary uses. Also, these non- GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies.
For a reconciliation of 2005 core operating earnings to pretax loss as determined by generally accepted accounting principles, a reconciliation of 2005 pretax income before impairments, restructuring costs and other special items to pretax loss as determined by generally accepted accounting principles and a reconciliation of second-quarter 2006 and full-year 2005 free cash flow to net cash provided by operating
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activities, see the supplemental data pages which, together with this press release, have been posted on the Company’s website through the Investor Relations link at http://www.lear.com. Given the inherent uncertainty regarding special items and the net change in sold accounts receivable in any future period, a reconciliation of forward-looking financial measures is not feasible. The magnitude of these items, however, may be significant.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated financial results and liquidity. Actual results may differ materially from anticipated results as a result of certain risks and uncertainties, including but not limited to, general economic conditions in the markets in which the Company operates, including changes in interest rates or currency exchange rates, fluctuations in the production of vehicles for which the Company is a supplier, labor disputes involving the Company or its significant customers or suppliers or that otherwise affect the Company, the Company’s ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions, the outcome of customer productivity negotiations, the impact and timing of program launch costs, the costs and timing of facility closures, business realignment or similar actions, increases in the Company’s warranty or product liability costs, risks associated with conducting business in foreign countries, competitive conditions impacting the Company’s key customers and suppliers, raw material costs and availability, the Company’s ability to mitigate the significant impact of increases in raw material, energy and commodity costs, the outcome of legal or regulatory proceedings to which the Company is or may become a party, unanticipated changes in cash flow, including the Company’s ability to align its vendor payment terms with those of its customers, the finalization of the Company’s restructuring strategy, the outcome of various strategic alternatives being evaluated with respect to its Interior segment and other risks described from time to time in the Company’s Securities and Exchange Commission filings. In particular, the Company’s financial outlook for 2006 is based on the Company’s current vehicle production and raw material pricing forecast; the Company’s actual financial results could differ materially as a result of significant changes in these factors. The Company’s agreement to contribute its European Interiors business to International Automotive Components Group, LLC is subject to various conditions, including third-party consents and other closing conditions customary for transactions of this type. No assurances can be given that the proposed transaction will be completed on the terms contemplated or at all.
The forward-looking statements in this press release are made as of the date hereof, and the Company does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof.
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Lear Corporation and
Subsidiaries
Consolidated Statements of Operations
(Unaudited; in millions, except per share amounts)
| Three Months
Ended |
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| July 1, 2006 |
July 2, 2005 |
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| Net sales | $ | 4,810.2 | $ | 4,419.3 | ||||
| Cost of sales | 4,526.1 | 4,198.5 | ||||||
| Selling, general and administrative expenses | 173.8 | 190.8 | ||||||
| Interest expense | 53.2 | 48.2 | ||||||
| Other expense, net | 25.6 | 32.2 | ||||||
| Income (loss) before income taxes | 31.5 | (50.4 | ) | |||||
| Income taxes | 37.9 | (6.0 | ) | |||||
| Net loss | (6.4 | ) | (44.4 | ) | ||||
| Basic net loss per share | $ | (0.10 | ) | $ | (0.66 | ) | ||
| Diluted net loss per share | $ | (0.10 | ) | $ | (0.66 | ) | ||
| Weighted
average number of shares outstanding - basic |
67.3 | 67.1 | ||||||
| Weighted
average number of shares outstanding - diluted |
67.3 | 67.1 | ||||||
6
Lear Corporation and
