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) April 25, 2007
LEAR CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware |
1-11311 |
13-3386776 |
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(State or other |
(Commission File Number) |
(IRS Employer |
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jurisdiction of |
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Identification |
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incorporation) |
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Number) |
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21557 Telegraph Road, Southfield, Michigan |
48033 |
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(Address of principal executive offices) |
(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:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Lear Corporation (“Lear” or the “Company”) is filing this Form 8-K to (i) furnish information regarding Lear’s results of operations for the first quarter of 2007, (ii) update Lear’s financial outlook for 2007 and (iii) supplement Lear’s Current Report on Form 8-K initially filed on June 27, 2005, as supplemented on August 30, 2005, January 25, 2006, October 26, 2006, January 11, 2007 and January 25, 2007, in order to update certain disclosures with respect to Lear’s restructuring strategy (the “Restructuring”).
FORWARD-LOOKING STATEMENTS
The Current Report on Form 8-K 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, the financial condition of the Company’s customers or suppliers, fluctuations in the production of vehicles for which the Company is a supplier, disruptions in the relationships with the Company’s suppliers, 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 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 2007 is based on several factors, including the Company’s current vehicle production and raw material pricing assumptions. The Company’s actual financial results could differ materially as a result of significant changes in these factors. The Company’s proposed merger with AREP Car Acquisition Corp. is subject to various conditions including the receipt of the requisite stockholder approval from the Company’s stockholders, antitrust approvals and other conditions to closing customary for transactions of this type. No assurances can be given that the proposed transaction will be consummated or, if not consummated, that the Company will enter into a comparable or superior transaction with another party.
The forward-looking statements in this Current Report on Form 8-K 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.
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 April 25, 2007, Lear Corporation issued a press release reporting its financial results for the first quarter of 2007 and updating its financial outlook for 2007. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.
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On April 25, 2007, Lear Corporation made available the presentation slides attached hereto as Exhibit 99.2 in a webcast of its first quarter 2007 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.
Item 2.05 Costs Associated with Exit or Disposal Activities.
As part of its previously announced Restructuring, Lear has continued consolidation and census actions. In the first quarter of 2007, these actions resulted in net charges of $15.8 million, consisting of employee termination costs of $24.1 million, fixed asset impairment charges of $0.4 million, contract termination costs of ($12.7) million (including a net pension and other postretirement benefit plan curtailment gain of $13.9 million) and other costs of $4.0 million (including $2.2 million of manufacturing inefficiency costs resulting from the Restructuring). The severance and other incremental costs represent cash charges, while the asset impairment charges represent non-cash charges. Cash payments related to the Restructuring totaled $42.3 million in the first quarter of 2007.
Although all aspects of the Restructuring have not been finalized, the Company continues to expect to incur total pretax costs of approximately $300 million in connection with the Restructuring, of which $219.9 million of costs have been incurred to date. The remaining costs are expected to be incurred in 2007. Lear continues to estimate that approximately 90% of the restructuring costs will result in cash expenditures.
Item 2.06 Material Impairments.
The information set forth under Item 2.05 relating to impairment charges is incorporated herein by reference.
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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(d) |
Exhibits |
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99.1 |
Press release issued April 25, 2007, furnished herewith. |
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99.2 |
Presentation slides from the Lear Corporation webcast of its first quarter 2007 earnings call held on April 25, 2007, furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, 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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Date: April 25, 2007 |
By: |
/s/ James H. Vandenberghe |
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Name: |
James H. Vandenberghe |
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Title: |
Vice Chairman and |
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Chief Financial Officer |
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4
EXHIBIT INDEX
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Exhibit No. |
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Description |
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5
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FOR IMMEDIATE RELEASE |
Exhibit 99.1 |
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Investor Relations: |
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Mel Stephens |
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(248) 447-1624 |
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Media: |
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Andrea Puchalsky |
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(248) 447-1651 |
Lear Reports First-Quarter Financial Results and
Updates Full-Year 2007 Outlook
SOUTHFIELD, Mich., April 25, 2007— Lear Corporation [NYSE: LEA], a leading global supplier of automotive seating, electronics and electrical distribution systems, today reported financial results for the first quarter and updated its 2007 financial outlook.
First-Quarter Highlights:
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Reported net sales of $4.4 billion and improved pre-tax income |
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Improved 2007 full-year financial outlook |
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Completed North American Interior business joint venture |
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Received numerous awards and customer recognition |
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Entered into Merger Agreement with an affiliate of Carl C. Icahn |
For the first quarter of 2007, Lear reported net sales of $4.4 billion and pretax income of $82.3 million, including restructuring costs of $15.8 million and other special items totaling $10.7 million. For the first quarter of 2006, Lear reported net sales of $4.7 billion and pretax income of $14.8 million. Excluding restructuring costs and other special items, Lear would have had pretax income of $108.8 million in the first quarter of 2007. This compares with pretax income before restructuring costs and other special items of $15.5 million in the same period a year earlier. A reconciliation of pretax income before restructuring costs and other special items to pretax income as determined by generally accepted accounting principles is provided in the supplemental data pages.
