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 29, 2008
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))
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 29, 2008, Lear Corporation issued a press release reporting its financial results for the first quarter of 2008 and confirming its financial outlook for 2008. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.
On April 29, 2008, Lear Corporation made available the presentation slides attached hereto as Exhibit 99.2 in a webcast of its first quarter 2008 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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(d) |
Exhibits |
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99.1 |
Press release issued April 29, 2008, furnished herewith. |
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99.2 |
Presentation slides from the Lear Corporation webcast of its first quarter 2008 earnings call held on April 29, 2008, 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 29, 2008 |
By: |
/s/ Matthew J. Simoncini |
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Name: Matthew J. Simoncini |
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Title: Senior Vice President and |
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Chief Financial Officer |
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3
EXHIBIT INDEX
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Exhibit No. |
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Description |
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4
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: |
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Andrea Puchalsky |
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(248) 447-1651 |
Lear
Reports First-Quarter 2008 Financial Results;
Full-Year 2008 Earnings Outlook Remains Unchanged
SOUTHFIELD, Mich., April 29, 2008 -- Lear Corporation [NYSE: LEA], a leading global supplier of automotive seating systems, electrical distribution systems and related electronic products today reported financial results for the first quarter of 2008 and confirmed its full-year 2008 earnings outlook.
First-Quarter Highlights:
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Net sales in core businesses of $3.9 billion, up 2% vs. year ago |
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Core operating earnings of $187 million, up 10% vs. year ago |
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Established global operating structure for business units |
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Grew international sales and expanded low-cost footprint |
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Received numerous customer and industry awards |
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Full-year 2008 earnings outlook unchanged |
For the first quarter of 2008, Lear reported net sales of $3.9 billion and pretax income of $109.5 million, including restructuring costs of $23.6 million. This compares with net sales of $4.4 billion and pretax income of $82.3 million for the first quarter of 2007, including restructuring costs of $15.8 million and other special items totaling $10.7 million. Net income was $78.2 million, or $1.00 per share, for the first quarter of 2008. This compares with net income of $49.9 million, or $0.64 per share, for the first quarter of 2007.
Income before interest, other expense, income taxes, restructuring costs and other special items (core operating earnings) was $186.5 million in the first quarter of 2008. This compares with core operating earnings of $170.2 million in the first quarter of 2007, excluding the divested Interior business. A reconciliation of core operating earnings to pretax income as determined by generally accepted accounting principles is provided in the supplemental data page.
“Although we are facing significant challenges in North America, Lear’s underlying operating fundamentals remain strong,” said Bob Rossiter, Lear Chairman, Chief Executive Officer and President. “The Lear team remains very focused on delivering outstanding quality and customer service to our customers.
(more)
2
At the same time, we are putting in place a global operating structure for our business units and taking aggressive actions to improve our longer-term competitiveness.”
The decline in net sales for the quarter reflects the divestiture of the Interior business and lower industry production in North America, due in part to the impact of a strike at a major supplier, offset in part by favorable foreign exchange and new business.
In the seating segment, net sales increased slightly driven by favorable foreign exchange and the benefit of new business, offset by lower industry production in North America. Operating margins improved slightly, reflecting favorable cost performance and increased savings from restructuring actions, as well as the timing of commercial settlements, largely offset by lower industry production in North America.
In the electrical and electronic segment, net sales increased slightly driven by favorable foreign exchange, partially offset by lower industry production in North America. Operating margins improved, reflecting favorable operating performance, including savings from restructuring actions and the net impact of legal and commercial claims, partially offset by lower industry production in North America.
In the first quarter of 2008, free cash flow was negative $31.4 million, compared with negative $32.1 million in the first quarter of 2007. (Net cash provided by operating activities was $125.8 million in the first quarter of 2008 as compared to net cash used in operating activities of $41.8 million in the first quarter of 2007. A reconciliation of free cash flow to net cash provided by (used in) operating activities is provided in the supplemental data page.)
