LEAR ams 2006

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LEAR ams 2006

  1. 1. Annual Meeting of Shareholders May 11, 2006
  2. 2. Agenda Lear Profile and Strategic Evolution Bob Rossiter, Chairman and CEO Product-Line Strategies and Operating Priorities Doug DelGrosso, President and COO Financial Review and Outlook Jim Vandenberghe, Vice Chairman and CFO Q and A Session 2
  3. 3. Lear Profile and Strategic Evolution 3
  4. 4. Lear is a Leading Global Automotive Supplier 115,000 Employees / 282 Facilities Worldwide Operations In 34 Countries 4
  5. 5. We Serve all the World’s Major Automakers Lear Content On Over 300 Vehicles Worldwide 5
  6. 6. Strategic Evolution Systems Supplier Integrator Total Interior Seat Manufacturer Capability 1994 2004 6
  7. 7. Strategy Supported Profitable Growth Net Sales (in billions) $17.0 $18.0 s Sale % $16.0 8 GR 1 CA $14.0 Net Income $12.0 CAGR $10.0 22% $8.0 $6.0 $3.1 $4.0 $2.0 $0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 7
  8. 8. 2005 was a Major Transition Period for Industry and Lear Industry Major supplier bankruptcies; increasing distress throughout the supply base Global restructuring at Ford and GM Continuing high raw material costs Lear Reversal of trend toward total interiors Peak launch activity; majority of N.A. lineup impacted Shift in demand away from large SUVs and pickups 8
  9. 9. Strategic Evolution* Strategic Systems Supplier Partner Integrator • Product-Line Focused Total Interior • Globally Competitive Seat Manufacturer Capability • Working Collaboratively with Customers 2006 and Forward 1994 2004 9 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  10. 10. Product-Line Strategies and Operating Priorities 10
  11. 11. Profile of Product Groups* 2005 Net Product Sales Operating Priorities 65% Growth in Asia and with Asian customers Seating Selective vertical integration Growth opportunities with new products Reputation as the highest quality seat supplier 17% Programs with Hyundai, Nissan and other Asian customers Electronic Growing consumer demand for increased and Electrical electronic features and content Vertical integration opportunities with expansion of internal T&C capability Organic growth in smart junction boxes and other strategic products / technologies 18% Restructuring actions to improve capacity utilization Interior Evaluate strategic alternatives, including JV opportunities 11 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  12. 12. New Business Model for Interiors Business* This segment of the market continues to be under pressure Despite restructuring actions, losses continue this year Repositioning this business remains a top priority Lear signed a Letter of Intent to contribute substantially all of its European Interiors business to a joint venture with WL Ross & Co. LLC in return for a minority equity stake Aggressively pursuing a solution for North American Interiors business Executing Interiors Strategy On Expedited Basis 12 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  13. 13. Margin Outlook for Seating and Electronic and Electrical Segments* Global Seating margin profile expected to return to historical levels by 2008 . . . Supported by backlog sales, continued diversification (by customer and platform type), cost improvements, restructuring savings and a return to more normal launch levels Maintain Electronic and Electrical margin profile . . . Expanding low-cost sourcing and engineering, cost improvements, restructuring savings and product innovation 13 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  14. 14. Innovative Product Solutions CORE DIMENSIONS STRATEGY COMFORT & SAFETY ENVIRONMENTAL FLEXIBILITY CONVENIENCE INFOTAINMENT COMMONIZATION CRAFTSMANSHIP • ProTecTM PLuS • Cushion Tilt 2nd • ComforTecTM • Lt. Weight • Premium • Lear Flexible Seat • Sculpted Seat Back Panel Row Audio Architecture Technology • Adaptive Front • Climate Seat Amplifier 2nd Light System • Soy Foam • Remote Release • Gateway Module • Flat Flexible Row Easy Entry • Fluid Power Motion • Rear Seat Cable • IntelliTireTM • Polyurethane Entertainment • Passive Junction Foam • Thin Profile Folding • Passive Entry Box • Seamless • Car2UTMTwo- Alternatives Rear • TV Receiver Airbag Cover • Car2UTM Way Remote Home Analog • Smart Junction • SmartFoldTM Keyless Entry • Battery 3rd Automation System Box • Trim Clip Monitoring Row • Immobilizer System • Pneumatic Seat • Insert Molded Carpet • Foam in Place • DC/AC • Integrated Seat 14 Head Impact Inverters Adjuster Module Countermeasure