Subsidiaries
Consolidated Statements of Operations
(Unaudited; in millions, except per share amounts)
| Six Months
Ended |
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| July 1, 2006 |
July 2, 2005 |
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| Net sales | $ | 9,488.7 | $ | 8,705.3 | ||||
| Cost of sales | 8,985.4 | 8,284.6 | ||||||
| Selling, general and administrative expenses | 338.8 | 341.9 | ||||||
| Interest expense | 100.9 | 93.0 | ||||||
| Other expense, net | 17.3 | 39.1 | ||||||
| Income (loss)
before income taxes and cumulative effect of a change in accounting principle |
46.3 | (53.3 | ) | |||||
| Income taxes | 37.7 | (24.5 | ) | |||||
| Income (loss) before cumulative effect of a change in accounting principle | 8.6 | (28.8 | ) | |||||
| Cumulative effect of a change in accounting principle | 2.9 | — | ||||||
| Net income (loss) | $ | 11.5 | $ | (28.8 | ) | |||
| Basic net income (loss) per share | ||||||||
| Income
(loss) before cumulative effect of a change in accounting principle |
$ | 0.13 | $ | (0.43 | ) | |||
| Cumulative effect of a change in accounting principle | 0.04 | — | ||||||
| Basic net income (loss) per share | $ | 0.17 | $ | (0.43 | ) | |||
| Diluted net income (loss) per share | ||||||||
| Income
(loss) before cumulative effect of a change in accounting principle |
$ | 0.13 | $ | (0.43 | ) | |||
| Cumulative effect of a change in accounting principle | 0.04 | — | ||||||
| Diluted net income (loss) per share | $ | 0.17 | $ | (0.43 | ) | |||
| Weighted
average number of shares outstanding - basic |
67.3 | 67.2 | ||||||
| Weighted
average number of shares outstanding - diluted |
68.0 | 67.2 | ||||||
7
Lear Corporation and
Subsidiaries
Consolidated Balance Sheets
(In millions)
| July 1, 2006 |
December 31, 2005 |
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| ASSETS | (Unaudited) | (Audited) | ||||||
| Current: | ||||||||
| Cash and cash equivalents | $ | 250.6 | $ | 207.6 | ||||
| Accounts receivable | 2,747.2 | 2,337.6 | ||||||
| Inventories | 694.0 | 688.2 | ||||||
| Recoverable customer engineering and tooling | 252.5 | 317.7 | ||||||
| Other | 290.7 | 295.3 | ||||||
| 4,235.0 | 3,846.4 | |||||||
| Long-Term: | ||||||||
| PP&E, net | 2,017.1 | 2,019.3 | ||||||
| Goodwill, net | 1,978.2 | 1,939.8 | ||||||
| Other | 543.7 | 482.9 | ||||||
| 4,539.0 | 4,442.0 | |||||||
| Total Assets | $ | 8,774.0 | $ | 8,288.4 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current: | ||||||||
| Short-term borrowings | $ | 11.9 | $ | 23.4 | ||||
| Accounts payable and drafts | 3,083.9 | 2,993.5 | ||||||
| Accrued liabilities | 1,245.2 | 1,080.4 | ||||||
| Current portion of long-term debt | 13.9 | 9.4 | ||||||
| 4,354.9 | 4,106.7 | |||||||
| Long-Term: | ||||||||
| Long-term debt | 2,415.8 | 2,243.1 | ||||||
| Other | 828.8 | 827.6 | ||||||
| 3,244.6 | 3,070.7 | |||||||
| Stockholders’ Equity | 1,174.5 | 1,111.0 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 8,774.0 | $ | 8,288.4 | ||||
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Lear Corporation and
Subsidiaries
Supplemental Data
(Unaudited; in millions, except content per vehicle and share data)
| Three Months
Ended |
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| July 1, 2006 |
July 2, 2005 |
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| Net Sales | |||||||||
| North America | $ | 2,714.5 | $ | 2,304.7 | |||||
| Europe | 1,713.1 | 1,791.0 | |||||||
| Rest of World | 382.6 | 323.6 | |||||||
| Total | $ | 4,810.2 | $ | 4,419.3 | |||||
| Content Per Vehicle * | |||||||||
| North America | $ | 661 | $ | 557 | |||||
| Total Europe | $ | 344 | $ | 344 | |||||
| Free Cash Flow ** | |||||||||
| Net cash provided by operating activities | $ | 74.8 | $ | 407.6 | |||||
| Net change in sold accounts receivable | 18.1 | (267.3 | ) | ||||||
| Net
cash provided by operating activities before net change in sold accounts receivable |
92.9 | 140.3 | |||||||
| Capital expenditures | (92.1 | ) | (149.7 | ) | |||||
| Free cash flow | $ | 0.8 | $ | (9.4 | ) | ||||
| Depreciation | $ | 102.3 | $ | 94.6 | |||||
| Six Months
Ended |
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| July 1, 2006 |
July 2, 2005 |
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| Net Sales | |||||||||
| North America | $ | 5,356.3 | $ | 4,534.6 | |||||
| Europe | 3,390.3 | 3,572.9 | |||||||
| Rest of World | 742.1 | 597.8 | |||||||
| Total | $ | 9,488.7 | $ | 8,705.3 | |||||
| Content Per Vehicle * | |||||||||