During the quarter, the Company implemented a global operating structure for its two business units, naming Lou Salvatore, President – Global Seating Systems, and Ray Scott, President – Global Electrical and Electronic Systems. This new structure is consistent with the global strategies of the Company’s major customers, allows Lear to take full advantage of its global scale, leverages Lear’s worldwide engineering and product development resources and enables Lear to access the lowest cost manufacturing and sourcing available.
Additionally, Lear continued to grow its sales outside of North America and expand its low-cost footprint in Asia, including a new foam plant in Wuhu, China and a new seat trim facility in Hai Phong, Vietnam. The Company was also the recipient of numerous customer and industry awards. This recognition included “Supplier of the Year” from GM, three “World Excellence Awards” from Ford and awards from several other automakers, including BMW, Toyota, Volkswagen and Hyundai, as well as industry recognition for Lear’s ProTec PLus™ whiplash protection system and SoyFoam™ products.
3
Full-Year 2008 Outlook
Lear expects 2008 net sales of approximately $15.5 billion, compared with prior guidance of $15.0 billion. The increase reflects the positive impact of foreign exchange, mainly the strong Euro, partially offset by lower industry production in North America. Lear’s 2008 earnings outlook remains unchanged, reflecting favorable operating performance and foreign exchange, offset by lower industry production in North America and increasing commodity costs.
Lear anticipates 2008 income before interest, other expense, income taxes, restructuring costs and other special items (core operating earnings) of $660 to $700 million. Restructuring costs in 2008 are estimated to be about $100 million.
Interest expense for 2008 is estimated between $185 and $195 million. Pretax income before restructuring costs and other special items is estimated in the range of $430 to $470 million. Tax expense is expected to be approximately $135 million, depending on the mix of earnings by country.
Capital spending in 2008 is estimated in the range of $255 to $275 million. Depreciation and amortization expense is estimated at about $300 million. Free cash flow is expected to be solidly positive, at about $250 million, for the year.
Key assumptions underlying Lear’s financial outlook include expectations for industry vehicle production of approximately 14.1 million units in North America compared with a prior forecast of 14.4 million units. In Europe, our forecast for industry production is 20.2 million units. Lear expects production for the Domestic Three to be down about 10% in North America, compared with a prior forecast of a 9% decline. In addition, we are assuming an exchange rate of $1.52/Euro, compared with a prior forecast of $1.45/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 29, 2008. 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 14, 2008, with a Conference I.D. of 37038451.
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 “income before interest, other expense, income taxes, restructuring costs and other special items, excluding the divested Interior business” (core operating earnings), “pretax income before restructuring costs and other special items” and “free cash flow”
4
(each, a non-GAAP financial measure). Other expense includes, among other things, non-income related taxes, foreign exchange gains and losses, discounts and expenses associated with the Company’s asset-backed securitization and factoring facilities, minority interests in consolidated subsidiaries, equity in net income of affiliates and gains and losses on the sale of assets. 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 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 (including those items that are included in other expense) 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 page which, together with this press release, has been posted on the Company’s website through the Investor Relations link at http://www.lear.com. Given the inherent uncertainty regarding special items, other expense and the net change in sold accounts receivable in any future period, a reconciliation of forward-looking financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP is not feasible. The magnitude of these items, however, may be significant.
5
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, the financial condition of the Company’s customers or suppliers, changes in the Company’s current vehicle production estimates, fluctuations in the production of vehicles for which the Company is a supplier, the loss of business with respect to, or the lack of commercial success of, a vehicle model for which the Company is a significant 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 outcome and duration of the American Axle strike, 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, timing and success of restructuring 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, the cost and availability of raw materials and energy, the Company’s ability to mitigate any 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 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 2008 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 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.