“I want to thank the Lear team for all of their hard work in delivering improved financial results during these challenging times, while continuing to maintain a strong focus on supporting our customers,” said Bob Rossiter, Lear Chairman and Chief Executive Officer. “Now that we have completed the divestiture of the Interior business, our full attention is on strengthening our core seating, electronics and electrical distribution businesses.”
(more)
2
The decline in net sales for the quarter reflects primarily lower production in North America and the divestiture of Lear’s European Interior business, offset in part by new business mainly outside of North America and favorable foreign exchange. Operating improvement reflects favorable cost performance and the benefit of new business, offset in part by lower production in North America.
The improvement in Lear’s core businesses in the first quarter was driven by solid performance in the seating segment. The year-over-year improvement in seating primarily reflects favorable cost performance and the impact of new business mainly outside of North America. In the electronics and electrical distribution segment, results were below year-ago levels but improved sequentially over the fourth quarter of 2006. Compared with a year ago, the major adverse factor impacting this segment is lower production on key platforms in North America.
Lear reported net income of $49.9 million, or $0.64 per share, including restructuring costs and other special items, for the first quarter of 2007. This compares with net income of $17.9 million, or $0.26 per share, including restructuring costs and other special items, for the first quarter of 2006.
First-quarter free cash flow was negative $32.1 million, compared with negative $91.3 million in the first quarter of 2006. The improvement primarily reflects lower capital spending and the increase in earnings. (Net cash used in operating activities was $41.8 million in the first quarter of 2007 as compared to net cash provided by operating activities of $39.4 million in the first quarter of 2006. A reconciliation of free cash flow to net cash provided by (used in) operating activities is provided in the supplemental data pages.)
During the quarter, the Company made important progress on strategic priorities by completing the North American Interior business joint venture. In addition, Lear maintained its quality and customer service momentum and was the recipient of several customer awards and recognition, including GM Supplier of the Year, three World Excellence awards from Ford and Superior Supplier Diversity and Excellence in Quality from Toyota, as well as other performance awards from Porsche, Fiat-Brazil, Mazda and Shanghai GM.
The Company also continued to implement its global restructuring plan, expand its infrastructure in Asia and grow its global sales with Asian manufacturers.
Full-Year 2007 Outlook
Summarized below is the 2007 financial outlook for Lear’s core businesses. The outlook excludes results for Lear’s Interior business for the full year. On this basis, Lear expects 2007 net sales of approximately $14.8 billion.
3
Lear anticipates 2007 income before interest, other expense, income taxes, restructuring costs and other special items (core operating earnings) to be in the range of $580 to $620 million, an improvement of $20 million from our prior forecast. The revised full-year outlook reflects more favorable production volumes and improved cost performance in international operations.
Restructuring costs in 2007 are estimated to be about $100 million.
Interest expense is estimated to be in the range of $210 to $220 million. Pretax income before restructuring costs and other special items is estimated to be in the range of $290 to $330 million. Tax expense is expected to be between $100 and $120 million, depending on the mix of earnings by country.
Capital spending in 2007 is estimated at approximately $250 million. Depreciation and amortization expense is estimated to be about $310 million.
Free cash flow is expected to be positive at about $240 million for the year.
Key assumptions underlying Lear’s financial outlook include expectations for industry vehicle production of approximately 15.2 million units in North America and 19.3 million units in Europe. Lear continues to see production for the Big Three in North America being down slightly, as compared with 2006. In addition, we are assuming an exchange rate of $1.32/Euro.
Lear will webcast its first-quarter earnings conference call through the Investor Relations link at http://www.lear.com at 9:00 a.m. EDT on April 25, 2007. In addition, the conference call can be accessed by dialing 1-800-789-4751 (domestic) or 1-706-679-3323 (international). The audio replay will be available two hours following the call at 1-800-642-1687 (domestic) or 1-706-645-9291 (international) and will be available until May 9, 2007, with a Conference I.D. of 8910968.
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 news release, the Company has provided information regarding “income before interest, other expense, income taxes, restructuring costs and other special items” (core operating earnings), “pretax income before restructuring costs and other special items” and “free cash flow” (each, a non-GAAP financial measure). 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.