| North America | $ | 650 | $ | 556 | |||||
| Total Europe | $ | 338 | $ | 356 | |||||
| Free Cash Flow ** | |||||||||
| Net cash provided by operating activities | $ | 114.2 | $ | 526.1 | |||||
| Net change in sold accounts receivable | (20.0 | ) | (267.3 | ) | |||||
| Net
cash provided by operating activities before net change in sold accounts receivable |
94.2 | 258.8 | |||||||
| Capital expenditures | (184.7 | ) | (279.1 | ) | |||||
| Free cash flow | $ | (90.5 | ) | $ | (20.3 | ) | |||
| Depreciation | $ | 198.9 | $ | 189.1 | |||||
| Basic Shares Outstanding at end of quarter | 67,338,918 | 67,110,096 | |||||||
| Diluted Shares Outstanding at end of quarter *** | 67,338,918 | 67,110,096 | |||||||
| * | Content Per Vehicle for 2005 has been updated to reflect actual production levels. |
| ** | See "Use of Non-GAAP Financial Information" included in this news release. |
| *** | Calculated using stock price at end of quarter. Diluted shares outstanding exclude shares related to outstanding convertible debt, as well as options, restricted stock units, performance units and stock appreciation rights, all of which were antidilutive. |
9
Lear Corporation and
Subsidiaries
Supplemental Data
(Unaudited; in millions)
| 2005
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|---|---|---|---|---|---|
| Income
before interest, other expense, income taxes, impairments, restructuring costs and other special items * |
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| Loss before provision for income taxes | $ | (1,187.2 | ) | ||
| Goodwill impairment charges | 1,012.8 | ||||
| Interest expense | 183.2 | ||||
| Other expense, net | 96.6 | ||||
| Restructuring actions | 106.3 | ||||
| Fixed asset impairment charges | 82.3 | ||||
| Litigation charges | 30.5 | ||||
| Income before
interest, other expense, income taxes, impairments, restructuring costs and other special items (Core Operating Earnings) |
$ | 324.5 | |||
| Pretax
income before impairments, restructuring costs and other special items * |
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| Loss before provision for income taxes | $ | (1,187.2 | ) | ||
| Goodwill impairment charges | 1,012.8 | ||||
| Restructuring actions | 102.8 | ||||
| Fixed asset impairment charges | 82.3 | ||||
| Litigation charges | 39.2 | ||||
| Sale and capital restructuring of joint ventures | 46.7 | ||||
| Pretax income
before impairments, restructuring costs and other special items |
$ | 96.6 | |||
| Free cash flow * | |||||
| Net cash provided by operating activities | $ | 560.8 | |||
| Net change in sold accounts receivable | (411.1 | ) | |||
| Net cash
provided by operating activities before net change in sold accounts receivable |
149.7 | ||||
| Capital expenditures | (568.4 | ) | |||
| Free cash flow | $ | (418.7 | ) | ||
* See "Use of Non-GAAP Financial Information" included in this news release.
10
fast forward
advance relentlessly
R
Second-Quarter Results and
Full-Year 2006 Financial Guidance
July
28, 2006
Exhibit 99.2
1
Agenda
Financial Review
Jim Vandenberghe, Vice Chairman and CFO
Operating Review
Doug DelGrosso, President and COO
Summary and Outlook
Bob Rossiter, Chairman and CEO
Q and A Session
2
Financial Review
3
Second Quarter 2006
Highlights
Second-quarter financial results showed year-over-year
improvement; full year earnings guidance unchanged*
Signed definitive agreement to contribute European Interiors
business to JV with WL Ross & Co. LLC in return for a 34%
stake (subject to adjustment); Lear will record a loss on sale
of about
$40 million when transaction closes; expected in
Third Quarter*
Received recognition for excellence in quality and service
from several major customers and industry sources
Continued to win new business with Asian manufacturers
Operating Results Are Improving And We Are Making
Progress On Strategic Initiatives*
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
4
Second Quarter 2006
Industry Environment
5
Second Quarter
Second Quarter
2006
2006 vs. 2005
North America Production
Industry
4.1 mil
Down 1%
Big Three
2.9 mil
Down 1%
Lear's Top 15 Platforms
1.4 mil
Down 2%
Europe Production
Industry
5.0 mil
Down 4%
Lear's Top 5 Customers
2.5 mil
Down 2%
Euro
$1.25 / Euro
1% Weaker
Key Commodities
Steel (Hot Rolled)
Up 6%
Up 5%
Resins (Polypropylene)
Up 6%
Up 20%
Copper
Up 35%
Up 107%
Crude Oil
Up 11%
Up 30%
Second Quarter 2006
Financial Summary*
* Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information.