Lear Corporation is one of the world’s largest suppliers of automotive seating systems, electrical distribution systems and related electronic products. The Company’s world-class products are designed, engineered and manufactured by a diverse team of 91,000 employees at 215 facilities in 35 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 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 29, |
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March 31, |
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Net sales |
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$ |
3,857.6 |
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$ |
4,406.1 |
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Cost of sales |
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3,561.5 |
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4,095.2 |
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Selling, general and administrative expenses |
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133.2 |
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126.5 |
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Divestiture of Interior business |
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— |
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25.6 |
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Interest expense |
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47.4 |
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51.5 |
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Other expense, net |
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6.0 |
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25.0 |
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Income before income taxes |
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109.5 |
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82.3 |
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Income tax provision |
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31.3 |
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32.4 |
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Net income |
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$ |
78.2 |
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$ |
49.9 |
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Basic net income per share |
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$ |
1.01 |
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$ |
0.65 |
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Diluted net income per share |
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$ |
1.00 |
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$ |
0.64 |
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Weighted average number of shares outstanding |
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Basic |
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77.2 |
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76.4 |
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Diluted |
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78.4 |
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78.0 |
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6
Lear
Corporation and Subsidiaries
Consolidated Balance Sheets
(In millions)
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March 29, |
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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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$ |
701.9 |
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$ |
601.3 |
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Accounts receivable |
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2,380.1 |
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2,147.6 |
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Inventories |
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669.8 |
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605.5 |
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Other |
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382.1 |
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363.6 |
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4,133.9 |
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3,718.0 |
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Long-Term: |
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PP&E, net |
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1,402.1 |
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1,392.7 |
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Goodwill, net |
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2,087.5 |
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2,054.0 |
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Other |
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660.1 |
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635.7 |
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4,149.7 |
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4,082.4 |
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Total Assets |
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$ |
8,283.6 |
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$ |
7,800.4 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current: |
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Short-term borrowings |
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$ |
13.5 |
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$ |
13.9 |
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Accounts payable and drafts |
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2,497.2 |
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2,263.8 |
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Accrued liabilities |
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1,311.4 |
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1,230.1 |
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Current portion of long-term debt |
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99.6 |
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96.1 |
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3,921.7 |
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3,603.9 |
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Long-Term: |
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Long-term debt |
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2,345.5 |
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2,344.6 |
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Other |
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766.6 |
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761.2 |
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3,112.1 |
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3,105.8 |
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Stockholders’ Equity |
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1,249.8 |
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1,090.7 |
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Total Liabilities and Stockholders’ Equity |
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$ |
8,283.6 |
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$ |
7,800.4 |
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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 29, |
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March 31, |
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Net Sales |
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North America |
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$ |
1,448.8 |
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$ |
2,225.8 |
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Europe |
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1,930.2 |
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1,766.7 |
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Rest of World |
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478.6 |
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413.6 |
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Total |
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$ |
3,857.6 |
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$ |
4,406.1 |
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Net Sales - Core Businesses |
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North America |