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Management believes 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 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 restructuring costs and other special items and free cash flow should not be considered in isolation or as a substitute for pretax income, net income, cash provided by (used in) operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as a measure 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 reconciliations of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, 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 new 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, the financial condition of the Company’s customers or suppliers, fluctuations in the production of vehicles for which the Company is a supplier, disruptions in the relationships with the Company’s suppliers, labor disputes
5
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 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 2007 is based on several factors, including the Company’s current vehicle production and raw material pricing assumptions. The Company’s actual financial results could differ materially as a result of significant changes in these factors. The Company’s proposed merger with AREP Car Acquisition Corp. is subject to various conditions including the receipt of the requisite stockholder approval from the Company’s stockholders, antitrust approvals and other conditions to closing customary for transactions of this type. No assurances can be given that the proposed transaction will be consummated or, if not consummated, that the Company will enter into a comparable or superior transaction with another party.
The forward-looking statements in this news 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.
Lear Corporation is one of the world’s largest suppliers of automotive seating systems, electronic products and electrical distribution systems. In 2006, Lear ranked #130 among the Fortune 500. Lear’s world-class products are designed, engineered and manufactured by a diverse team of more than 90,000 employees at 242 facilities in 33 countries. Lear’s headquarters are in Southfield, Michigan. 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.
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# |
Lear Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited; in millions, except per share amounts)
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Three Months Ended |
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March 31, |
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April 1, |
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Net sales |
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$ |
4,406.1 |
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$ |
4,678.5 |
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Cost of sales |
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4,095.2 |
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4,459.3 |
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Selling, general and administrative expenses |
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126.5 |
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165.0 |
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Loss on divestiture of Interior business |
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25.6 |
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— |
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Interest expense |
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51.5 |
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47.7 |
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Other (income) expense, net |
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25.0 |
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(8.3 |
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Income before income taxes and cumulative effect of a change in accounting principle |
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82.3 |
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14.8 |
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Income tax provision (benefit) |
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32.4 |
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(0.2 |
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Income before cumulative effect of a change in accounting principle |
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49.9 |
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15.0 |
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Cumulative effect of a change in accounting principle, net of tax |
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— |
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2.9 |
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Net income |
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$ |
49.9 |
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$ |
17.9 |
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Basic net income per share |
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Income before cumulative effect of a change in accounting principle |
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$ |
0.65 |
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$ |
0.22 |
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Cumulative effect of a change in accounting principle |
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— |
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0.05 |
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Basic net income per share |
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$ |
0.65 |
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$ |
0.27 |
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Diluted net income per share |
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Income before cumulative effect of a change in accounting principle |
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$ |
0.64 |
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$ |
0.22 |
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Cumulative effect of a change in accounting principle |
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— |
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0.04 |
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Diluted net income per share |
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$ |
0.64 |
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$ |
0.26 |
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Weighted average number of shares outstanding |
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Basic |
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76.4 |
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67.2 |
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Diluted |
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78.0 |
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67.9 |
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6
Lear Corporation and Subsidiaries
Consolidated Balance Sheets
(In millions)
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March 31, |
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December
31, |
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(Unaudited) |
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(Audited) |
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ASSETS |
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Current: |
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Cash and cash equivalents |
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$ |
330.4 |
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$ |
502.7 |
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Accounts receivable |
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2,412.7 |
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2,006.9 |
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Inventories |
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599.0 |
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581.5 |
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Current assets of business held for sale |
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38.3 |
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427.8 |
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Other |
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317.6 |
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371.4 |