6
(in millions, except net income per share)
Second
Quarter 2006
Second
Quarter 2005
2
Q '06
B/(W)
2
Q '05
Net Sales
$
4
,
810.2
$4,
419
.
3
$
390
.
9
Income Before Interest, Other Expense and
Income Taxes*
$
11
0
.
3
$
30
.
0
$
80.3
Margin
2
.
3
%
0
.
7
%
1
.
6
pts.
Pretax Income (Loss)
$
3
1
.
5
($
50.4
)
$
81.9
Net
Loss
(
$
6.4)
(
$
44
.
4)
$
38
.
0
Net
Loss
Per Share
($0.10)
($0.66)
$0.56
SG&A % of Net Sales
3.6
%
4
.
3
%
0.
7
pts.
Interest Expense
$
53.2
$4
8
.
2
($
5.0
)
Depreciation / Amortization
$
103.
5
$
95.
7
($
7
.
8
)
Other
Exp
ense, Net
$
25.
6
$
32.2
$
6.6
Second Quarter 2006
Restructuring and Special Items
7
* Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information.
** Reflects $21 million
settlement of tax indemnity claim related to the Company’s 1999 acquisition of UT Automotive, a portion
of which was attributable to goodwill in the
Interior segment.
(in millions)
Income Before
Interest, Other
Expense and
Income Taxes*
Pretax
Income
(Loss)
COGS
SG&A
Other
(Income)
2006 Reported Results
$ 110.3
$ 31.5
Reported results include the following items:
Costs for Global Restructuring Actions
$ 18.9
$ 14.9
14.1
$
4.8
$
$ (4.0)
Asset Impairment for N.A. Interiors Business
7.2
7.2
7.2
-
-
Goodwill Impairment in Interior Segment**
2.9
2.9
-
2.9
-
Gain on Prior Sale of Interest in Receptec JV
-
(1.0)
-
-
(1.0)
2006 Core Operating Results
$ 139.3
$ 55.5
2005 Core Operating Results
$ 87.1
$ 29.1
Second Quarter
Income Statement Category
Memo:
Second Quarter 2006
Net Sales Changes and Margin Impact Versus Prior Year
8
Net Sales
Margin
Performance Factor
Change
Impact
Comments
(millions)
Industry Production /
$ (280)
Negative
Primarily unfavorable platform mix,
Platform Mix / Net Pricing
reflecting lower pickup truck and mid-size
SUV production.
Global New Business
645
Positive
2005 launches ramping up: DTS /
Lucerne, Impala / Monte Carlo, Fusion /
Milan / Zephyr, Ram, Sonata, Punto
F/X Translation
25
Neutral
Euro down 1%, Canadian dollar up 11%
Commodity / Raw Material
Negative
Unfavorable year over year increases--
steel up 5%, polypropylene up 20%,
copper up 107% and crude oil up 30%
Performance
Positive
Reflects operating improvements in core
businesses, including benefits from
restructuring actions
Second Quarter 2006
Segment Results
9
* Segment earnings represent income (loss) before interest, other (income) expense and income taxes. Income before interest, other
expense and income taxes
for the Company was $110.3 million and $30.0 million for the second quarter of 2006 and 2005, respectively.
** Adjusted % of sales excludes restructuring and other costs of $28.5 million (Seating - $3.6, Electronic and Electrical - $12.8, Interior -
$12.1) in second quarter
2006 and $56.3 million (Seating - $42.9, Electronic and Electrical - $10.2, Interior - $3.2) in second quarter
2005.