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$ |
1,448.8 |
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$ |
1,645.4 |
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Europe |
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1,930.2 |
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1,732.8 |
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Rest of World |
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478.6 |
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404.7 |
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Total |
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$ |
3,857.6 |
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$ |
3,782.9 |
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Content Per Vehicle * |
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North America |
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$ |
421 |
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$ |
584 |
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North America - core businesses |
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$ |
421 |
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$ |
432 |
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Europe |
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$ |
374 |
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$ |
336 |
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Europe - core businesses |
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$ |
374 |
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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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$ |
125.8 |
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$ |
(41.8 |
) |
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Net change in sold accounts receivable |
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(111.7 |
) |
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38.9 |
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Net cash provided by (used in) operating activities before net change in sold accounts receivable |
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14.1 |
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(2.9 |
) |
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Capital expenditures |
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(45.5 |
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(29.2 |
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Free cash flow |
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$ |
(31.4 |
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$ |
(32.1 |
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Depreciation and Amortization |
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$ |
74.5 |
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$ |
74.5 |
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Basic Shares Outstanding at end of quarter |
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77,303,615 |
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76,658,409 |
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Diluted Shares Outstanding at end of quarter *** |
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78,271,486 |
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78,080,260 |
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Core Operating Earnings ** |
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Pretax income |
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$ |
109.5 |
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$ |
82.3 |
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Interest expense |
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47.4 |
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51.5 |
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Other expense, net |
|
|
6.0 |
|
|
21.1 |
**** |
|
Restructuring costs and other special items - |
|
|
|
|
|
|
|
|
Costs related to restructuring actions |
|
|
23.6 |
|
|
15.8 |
|
|
Costs related to divestiture of Interior business |
|
|
— |
|
|
33.8 |
|
|
U.S. salaried pension plan curtailment gain |
|
|
— |
|
|
(36.4 |
) |
|
Costs related to merger transaction |
|
|
— |
|
|
9.4 |
|
|
Loss on joint venture transaction |
|
|
— |
|
|
3.9 |
|
|
Less: Interior business |
|
|
— |
|
|
(11.2 |
) |
|
|
|
|
|
|
|
|
|
|
Core Operating Earnings |
|
$ |
186.5 |
|
$ |
170.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Content Per Vehicle for 2007 has been updated to reflect actual production levels. |
|
|
|
|
** |
See “Non-GAAP Financial Information” included in this press release. |
|
|
|
|
*** |
Calculated using stock price at end of quarter. Excludes certain 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. |
|
|
|
|
**** |
Reported 2007 other expense, net of $25.0 million includes losses of $3.9 million related to restructuring costs and other special items detailed below. |
8
April 29, 2008
First-Quarter Results and
Full-Year
2008 Financial Outlook
Exhibit 99.2
Agenda
Business Conditions
Jim Vandenberghe, Vice Chairman
First-Quarter Results and Full-Year 2008 Outlook
Matt Simoncini, SVP and Chief Financial Officer
Summary and Outlook
Bob Rossiter, Chairman, CEO and President
Q and A Session
2
Business Conditions
3
Business Conditions
Global Automotive Industry Environment*
Global industry production for
2008 is projected to be up 3%,
driven by solid growth in emerging markets
Business conditions in North America remain challenging:
2008 industry production forecasted at the lowest level since 1993
Shifts in consumer purchasing
patterns, away from full-size pickups
and large SUVs and toward crossovers and passenger cars
Increasing energy and commodity prices
Adverse impact of labor disruptions
Increasing financial distress within supply base
Industry is implementing major
restructuring initiatives,
further consolidation and globalization strategies to improve
longer-term results
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
4
Business Conditions
2008 Outlook for Industry Production*
Major Market
2008 Industry Production Forecast
(in millions of vehicles)
B/(W) 2007
North American Production
13.8
17.2
14.1
Global Automotive Industry Production Up 3% For 2008
North America 14.1 (6)%
Europe 20.2 0%
China 7.8 13%
Brazil 3.0 12%
India 2.5 31%
Russia 1.8 19%
Global 70.6 3%
2008
(in millions)
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
Source: CSM Worldwide & Company Estimates
5
Business Conditions
Composition of North American Market Changing*
Full-Size Pickups
and Large SUVs
25%
Crossovers
9%
Passenger Cars
41%
Passenger Cars
44%
Crossovers
17%
2004
2008 Outlook
Full-Size Pickups
and Large SUVs
20%
North American Production Mix Shifting To
Smaller, More Fuel-Efficient Vehicles
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
Minivans and
Other Light Trucks
25%
Minivans and
Other Light Trucks
19%
Source: Ward’s AutoInfoBank and company estimates
6
Business Conditions
Key Commodity Price Trends Since 2004
Foam Chemicals
Note: Quarterly average prices
$0.30
$0.35
$0.40
$0.45
$0.50
Jan '04
Mar '08
Steel (Hot Roll)
Source: AAM
Steel pricing includes processing fee
Copper
Source: NYMEX
Crude Oil
Source: AAM (LME)
Source: ICIS
Foam price is estimated based on isocyantes and polyols
7
Business Conditions
Monitoring and Managing Supply Chain*
Lear has been pro-active in
monitoring and managing supply
chain for several years
Actions have included supply base
compression, value
engineering, selective in-sourcing and managing contractual
terms
Lear significantly decreased its
exposure to resins and
supplier issues with the divestiture of its Interior business
Focused effort on containing
increased distressed supplier and
commodity cost issues within full-year outlook
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
Proactive Supply Chain Management Minimizes Risk
8
Business Conditions
Benefits of Lear’s Global Organization
Structure*
Best aligns Lear with global strategies of major customers
Allows Lear to take full advantage of its global scale
Leverages worldwide engineering
and product
development resources and enables Lear to access the
lowest cost manufacturing and sourcing available
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
During the first quarter, Lear
implemented a new global
operating structure for its Seating and Electrical and
Electronic business units. This structure . . .