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3,698.0 |
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3,890.3 |
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Long-Term: |
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PP&E, net |
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1,425.9 |
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1,471.7 |
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Goodwill, net |
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2,006.6 |
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1,996.7 |
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Other |
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530.5 |
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491.8 |
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3,963.0 |
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3,960.2 |
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Total Assets |
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$ |
7,661.0 |
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$ |
7,850.5 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current: |
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Short-term borrowings |
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$ |
11.5 |
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$ |
39.3 |
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Accounts payable and drafts |
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2,480.3 |
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2,317.4 |
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Accrued liabilities |
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1,152.8 |
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1,099.3 |
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Current liabilities of business held for sale |
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16.7 |
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405.7 |
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Current portion of long-term debt |
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26.4 |
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25.6 |
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3,687.7 |
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3,887.3 |
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Long-Term: |
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Long-term debt |
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2,431.8 |
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2,434.5 |
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Long-term liabilities of business held for sale |
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21.6 |
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48.5 |
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Other |
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827.4 |
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878.2 |
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3,280.8 |
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3,361.2 |
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Stockholders’ Equity |
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692.5 |
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602.0 |
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Total Liabilities and Stockholders’ Equity |
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$ |
7,661.0 |
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$ |
7,850.5 |
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7
Lear Corporation and Subsidiaries
Supplemental Data
(Unaudited; in millions, except content per vehicle and share data)
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Three Months Ended |
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March 31, |
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April 1, |
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Net Sales |
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North America |
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$ |
2,225.8 |
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$ |
2,641.8 |
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Europe |
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1,766.7 |
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1,677.2 |
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Rest of World |
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413.6 |
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359.5 |
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Total |
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$ |
4,406.1 |
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$ |
4,678.5 |
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Content Per Vehicle * |
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North America |
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$ |
585 |
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$ |
640 |
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Total Europe |
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$ |
347 |
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$ |
329 |
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Free Cash Flow ** |
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Net cash provided by (used in) operating activities |
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$ |
(41.8 |
) |
$ |
39.4 |
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Net change in sold accounts receivable |
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38.9 |
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(38.1 |
) |
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Net cash provided by (used
in)
operating activities before |
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(2.9 |
) |
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1.3 |
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Capital expenditures |
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(29.2 |
) |
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(92.6 |
) |
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Free cash flow |
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$ |
(32.1 |
) |
$ |
(91.3 |
) |
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Depreciation and Amortization |
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$ |
74.5 |
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$ |
97.8 |
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Basic Shares Outstanding at end of quarter |
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76,658,409 |
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67,330,515 |
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Diluted Shares Outstanding at end of quarter *** |
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78,080,260 |
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67,782,193 |
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Pretax income before restructuring costs and other special items ** |
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Pretax income |
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$ |
82.3 |
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$ |
14.8 |
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Costs related to divestiture of Interior business |
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33.8 |
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— |
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Fixed asset impairment charges |
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— |
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2.0 |
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Costs related to restructuring actions |
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15.8 |
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24.6 |
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U.S. salaried pension plan curtailment gain |
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(36.4 |
) |
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— |
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Costs related to merger transaction |
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9.4 |
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— |
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(Gain) loss on joint venture transactions |