2Q '06
2Q '05
Comments
Seating
Net Sales
3,096.1
$
2,879.9
$
• Strong new business globally
Segment Earnings*
171.5
$
48.5
$
• Improved Asian profitability
% of Sales
5.5
%
1.7
%
• Net cost improvements
Adjusted
% of Sales**
5.7
%
3.2
%
Electronic and Electrical
Net Sales
787.7
$
772.4
$
• Higher commodity costs
Segment Earnings*
38.0
$
52.2
$
• Competitive price pressure
% of Sales
4.8
%
6.8
%
• Transition to low-cost locations
Adjusted
% of Sales**
6.4
%
8.1
%
Interior
Net Sales
926.4
$
767.0
$
• Insufficient pricing
Segment Earnings*
(37.2)
$
(17.8)
$
• High raw material costs
% of Sales
(4.0)
%
(2.3)
%
• Inefficiencies related to major
Adjusted
% of Sales**
(2.7)
%
(1.9)
%
launches & capacity utilization
Second Quarter 2006
Free Cash Flow*
(in millions)
* Free Cash Flow represents net cash provided by operating activities
($74.8 million for the three months ended 7/1/06) before net
change in sold accounts receivable ($18.1 million for the three months ended 7/1/06) less capital expenditures. Please see
slides titled “Use of Non-GAAP Financial Information”
at the end of this presentation for further information.
10
Second Quarter
2006
Net Loss
$ (6.4)
Depreciation / Amortization
103.5
Working Capital / Other
(4.2)
Cash from Operations
$ 92.9
Capital Expenditures
(92.1)
Free Cash Flow
$ 0.8
2006 Guidance
Key Assumptions*
11
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
2006 Guidance
2006 vs. 2005
North America Production
Industry
˜ 15.7 mil
down slightly
Lear's Top 15 Platforms
˜ 5.0 mil
down about 5%
Lear Launches
high
down from 2005 peak
Europe Production
Industry
˜ 19.0 mil
about flat
Lear's Top 5 Customers
˜ 9.5 mil
about flat
Lear Launches
moderate
about the same
Euro
$1.25 / Euro
no change
2006 Guidance
Key Factors Impacting Our Second Half Outlook
North American production turns less favorable:
Industry forecast to be down 3%
(vs. 2% increase in first half)
Lear’s top 15 platforms expected to be down 7%
(vs. 2% decline in first half)
European production environment unchanged
Raw material & energy prices stabilize
Launch-related cost impact turns favorable
Restructuring actions yield increasing net benefits
12
2006 Guidance
Key Financial Projections*
13
Major Change Is $300 Million Increase In Net Sales,
Reflecting Primarily Revised Euro Assumption
Pretax loss for 2005 was $1,187 million. Please see slides titled “Use of Non-GAAP Financial Information” and “Forward-Looking Statements”
at the end of this presentation
for further information.
(in millions)
2005
2006 Guidance
Net Sales
$17,089
˜ $18,000
Core Operating Earnings
$325
$400 - 440
Income before interest, other expense,
income taxes, impairments, restructuring
costs and other special items
Interest Expense
$183
$220 - 230
Pretax Income
$97
$120 - 160
before impairments, restructuring costs
and other special items
Cash Taxes
$113
$80 - 100
Pretax Restructuring Costs
$103
$120 - 150
2006 Guidance
Capital Spending Forecast*
(in millions)
Capital Spending Level Should
Trend Lower On An Ongoing Basis
Capital Spending Impacts:
More moderate launch
schedule in 2006
Spending for common
architecture strategy, such as
Lear Flexible Seating, largely
in place
Low-cost country spending
moderates
Memo:
Depreciation
and Amortization
$ 393
$410 to $420
~ $400
$568
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
14
2006 Guidance
Free Cash Flow Forecast*
Net cash provided by operating activities for 2005 was $561 million. Please see slides titled “Use of Non-GAAP Financial Information” and
“Forward-Looking Statements”
at the end of this presentation for further information.