Significant Opportunity To Increase Low-Cost Engineering
And Sourcing With Global Product Groups
9
First-Quarter Results
and Full-Year 2008 Outlook
10
First Quarter
2008
Financial Highlights*
First-Quarter 2008 Results Improve
Net sales in core business of $3.9 billion, up 2%
Core operating earnings of $187 million, up 10%**
Free cash flow of $(31) million**
Major Factors Impacting First-Quarter 2008 Results
Impact of major supplier strike (~ 90,000 units of lost production)
~
Increased benefit from restructuring
Strong underlying operating performance
Timing of commercial settlements
Full-Year 2008 Earnings Outlook Unchanged
Favorable foreign exchange
driving increase in full-year revenue
forecast (from $15.0 to $15.5 billion) partially offset by lower full-year
N.A. industry production
Favorable operating performance
and foreign exchange offset by
lower full-year N.A. industry production (14.1 vs. 14.4 million) and
increasing commodity costs
** Core operating
earnings represents income before interest, other expense, income taxes,
restructuring costs and other special items, excluding
the divested Interior business.
Free cash flow represents net
cash provided by operating activities before the net change in sold accounts
receivable, less capital expenditures.
* Please see slides titled “Non-GAAP Financial Information” and “Forward-Looking Statements” at the end of this presentation for further information.
11
First Quarter 2008
Industry Environment
First Quarter
First Quarter
2008
2008 vs. 2007
North American Production
Industry
3.5 mil
down 8%
Domestic Three
2.1 mil
down 13%
Lear's Top 15 Platforms
0.8 mil
down 16%
European Production
Industry
5.2 mil
flat
Lear's Top 5 Customers
2.7 mil
down 2%
Key Commodities (Quarterly Average)
vs. Prior Quarter
Steel (Hot Rolled)
up 23%
up 25%
Copper
up 8%
up 31%
Crude Oil
up 7%
up 67%
Foam-Related Chemicals
up 5%
up 10%
12
First Quarter
2008
Reported Financials
(in millions, except net income per share)
First
Quarter 2008
First
Quarter 2007
1Q '08
B/(W) 1Q '07
Net Sales
$3,857.6
$4,406.1
($548.5)
Income Before Interest, Other Expense and
Income Taxes*
$162.9
$184.4
($21.5)
Pretax Income
$109.5
$82.3
$27.2
Net Income
$78.2
$49.9
$28.3
Net Income Per Share
$1.00
$0.64
$0.36
SG&A % of Net Sales
3.5
%
2.9
%
(0.6)
pts.
Interest Expense
$47.4
$51.5
$4.1
Depreciation / Amortization
$74.5
$74.5
$0.0
Other Expense, Net
$6.0
$25.0
$19.0
13
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information.