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3.9 |
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(25.9 |
) |
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$ |
108.8 |
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$ |
15.5 |
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* |
Content Per Vehicle for 2006 has been updated to reflect actual production levels. |
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** |
See “Non-GAAP Financial Information” included in this news release. |
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*** |
Calculated using stock price at end of quarter. Excludes shares related to outstanding convertible debt, as well as certain options, restricted stock units, performance units and stock appreciation rights, all of which were antidilutive. |
8
April 25, 2007
First-Quarter 2007 Results and
Full-Year 2007 Financial Outlook
Exhibit 99.2
Agenda
First-Quarter 2007 Highlights
Bob Rossiter, Chairman and CEO
Operating Priorities
Doug DelGrosso, President and COO
Financial Review
Jim Vandenberghe, Vice Chairman and CFO
Q and A Session
2
First-Quarter 2007
Highlights
3
First Quarter 2007
Company Overview
Improved first-quarter financial results and 2007 outlook
Completed North American Interior business joint venture
Continued to manage the business on a product-line basis
Maintained quality and customer service momentum and
received numerous customer awards and industry
recognition
Continued comprehensive global restructuring actions
Expanded infrastructure in Asia; grew total Asian sales
Entered into merger agreement with an affiliate of Carl C.
Icahn
4
45-day “Go-Shop” or solicitation period ended,
with no competing bids received March 26
Record date for Annual Stockholders’ Meeting May 14
Distribute final Proxy and 2006 Annual Report Mid-May
Annual Stockholders’ Meeting June 27
Update on Merger Proposal
Date
Merger-Related Events
5
2000 – 2005
1994 – 1999
2006 – Forward
Seat
Manufacturer
Evolution of Lear
Total Interior
Capability
Product-Line Focus;
Collaborative Partnership
With Customers
Strategic
Partner
Systems
Integrator
Supplier
Strategic Acquisitions
Strategic Repositioning
Long-Range Plan
A Strategic Partner For OEMs
Operational Excellence
Major Initiatives Over Time
6
Strategic Repositioning -- Key Elements
Divest Interior business -- now complete
Focus on strengthening core businesses -- ongoing
Leverage leadership position in Seating Systems
Strengthen capabilities in Electronics and
Electrical Distribution Systems and
Expand capabilities in value-added components
World-class quality and customer satisfaction
Global restructuring and footprint actions
Priority emphasis on Asia / Asian OEM growth
Product innovation with focus on safety and technology
Product-Line Focus
Operating Priorities
7
Operating Priorities
8
Making Progress on Operating Priorities
Continued improvement in quality and customer
satisfaction metrics; received numerous customer
awards and industry recognition
Continued progress on global restructuring initiatives
and cost improvements
Significant progress on expanding our infrastructure in
Asia and winning new Asian business globally
Showcased new products and technologies at SAE
World Congress
9
Operating Priorities
Major Customer Awards and Industry Recognition
“Supplier of the Year” for global Seating Systems
3 World Excellence Awards--
"Gold Award” for Genk, Belgium seating plant
"Silver Award” for St. Thomas, Ontario Canada seating plant
"Recognition of Achievement” for consumer-driven Six-Sigma at St. Thomas,
Ontario Canada seating plant
“Outstanding Performance – Quality and Delivery”
at East London, South Africa
“Superior Supplier Diversity” and
“Excellence in Quality” at Edinburgh, Indiana
“Outstanding Supplier Performance Award” at Boeblingen, Germany
“Value Analysis / Value Engineering Performance Award” and
“Value Analysis Award” for most cost saving ideas generated
“Supplier Award for Successful Partnership” in Brazil
“Supplier of the Year” at Liuzhou, China
“…Most Impressive Stereo Sound in the World”
(from March 2007 review of Lear’s premium sound system in the BMW M5)
Customer Awards
Industry Recognition
10
Operating Priorities
Implementing Global Restructuring Initiative
*
Initiated closure of 15+ manufacturing facilities and consolidating numerous administrative
centers, reducing census by 5-7% and increasing sourcing and engineering in low-cost
countries:
Move manufacture of seat components (metals and headrests) to low-cost countries (Northern
Mexico, Eastern Europe and Asia)
Transfer European wire harness operations to low-cost countries (Eastern Europe, North Africa
and Asia)
Align production capacity to match customer actions
Streamlined global organizational structure in place
Expect to incur pre-tax costs of approximately $300 million through 2007
Restructuring Investments
Estimated Annual Savings
($ in millions)
($ in millions)
$
$
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
11
Operating Priorities
Expanding Our Presence in Asia*
China
18 facilities (+6 new in 2007)
2 engineering/R&D centers in Shanghai
(+1 new CTO center in 2007)
18 program launches in 2006
20 program launches in 2007
25 customers
Seats, Electrical Distribution,
Electronics
Korea
4 facilities
1 engineering center in Seoul
Seats
Japan
5 facilities
1 engineering center in Atsugi (Tokyo)
1 engineering center in Hiroshima
Philippines
4 facilities
1 engineering/CTO center in Cebu
Electrical Distribution, Electronics
Thailand
3 facilities
Seats, Seat Trim
India
7 facilities (+3 new in 2007)
1 engineering center in Mumbai
3 program launches in 2006
4 program launches in 2007
7 customers
Seats
* Includes facilities held through joint ventures.
Other facilities in Asia
Well positioned for growth in fast growing Asian markets
12
Operating Priorities
Aggressively Growing Total Asian Sales***
Total Asian Sales -- Core Business **
($ in millions)
2006 Highlights
75% seating / 25% electronics and
electrical
53% in Asia / 44% in North
America / 3% in Europe
2007 Highlights
Automotive leader in China seating
market:
Sales > $500 million*
Supply nearly 20 OEMs on
> 100 vehicle programs
18 facilities with approximately
6,000 employees
Our fastest growing market
9 new facilities in India and China
supporting Ford, Mazda, Chery,
TATA, M&M, BMW and Hyundai
* Includes consolidated and non-consolidated sales.
$500
$950
$1,450
$1,850
~$2,700
$2,200
Targeting Asian Growth Of 25% Annually
** Includes sales in Asia and with Asian manufactures globally.
*** Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
13
Operating Priorities
New Asian Program Awards in First Quarter
**
New Asian Business Awarded In First Quarter
Worth $170 Million Annually *
14
* Includes consolidated and non-consolidated sales.
**
Please see slide titled “Forward-Looking
Statements” at the end of this presentation for further information.
Customer
Market
Lear Content
Future Vehicle Program(s)
SOP
Nissan Motor Co.
Global
Smart Junction Box
B Car/Light Truck
2008/2009
Hyundai Motor Company
China
Seating
Elantra Notchback
Feb-08
Nissan Motor Co.
Japan
Seating
Micra/March
Mar-09
Nissan Motor Co.
China/Japan
Wire Harnesses
Cube/Quest/Light Truck
2008/2009
Geely Automobile
China
Seating
FC-1 Sedan
Dec-07
Mahindra & Mahindra Limited
India
Seating
Scorpio Export Model
Jun-08
DongFeng Motor Corporation
China
Seating
BF Model
Mar-08
Shanghai General Motors
China
Passenger Seat Belt Alarm
Buick Daewoo Lacetti
Jun-07
Operating Priorities
Production Innovation and Technology – Seating Systems
15
Operating Priorities
Production Innovation and Technology – Electronics and Electrical
16
Financial Review
17
Special items in first quarter:
Consolidated results include North American Interior business
Costs related to divestiture of Interior business
Costs related to restructuring actions and merger proposal
Curtailment gain related to freezing salaried pension plan
First-quarter operating results stronger than expected, reflecting:
Less adverse Lear platform mix globally
Favorable cost performance and operating efficiencies
Full-year outlook updated to reflect improved performance in
international operations:
Core operating earnings increased to $580 to $620 million
Free cash flow increased to $240 million
First Quarter 2007
Major Factors Impacting Financial Results*
* Please see slides titled “Non-GAAP Financial Information” and “Forward Looking Statements” at the end of this presentation for further information.