2005
2006 Guidance
(in millions)
Cash Flow Drivers:
Higher earnings
Lower capital spending
Reduced tooling and
engineering
Improved net working capital
15
2006 Guidance
Strategy For Interior Segment*
Signed Definitive Agreement to Contribute Substantially all of Lear’s
European Interior Business to International Automotive Components
Group, LLC in Return for a 34% Stake:
Creates a large [20 manufacturing facilities in 9 countries, with
$1.2 billion in annual sales] and well capitalized enterprise
Solid platform for improving ongoing operating efficiency and
financial performance
Expected to close in the Third Quarter
Working Aggressively to Restructure Operations and Put in Place a
New Business Model for Lear’s North American Interior
Business:
Cash flow expected to be neutral in Second Half
Continuing to evaluate strategic alternatives
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
Making Solid Progress On Restructuring And
Strategically Repositioning Interiors Business
16
Operating Review
17
Operating Priorities
Innovation and Technology
New Asian Business
Customer Focus
Competitiveness / Operational Excellence
Sales Growth and Customer Diversification
Global Restructuring Actions
Competitive Global Footprint
Efficient Launch Execution
Superior Quality and Service
18
Operating Priorities
Maintain Quality and Customer Service Momentum
Customer
General Motors--Supplier of the Year for Seating Systems (Global)
Ford Motor Company--Special Recognition for Customer Service (Global)
--Special Recognition for Design Engagement (Europe)
Toyota--Superior Logistics Performance (Argentina)
Mazda--Value Engineering Award for Number of Ideas Submitted (Japan)
Volkswagen--Excellence in Quality and Product Development (Mexico)
--Best Quality and
Among Top Three in Cost Reduction (Brazil)
Industry
Auto Interiors Show--Lear Content on all Six ‘Interior of the Year’ Winning
Vehicles (United States)
Industry Week Magazine--Lear’s Liberty, Missouri plant among Finalists for
Best Plant Award (North America)
DLC Design--4.7 Rating (out of 5) for Lear Audio System in the BMW 530i
(2006 SAE World Congress)
19
Same Excellent Performance in TGW
35% improvement since 1999
Lear leads in 2 out of 5 Major Vehicle
Segments for Best Quality Seats:
Best Light Truck Seat Quality--
Ford F-150
Best European Seat Quality--
Saab 9-3 Sedan
Source: 2006 J.D. Power Seat Quality Report
Lear’s 2006 J.D. Power Results
Things Gone Wrong (TGW)
per 100 vehicles
Operating Priorities
Continue to be a Leader in Seat Quality
Highest Quality Major Seat Manufacturer In U.S.
20
Operating Priorities
Implement Restructuring Actions*
Objectives Are To Eliminate Excess Capacity,
Streamline Organizational Structure
And Accelerate Manufacturing Footprint Actions
Announced closure of nine
manufacturing facilities and
several administrative offices
Targeting closure of five to
seven additional manufacturing
facilities
Implementing census
reductions and other efficiency
actions
Cumulative Actions
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
21
2006 Cost and Cash Impact
(in millions)
Pretax
Cost
Cash
First Quarter
$ 25
$ 25
Second Quarter
15
17
First Half
$ 40
$ 42
Second Half
$ ˜ 80 - 110
$ ˜ 80 - 110
Total
$ ˜ 120 - 150
$ ˜ 125 - 155
Today, About 30% Of Lear’s Components Come From
23 Low-Cost Countries; Target Is 40% By 2010*
Central America
Mexico [ WH, TC, IT]
Honduras [ WH]
South America
Argentina [ WH, IT]
Brazil [ TC, IT]
Venezuela
Eastern Europe
Czech Republic [ WH, IT]
Estonia
Hungary [ WH, TC]
Poland [ WH, TC, IT]
Romania [ WH]
Russia
Slovakia [ IT]
Slovenia
Turkey [ WH, TC]
Africa
Morocco [ WH]
S. Africa [ WH]
Tunisia [ WH]
Asia
China [ WH, TC, IT]
India [ IT]
Philippines [ WH]
South Korea [ TC]
Taiwan
Thailand [ TC]
Operating Priorities
Competitive Global Footprint
Legend for Product Examples
Wire Harness……WH
Trim Cover……….TC
Interior Trim………IT
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
22
Operating Priorities
Efficiently Manage Product Launch Schedule
Global Launch Activity Peaked In 2005, As Half Of Our
North American Sales Were Undergoing Changeover
% of North American Sales on Platforms
Undergoing Changeover to New Models
23
Operating Priorities
Driving Innovation and Technology
Opened New Global Innovation
and
Technology Center in Southfield, MI
Launched New Core
Dimension Product Strategy
and
Advertising Campaign
24
Operating Priorities
Innovative Product Solutions--Car2UTM
Two-Way Remote Keyless Entry
Leveraging Lear’s Radio Frequency Expertise
To Launch A Family Of Car2UTM Wireless Products
Home Automation System
25
Operating Priorities
Win New Asian Business*
26
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
Continuing To Win New Business In Asia
And With Asian Manufacturers Globally
Lear
Automaker
Market
Business
Vehicle
Nissan
Europe
Est. Tacle JV in
Sunderland, U.K. with
Tachi-S
New Compact
Crossover and
Future Programs
Honda
U.S.