First Quarter 2008
Restructuring Impact*
(in millions)
Reported Results
2008 Total Company
$ 162.9
Reported Results Include the Following Items:
COGS
SG&A
Costs related to restructuring actions
$ 23.6
22.8
$
0.8
$
2008 Core Operating Earnings
186.5
$
2007 Core Operating Earnings
170.2
$
Income Statement Category
14
First Quarter
Income Before Interest,
Other Expense
and Income Taxes
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information.
First Quarter 2008
Net Sales Changes and Margin Impact
Net Sales
Margin
Performance Factor
Change
Impact
Comments
(in millions)
Industry Production /
Platform Mix / Net Pricing
$ (323)
Negative
Lower production in North America,
including impact of major supplier strike
Global New Business
96
Neutral
Primarily outside of North America
F/X Translation
285
Neutral
Euro up 14%, Canadian dollar up 17%
Acquisition / Divestiture
(607)
Positive
Divestiture of Interior business
Performance
Positive
Favorable operating performance, including
efficiency actions and benefits from
restructuring actions
15
First Quarter 2008
Seating Performance*
Explanation of
Year-to-Year Change
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information.
First Quarter
(in millions)
Sales
Earnings**
Adj. Earnings**
$2,994.2 $3,036.1
$ 197.1 $ 183.3
$ 192.5 $ 196.9
** Reported
segment earnings represents income before interest, other expense and income taxes;
adjusted segment earnings represents
reported segment earnings adjusted for
restructuring costs and other special items.
Adjusted Seating Segment Margins
Sales Factors
Increase driven by favorable
foreign
exchange and the benefit of new
business about offset by lower
production in North America
Margin Performance
Slight improvement reflecting
favorable cost performance,
increased savings from restructuring
and the timing of commercial
settlements, largely offset by lower
production in North America
16
First Quarter 2008
Electrical and Electronic Performance*
First Quarter
* Please see slides titled “Non-GAAP Financial Information” at the end of this presentation for further information.
(in millions)
Sales
Earnings**
Adj. Earnings**
$ 788.7 $ 821.5
$ 17.5 $ 35.3
$ 37.5 $ 44.8
** Reported
segment earnings represents income before interest, other expense and income taxes;
adjusted segment earnings represents
reported segment earnings adjusted for
restructuring costs and other special items.
Adjusted Electrical and Electronic Segment Margins
Explanation of
Year-to-Year Change
Sales Factors
Increase driven by favorable
foreign
exchange partially offset by lower
production in North America
Margin Performance
Improvement reflecting
favorable
operating performance, including
savings from restructuring and the net
impact of legal and commercial claims,
partially offset by lower production in
North America
17
First Quarter
2008
Free Cash Flow*
*
Free cash flow represents net
cash provided by operating activities ($125.8 million for the three months ended
3/29/08) before net
change in sold accounts receivable (($111.7) million for the three
months ended 3/29/08) (Cash from Operations), less capital
expenditures. Please see slides titled “Non-GAAP
Financial Information” at the end of this presentation for further
information.
First Quarter
2008
Net Income
$ 78.2
Depreciation / Amortization
74.5
Working Capital / Other
(138.6)
Cash from Operations
$ 14.1
Capital Expenditures
(45.5)
Free Cash Flow
$ (31.4)
18
(in millions)
2008 Outlook
Full-Year Production Assumptions*
Full-Year
Change from
2008 Outlook
Prior Year
North American Production
Total Industry
~14.1 mil
~
down 6%
Domestic Three
~8.5 mil
~
down 10%
Lear's Top 15 Platforms
~3.4 mil
~
down 16%
European Production
Total Industry
~20.2 mil
~
flat
Lear's Top 5 Customers
~10.2 mil
~
down 1%
Euro
$1.52 / Euro
up 11%
19
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
2008 Outlook
Full-Year Financial Forecast*
2008 Full-Year
Financial Forecast
Net Sales
~ $15.5 billion
~
Core Operating Earnings
$660 to $700 million
Income before interest, other expense,
income taxes, restructuring
costs and other special items
Interest Expense
$185 to $195 million
Pretax Income
$430 to $470 million
before restructuring costs
and other special items
Estimated Tax Expense
~ $135 million
~
**
Pretax Restructuring Costs
~ $100 million
~
Capital Spending
$255 to $275 million
Depreciation and Amortization
~ $300 million
~
Free Cash Flow
~ $250 million
~
20
* 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 earnings by country.