18
First Quarter 2007
Industry Environment
19
First Quarter
First Quarter
2007
2007 vs. 2006
North American Production
Industry
3.8 mil
Down 8%
Big Three
2.4 mil
Down 12%
European Production
Industry
5.1 mil
Flat
Lear's Top 5 Customers
2.6 mil
Flat
Key Commodities (Quarterly Average)
vs. Prior Quarter
Steel (Hot Rolled)
Down 7%
Down 4%
Resins (Polypropylene)
Up 3%
Up 2%
Copper
Down 16%
Up 17%
Crude Oil
Down 4%
Down 9%
First Quarter 2007
Financial Summary*
20
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information.
(in millions, except net income per share)
First
Quarter 2007
First
Quarter 2006
1Q '07
B/(W) 1Q '06
Net Sales
$4,406.1
$4,678.5
($272.4)
Income Before Interest, Other (Income) Expense
and Income Taxes
$184.4
$54.2
$130.2
Pretax Income
$82.3
$14.8
$67.5
Net Income
$49.9
$17.9
$32.0
Net Income Per Share
$0.64
$0.26
$0.38
SG&A % of Net Sales
2.9
%
3.5
%
0.6
pts.
Interest Expense
$51.5
$47.7
($3.8)
Depreciation / Amortization
$74.5
$97.8
$23.3
Other (Income) Expense, Net
$25.0
($8.3)
($33.3)
First Quarter 2007
Restructuring and Special Items*
21
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information.
(in millions)
Income Before
Interest, Other
(Income) Expense
and Income Taxes
Pretax
Income
COGS
SG&A
Loss on
Divestiture/Other
2007 Reported Results
$ 184.4
$ 82.3
Reported results include the following items:
Costs related to divestiture of Interior business
$ 8.2
$ 33.8
$ 6.2
$ 2.0
$ 25.6
Costs related to restructuring actions
15.8
15.8
13.3
2.5
-
U.S. salaried pension plan curtailment gain
(36.4)
(36.4)
-
(36.4)
-
Costs related to merger transaction
9.4
9.4
-
9.4
-
Loss on joint venture transaction
-
3.9
-
-
3.9
2007 Core Operating Results
181.4
$
$ 108.8
2006 Core Operating Results
81.2
$
$ 15.5
Income Statement Category
Memo:
First Quarter 2007
Net Sales Changes and Margin Impact Versus Prior Year
22
Net Sales
Margin
Performance Factor
Change
Impact
Comments
(in millions)
Industry Production /
$ (484)
Negative
Primarily lower industry production in
Platform Mix / Net Pricing /
Other
North America (down 8%) and unfavorable
platform mix (Big 3 down 12%)
Global New Business
280
Positive
GMT 900 pickup and Hyundai Santa Fe in
N.A.; Nissan Qashqai, Range Rover,
Peugeot 207 and Ford Galaxy in Europe;
Hyundai Veracruz in Asia
F/X Translation
145
Neutral
Euro up 9%, Canadian dollar down 2%
Acquisition / Divestiture
(213)
Neutral
Divestiture of European Interior business
Commodity / Raw Material
Neutral
Steel down 4% and copper up 17%, with
some prior period recovery
Performance
Positive
Favorable operating performance in core
businesses, including benefits from
restructuring actions
First Quarter 2007
Business Segment Results*
23
* Segment earnings represent income (loss) before loss on divestiture, interest, other expense and income taxes. Please see slides titled “Non-GAAP
Financial Information”
at the end of this presentation for further information.
** Adjusted segment earnings and % of sales excludes impairments, restructuring costs and other special items of ($3.0) million (Seating - ($4.6), Electronic
and Electrical - $20.0, Interior
- - $2.4, HQ - ($20.8)) and $27.0 million (Seating - $16.1, Electronic and Electrical - $2.1, Interior - $8.8) for the three months
ended 3/31/07 and 4/1/06, respectively.