Wiring
Accord
Nanjing Group
China
Seating
Rover
BMW
China
Seating and
Entertainment System
5-Series
Nissan
China
Seating
P32L
Various Chinese
China
Primarily Seating
Numerous
and Electrical
Programs
Tata Motors
India
Seating
X-2
Summary
and Outlook
27
Summary and Outlook
Lear Financial Results Improving*
Second-quarter and first half operating results better than
a year ago
Launch costs expected to moderate in second half
Capital spending returning to more moderate levels
Free cash flow expected to turn positive this year
Given the production outlook and raw material price
forecast we see today, we are holding our full year 2006
earnings guidance unchanged
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
First Half Results Better Than A Year Ago,
Targeting Improvement In Full Year Operating Results
28
Summary and Outlook
Improving our Global Competitiveness*
Continuously improving our quality and customer
satisfaction levels
Successfully implementing global restructuring initiatives
Increasing sourcing and engineering from low-cost
locations
Strategically managing the business to improve individual
product-line returns
Leveraging our global scale, expertise and common
architecture strategy to deliver the best overall value
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
Comprehensive Initiatives Being Implemented
To Ensure Future Competitiveness
29
Summary and Outlook
Making Progress on Strategic Priorities*
Global Seating margins improving
Plans in place to maintain Electronic and Electrical margins
Signed definitive agreement to contribute European Interior
business to International Automotive Components Group, LLC
Priority focus on improving our North American Interior
business and putting in place a sustainable business model
Continuing to aggressively grow sales in Asia and with Asian
Automakers globally
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
Lear’s Operating Results Improving;
Longer-Term Outlook Remains Positive
30
ADVANCE RELENTLESSLY™
www.lear.com
LEA
NYSE
Listed
R
31
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included
throughout this presentation, the Company has
provided information regarding certain non-GAAP financial measures. These measures
include “income before interest, other expense and income taxes,” “income before interest, other expense, income taxes, impairments,
restructuring
costs and other special items” (core operating earnings), “pretax income before impairments, restructuring costs and other
special items” and “free cash flow.” Free cash flow represents net cash provided by operating
activities before the net change in sold
accounts receivable, less capital expenditures. The Company believes it is appropriate to exclude the net change in sold accounts
receivable in the calculation of free cash flow since the sale of receivables
may be viewed as a substitute for borrowing activity.
Management believes that the non-GAAP financial measures used in this presentation are useful to both management and investors in their
analysis of the Company’s financial position and results
of operations. In particular, management believes that income before interest, other
expense and income taxes, core operating earnings and pretax income before impairments, restructuring costs and other special items are
useful measures in assessing
the Company’s financial performance by excluding certain items that are not indicative of the Company’s core
operating earnings or that may obscure trends useful in evaluating the Company’s continuing operating activities. Management
also
believes that these measures are useful to both management and investors in their analysis of the Company's results of operations and
provide improved comparability between fiscal periods. Management believes that free cash flow is useful
to both management and
investors in their analysis of the Company’s ability to service and repay its debt. Further, management uses these non-GAAP financial
measures for planning and forecasting in future periods.
Income before interest, other expense and income taxes, core operating earnings, pretax income before impairments, restructuring costs
and other special items and free cash flow should not be
considered in isolation or as substitutes for net income (loss), pretax income (loss),
cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as
measures of profitability or liquidity. In
addition, the calculation of free cash flow does not reflect cash used to service debt and therefore,
does not reflect funds available for investment or other discretionary uses. Also, these
non-GAAP financial measures, as determined and
presented by the Company, may not be comparable to related or similarly titled measures reported by other companies.