Summary and Outlook
21
First Quarter 2008 Summary
Continuation of solid global
operating performance,
despite industry challenges in North America
Implemented global operating
structure for business units,
including the relocation of global seat engineering and
purchasing positions to China
Completed strategic review of
electrical and electronic
business; improvement plan underway
Continued global sales
diversification; expanded footprint
in low-cost regions
Continued emphasis on and
recognition for excellence in
quality, service and innovation
22
Completed a comprehensive global strategic review
Established global organizational structure
Global product line strategy and responsibility
Executing restructuring plan and
evaluating investment
opportunities
Manufacturing and infrastructure
cost reduction, further moves to
low-cost regions
Implementing Global Centers of Excellence
Global technology focus vs. regional concentration
Aggressive pursuit of global sales growth and diversification:
In core products of electrical
distribution systems, smart junction
boxes, terminals and connectors, wireless products and select
body electronics
In new technologies such as
hybrid electric systems and high-
voltage components
Electrical and Electronic Strategy Update*
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
23
Continuing to Evolve Low-Cost Footprint*
New seat foam plant in Wuhu, China
New seat trim facility in Hai Phong, Vietnam
Expanded Electrical &
Electronic production at
WOFE in Shanghai, China
Other new low-cost facilities
being established
in Asia, Eastern Europe, Morocco and Mexico
Expanding Shanghai, China Campus
Wuhu Foam Plant
Hai Phong Trim Facility
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
24
Recognized as an Industry Leader
3 Silver “World
Excellence Awards” – Genk, Belgium, St. Thomas,
Ontario, Canada and Liberty, Missouri
“Supplier of the
Year” for global Seating Systems
“VW Group Award 2008
for Enterprise Performance, Excellence in
Development and Logistics” in Puebla, Mexico
“Highest rated seat supplier”
“A- Level Supplier Status” at Lear Shenyang plant
“Supplier of the Year 2007” for Best JiT Supplier LEAR East London
“Supplier
Recognition” for significant cost results in Brazil
“Quality Achievement Performance Certificate 2007” in Argentina
“2007 Supplier of the Year” in Kolin, Czech Republic
“Customer Appreciation” cut and sew operation in Halol, India
“Award for Excellent
Service and Outstanding Performance in
2007” in Montgomery, Alabama
Lear’s
ProTecPLuSTM
afinalist for
Automotive News PACE Award;
SoyFoamTMreceived honorable
mention
25
Summary and Outlook*
Business structure
improvements being aggressively implemented to
improve long-term competitiveness:
Divested Interior business; retained minority interest
Aggressive actions to improve cost structure since 2005
Sales diversification; expanding low-cost footprint
Adopted global operating structure for business units
Implementing improvement plan for electrical and electronics
First-quarter 2008 financial results improve:
Net sales in core businesses of $3.9 billion, up 2%
Core operating earnings of $187 million, up 10%
Fifth consecutive quarter of year-over-year improvement
Continued focus on quality, service and innovation
Full-year 2008 outlook
unchanged, with favorable operating
performance and foreign exchange offset by lower full-year N.A.
industry production and increasing commodity costs
Longer-term financial outlook continues to be positive
Please see slides titled
“Non-GAAP Financial Information” and “Forward-Looking
Statements” at the end of this presentation for further
information.