($ in millions)
2007
2006
Seating
Net Sales
2,994.2
$
2,992.5
$
Reported Segment Earnings*
197.1
$
125.9
$
Adjusted Segment Earnings
192.5
$
142.0
$
% of Sales
6.6
%
4.2
%
Adjusted
% of Sales**
6.4
%
4.7
%
Electronic and Electrical
Net Sales
788.7
$
787.3
$
Reported Segment Earnings*
17.5
$
53.1
$
Adjusted Segment Earnings
37.5
$
55.2
$
% of Sales
2.2
%
6.7
%
Adjusted
% of Sales**
4.8
%
7.0
%
Interior
Net Sales
623.2
$
898.7
$
Reported Segment Earnings*
8.8
$
(59.5)
$
Adjusted Segment Earnings
11.2
$
(50.7)
$
% of Sales
1.4
%
(6.6)
%
Adjusted
% of Sales**
1.8
%
(5.6)
%
Headquarters Costs
Reported Segment Earnings*
(39.0)
$
(65.3)
$
Adjusted Segment Earnings
(59.8)
$
(65.3)
$
Total Company
Reported
184.4
$
54.2
$
Adjusted
181.4
$
81.2
$
First Quarter
First Quarter 2007
Seating Segment Performance*
Explanation of
Year-to-Year Change
Benefit from new Seating business
outside N. A.
Savings from restructuring actions
Ongoing cost and efficiency actions
Improving results in Europe/Asia
Net commodities slightly favorable
Lower industry production and
unfavorable platform mix in N. A.
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information and refer to
slide 23 in this presentation for a reconciliation
of reported segment earnings to adjusted segment earnings.
Adj. Seg.
Earnings
(in millions)
$142.0 $192.5
Adjusted Seating Margin
24
First Quarter 2007
Electronic and Electrical Segment Performance*
Explanation of
Year-to-Year Change
Lower industry production and
unfavorable platform mix in N. A.
Unfavorable net pricing
-/+ Higher copper prices offset by prior
period recovery
Improving results in Asia
Adj. Seg.
Earnings
(in millions)
$55.2 $37.5
Adjusted
Electronic and Electrical Margin
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information and refer to
slide 23 in this presentation for a reconciliation
of reported segment earnings to adjusted segment earnings.
25
Adj. Seg.
Earnings
(in millions)
$(50.7) $11.2
Adjusted Interior Margin
Adjusted Headquarters Expense
Q1 2007
(5.6%)
1.8%
Elimination of depreciation expense
Ongoing cost and efficiency actions
Lower new program development
and launch costs
Timing of commercial recoveries
Lower industry production and
unfavorable platform mix in N. A.
SG&A efficiencies
Restructuring savings
Interior Segment
Headquarters
Explanation of Year-to-Year Change
Q1 2006
First Quarter 2007
Interior Segment and Headquarters Performance*
(in millions)
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information and refer to slide 23 in this
presentation for a reconciliation
of reported segment earnings to adjusted segment earnings.
26
First Quarter 2007
Free Cash Flow*
(in millions)
27
* Free Cash Flow represents net cash used in operating activities ($41.8 million for the
three months ended 3/31/07) before net
change in sold accounts receivable ($38.9 million for the three months ended 03/31/07) (Cash used in Operations), less capital
expenditures. Please see slides titled “Non-GAAP Financial Information”
at the end of this presentation for further information.
First
Quarter
2007
Net Income
$ 49.9
Divestiture of Interior Business
25.6
Depreciation / Amortization
74.5
Working Capital / Other
(152.9)
Cash used in Operations
$ (2.9)
Capital Expenditures
(29.2)
Free Cash Flow
$ (32.1)
2007 Outlook
Full-Year Production Assumptions*
28
Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
Full-Year
Change from
2007 Outlook
Prior Year
North American Production
Total Industry
˜ 15.2 mil
flat
Big Three
˜ 9.8 mil
down 4%
European Production
Total Industry
˜ 19.3 mil
flat
Lear's Top 5 Customers
˜ 9.7 mil
down 1%
Euro
$1.32 / Euro
up 5%
Key Commodities
moderating
slightly lower
(except copper)
(except copper)
2007 Outlook
Full-Year Financial Projections*
29
* Please see slides titled “Non-GAAP Financial Information” and “Forward-Looking Statements” at the end of this presentation for
further information.
** Subject to actual mix of financial results by country.
2007 Full-Year
Financial Outlook
for Core Business
(excludes Interior business)
Net Sales
˜ $14.8 billion
Core Operating Earnings
$580 to $620 million
Income before interest, other expense,
income taxes, restructuring
costs and other special items
Interest Expense
$210 to $220 million
Pretax Income
$290 to $330 million
before restructuring costs
and other special items
Estimated Tax Expense
$100 to $120 million
**
Pretax Restructuring Costs
˜ $100 million
Capital Spending
˜ $250 million
Depreciation and Amortization
˜ $310 million
Free Cash Flow
˜ $240 million
ADVANCE RELENTLESSLY™
www.lear.com
LEA
NYSE
Listed
R
30
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 “income before interest, other (income) expense and income
taxes,”
“income before interest, other (income) expense, income taxes, restructuring costs and other special items” (core operating
earnings),
“pretax income before restructuring costs and other special items” and “free cash flow” (each, a non-GAAP financial measure).