Set forth on the following slides are reconciliations of these non-GAAP financial measures to the most directly comparable financial
measures calculated and presented in accordance with GAAP. Given
the inherent uncertainty regarding special items and the net change
in sold accounts receivable in any future period, a reconciliation of forward-looking financial measures is not feasible. The magnitude of
these items, however, may be significant.
Use of Non-GAAP Financial Information
32
Use of Non-GAAP Financial Information
33
Income before interest, other expense and income
taxes
Q2 2006
Q2 2005
(in millions)
Income (loss) before income taxes
$ 31.5
$ (50.4)
Interest expense
53.2
48.2
Other expense, net
25.6
32.2
Income before interest, other expense and income
taxes
$ 110.3
$ 30.0
Use of Non-GAAP Financial Information
34
Income before interest, other expense, income taxes,
impairments, restructuring costs and other special
items
2005
Q2 2005
(in millions)
Loss before provision for income taxes
$ (1,187.2)
$ (50.4)
Goodwill impairment charges
1,012.8
-
Interest expense
183.2
48.2
Other expense, net
96.6
32.2
Restructuring actions
106.3
27.1
Fixed asset impairment charges
82.3
-
Litigation charges
30.5
30.0
Income before interest, other expense, income taxes,
impairments, restructuring costs and other special items
(Core Operating Earnings)
$ 324.5
$ 87.1
Use of Non-GAAP Financial Information
35
Pretax income before impairments, restructuring
costs and other special items
2005
Q2 2005
(in millions)
Loss before provision for income taxes
$ (1,187.2)
$ (50.4)
Goodwill impairment charges
1,012.8
-
Restructuring actions
102.8
27.1
Fixed asset impairment charges
82.3
-
Litigation charges
39.2
35.5
Sale and capital restructuring of joint ventures
46.7
16.9
Pretax income before impairments, restructuring costs and
other special items
$ 96.6
$ 29.1
Use of Non-GAAP Financial Information
36
Free Cash Flow
Q2 2006
2005
(in millions)
Net cash provided by operating activities
$ 74.8
$ 560.8
Net change in sold accounts receivable
18.1
(411.1)
Net cash provided by operating activities
before net change in sold accounts receivable
(cash from operations)
$ 92.9
$ 149.7
Capital expenditures
(92.1)
(568.4)
Free cash flow
$ 0.8
$ (418.7)
Forward-Looking Statements
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements
regarding anticipated financial results and liquidity. Actual results may differ materially from
anticipated results as a result of certain risks and uncertainties, including but not limited to, general economic conditions in
the markets in which the
Company operates, including changes in interest rates or currency exchange rates, fluctuations
in the production of vehicles for which the Company is a supplier, labor disputes involving the Company or its significant
customers or suppliers or that
otherwise affect the Company, the Company's ability to achieve cost reductions that offset
or exceed customer-mandated selling price reductions, the outcome of customer productivity negotiations, the impact and
timing of program launch costs, the costs
and timing of facility closures, business realignment or similar actions, increases
in the Company's warranty or product liability costs, risks associated with conducting business in foreign countries,
competitive conditions impacting the Company's
key customers and suppliers, raw material costs and availability, the
Company's ability to mitigate the significant impact of increases in raw material, energy and commodity costs, the
outcome of legal or regulatory proceedings to which the Company
is or may become a party, unanticipated changes in
cash flow, including the Company’s ability to align its vendor payment terms with those of its customers, the finalization of
the Company's restructuring strategy, the outcome of various strategic
alternatives being evaluated with respect to its
Interior segment and other risks described from time to time in the Company's Securities and Exchange Commission
filings. In particular, the Company’s financial outlook for 2006 is based on the Company’s
current vehicle production and
raw material pricing forecast; the Company’s actual financial results could differ materially as a result of significant
changes in these factors. The Company's agreement to contribute its European Interiors
business to International
Automotive Components Group, LLC is subject to various conditions, including third-party consents and other closing
conditions customary for transactions of this type. No assurances can be given that the proposed transaction
will be
completed on the terms contemplated or at all.
The forward-looking statements in this presentation are made as of the date hereof, and the Company does not assume
any obligation to update, amend or clarify them to reflect events, new information or circumstances
occurring after the
date hereof.
37