26
A DVANCE R ELENTLESSLY ™
www.lear.com
LEA
NYSE
Listed
R
27
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 expense and
income taxes,”
“income before interest,
other
expense, income taxes, restructuring costs and other special items, excluding the
divested Interior business” (core operating earnings), “pretax
income
before restructuring costs and other special items” and “free cash
flow” (each, a non-GAAP financial measure). Other expense
includes, among other
things, non-income related taxes, foreign exchange gains and losses, discounts and
expenses associated with the Company’s asset-backed securitization
and factoring facilities, minority interests in consolidated subsidiaries, equity
in net income of affiliates and gains and losses on the sale of assets. 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 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 restructuring costs and other
special items are useful measures in assessing the Company’s financial
performance by excluding certain items (including those items that are included in
other expense) 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
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 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, other expense and the net change in sold accounts
receivable in any future period, a reconciliation of forward-looking financial
measures to the most directly comparable financial measures calculated and
presented in accordance with GAAP is not feasible. The magnitude of
these items, however, may be significant.
Non-GAAP Financial Information
28
Non-GAAP Financial
Information
Core Operating Earnings
Three Months
(in millions)
Q1 2008
Q1 2007
Pretax income
$ 109.5
$ 82.3
Divestiture of Interior business
-
25.6
Interest expense
47.4
51.5
Other expense, net *
6.0
25.0
Income before interest, other expense and income taxes
$ 162.9
$ 184.4
Restructuring costs and other special items -
Costs related to restructuring actions
23.6
15.8
Additional costs related to Interior divestiture (COS and SG&A)
-
8.2
Costs related to merger transaction
-
9.4
U.S. salaried pension plan curtailment gain
-
(36.4)
Less: Interior business
-
(11.2)
Income before interest, other expense, income taxes,
restructuring costs and other special items, excluding the
divested Interior business
$ 186.5
$ 170.2
(core operating earnings)
* Includes minority interests in consolidated subsidiaries and equity in net income of affiliates.
29
Non-GAAP Financial
Information
Segment Earnings Reconciliation
Three Months
(in millions)
Q1 2008
Q1 2007
Seating
$ 183.3
$ 197.1
Electrical and electronic
35.3
17.5
Interior
-
8.8
Segment earnings
218.6
223.4
Corporate and geographic headquarters and elimination of
intercompany activity
(55.7)
(39.0)
Income before interest, other expense and
income taxes
$ 162.9
$ 184.4
Divestiture of Interior business
-
25.6
Interest expense
47.4
51.5
Other expense, net
6.0
25.0
Pretax income
$ 109.5
$ 82.3
30
Non-GAAP Financial
Information
Adjusted Segment Earnings
Three Months Q1 2008
Three Months Q1 2007
Electrical and
Electrical and
(in millions)
Seating
Electronic
Seating
Electronic
Sales
3,036.1
$
821.5
$
2,994.2
$
788.7
$
Segment earnings
183.3
$
35.3
$
197.1
$
17.5
$
Costs related to restructuring actions
13.6
9.5
(4.6)
20.0
Adjusted segment earnings
196.9
$
44.8
$
192.5
$
37.5
$
31
Non-GAAP Financial
Information
Cash from Operations and Free Cash Flow
Three Months
(in millions)
Q1 2008
Net cash provided by operating activities
125.8
$
Net change in sold accounts receivable
(111.7)
Net cash provided by operating activities before net
change in sold accounts receivable
(cash from operations)
14.1
Capital expenditures
(45.5)
Free cash flow
(31.4)
$
32
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, changes in the Company’s current vehicle production estimates, the
loss of business with respect to, or the lack
of commercial success of, a vehicle model for which the Company is a significant
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 outcome and duration of the American Axle strike,
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, timing and
success of restructuring 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, the cost and availability of raw
materials and energy, the Company's ability to mitigate any 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 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 2008 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 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.
33