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 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 income before interest, other
(income) expense and income taxes, core operating earnings and pretax income
before 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 (income) expense and income taxes, core operating earnings, pretax income before restructuring costs and
other special items
and free cash flow should not be considered in isolation or as a substitute for pretax income, net income, cash provided
by (used in) operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as a measure
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.
Non-GAAP Financial Information
31
Non-GAAP Financial Information
Cash used in Operations and Free Cash Flow
32
Three Months
(in millions)
Q1 2007
Net cash used in operating activities
$ (41.8)
Net change in sold accounts receivable
38.9
Net cash used in operating activities
before net change in sold accounts receivable
(cash used in operations)
(2.9)
Capital expenditures
(29.2)
Free cash flow
$ (32.1)
Non-GAAP Financial Information
Core Operating Earnings
33
Three Months
(in millions)
Q1 2007
Q1 2006
Pretax income
$ 82.3
$ 14.8
Loss on divestiture of Interior business
25.6
-
Interest expense
51.5
47.7
Other (income) expense, net
25.0
(8.3)
Income before interest, other (income) expense
and income taxes
$ 184.4
$ 54.2
Costs related to divestiture of Interior business (included in COS and SG&A)
8.2
-
Fixed asset impairment charges
-
2.0
Costs related to restructuring actions
15.8
25.0
U.S. salaried pension plan curtailment gain
(36.4)
-
Costs related to merger transaction
9.4
-
Income before interest, other (income) expense,
income taxes, restructuring costs and
other special items
$ 181.4
$ 81.2
(core operating earnings)
Non-GAAP Financial Information
Pretax Income before Restructuring Costs
and Other Special Items
34
Three Months
(in millions)
Q1 2007
Q1 2006
Pretax income
$ 82.3
$ 14.8
Costs related to divestiture of Interior business
33.8
-
Fixed asset impairment charges
-
2.0
Costs related to restructuring actions
15.8
24.6
U.S. salaried pension plan curtailment gain
(36.4)
-
Costs related to merger transaction
9.4
-
(Gain) loss related to joint venture transactions
3.9
(25.9)
Pretax income before restructuring costs
and other special items
$ 108.8
$ 15.5
Non-GAAP Financial Information
Segment Earnings Reconciliation
35
(in millions)
Q1 2007
Q1 2006
Seating
$ 197.1
$ 125.9
Electronic and Electrical
17.5
53.1
Interior
8.8
(59.5)
Segment earnings
$ 223.4
119.5
$
Corporate and geographic headquarters and
elimination of intercompany activity
(39.0)
(65.3)
Income before interest, other (income) expense and income taxes
$ 184.4
$ 54.2
Loss on divestiture of Interior business
25.6
-
Interest expense
51.5
47.7
Other (income) expense, net
25.0
(8.3)
Pretax income
$ 82.3
$ 14.8
Three Months
Non-GAAP Financial Information
Adjusted Segment Earnings
36
Three Months Q1 2007
Three Months Q1 2006
Electronic
and
HQ/
Electronic
and
HQ/
(in millions)
Seating
Electrical
Interior
Other
Seating
Electrical
Interior
Other
Segment earnings
197.1
$
17.5
$
8.8
$
(39.0)
$
125.9
$
53.1
$
(59.5)
$
(65.3)
$
Costs related to divestiture of Interior business
-
-
2.4
5.8
-
-
-
-
Fixed asset impairment charges
-
-
-
-
-
-
2.0
-
Costs related to restructuring actions
(4.6)
20.0
-
0.4
16.1
2.1
6.8
-
U.S. salaried pension plan curtailment gain
-
-
-
(36.4)
-
-
-
-
Costs related to merger transaction
-
-
-
9.4
-
-
-
-
Adjusted segment earnings
192.5
$
37.5
$
11.2
$
(59.8)
$
142.0
$
55.2
$
(50.7)
$
(65.3)
$
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, the financial condition of the Company’s customers or suppliers,
fluctuations in the
production of vehicles for which the Company is a supplier, disruptions in the relationships with the Company’s
suppliers, 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 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
2007 is based on several factors, including the Company’s current vehicle production and raw material pricing
assumptions. The
Company’s actual financial results could differ materially as a result of significant changes in
these factors. The Company's proposed merger with AREP Car Acquisition Corp. is subject
to various conditions
including the receipt of the requisite stockholder approval from the Company's stockholders, antitrust approvals
and other conditions to closing customary for transactions of this type. No assurances can be given that
the
proposed transaction will be consummated or, if not consummated, that the Company will enter into a comparable
or superior transaction with another party.
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