  15. 15. Operating Priorities* Retain Core Values Quality First / Customer Satisfaction Customer / Regional Diversification Execute our Asian Strategy Operational Excellence Competitive Manufacturing Cost Structure Collaborative Cost Reduction Capability Flawless Launch Management 15 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  16. 16. Recent Customer and Industry Recognition General Motors--Supplier of the Year for Seating Toyota--Superior Supplier Diversity and Excellence in Quality Honda--Delivery and Quality Performance Volvo Cars--Supplier Award of Excellence Volkswagen--Supplier of the Year in South Africa Mahindra & Mahindra--Best Performance in Product Development GAZ--Best Supplier Award Philippine Economic Zone--Employer of the Year Society of Plastics Engineers--Excellence in Performance & Customization for the Cargo Compartment on Ford Escape JD Power 2005 Seat Quality Survey--Highest Quality Major Seat Supplier for Past Five Years 16
  17. 17. Continue to Diversify Customer Base* Revenue in Asia and with Asian Manufacturers 2005 Performance Highlights Supported successful launch of (in millions) Hyundai’s first North American plant (seats, wiring, TPMS) Four recent program awards with Nissan (seats, wiring, carpets) Two new manufacturing facilities in $2,200 China to support Hyundai and BMW $1,800 27% Established TACLE JV - strategic for $1,250 29% entry into Nissan seat programs $800 73% 32% 71% 16% 68% 2006 Key Launches Lear Content 84% Hyundai Santa Fe Seats, TPMS Nissan Versa OH Systems, Trim 2002 2003 2004 2005 2008 Nissan Sentra OH Systems, Trim Outlook Non-consolidated Ford Galaxy (China) Seats Consolidated Rapid Growth In Asian Sales Led By Expanding Relationships With Hyundai, Nissan And Toyota 17 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  18. 18. Operational Excellence Competitive Manufacturing Cost Structure* Pretax Restructuring Costs Restructuring Objectives (in millions) Eliminate excess capacity Eliminate excess capacity $120 - 150 Accelerate move to lower- Accelerate move to lower- cost sources cost sources $103 Streamline organization and Streamline organization and improve operational efficiency improve operational efficiency 2005 2006+ Estimated Payback Of Restructuring Initiatives Is 2.5 Years 18 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  19. 19. Lear’s Low-Cost Global Footprint Manufacturing, Supply and Engineering Locations Manufacturing and Supply Sources Europe Europe Czech Republic Czech Republic Estonia Estonia Hungary Hungary Poland Poland Romania Romania Slovakia Slovakia Turkey Turkey Asia Asia Philippines Philippines China China Korea Korea Taiwan Taiwan Thailand Thailand Engineering Centers South America South America Asia Asia Brazil Brazil China China Argentina Argentina India India Honduras Honduras Philippines Philippines Approximately 25% of sales manufactured in low-cost locations Move to low-cost countries accelerated through restructuring activities – Execution risk is limited due to existing operations and experience. Limited investment required, utilizing 19 existing facilities.
  20. 20. Financial Review and Outlook 20
  21. 21. Strong History Of Profitable Growth* Core Operating Earnings** (in millions) $768 $800.0 $700.0 $600.0 $500.0 $325 $400.0 $300.0 $170 $200.0 $100.0 $0.0 1994 2004 2005* * Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information. ** Core Operating Earnings is Income before interest, other expense, income taxes, impairments, restructuring costs and other special items. 21
  22. 22. 2005 Results Challenging Production Environment North America Industry production flat Big Three down 5% Top 15 platforms down 7% Europe Industry production flat Top 5 customers down 1% Euro 1% stronger than a year ago Raw Materials Diesel fuel Steel Resins and Chemicals 22
  23. 23. Free Cash Flow History* $509 $410 $395 $318 $317 2000 2001 2002 2003 2004 2005 ($419) 2005 Unusual Given Lear’s Consistently Strong Cash Flow Generation * Free Cash Flow represents net cash provided by operating activities before net change in sold accounts receivable less capital 23 expenditures. Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information.
  24. 24. First Quarter 2006 Highlights First-quarter financial results showed year-over-year improvement Reached agreement to contribute European Interiors business to JV with WL Ross & Co. LLC in return for a minority stake* Received recognition for excellence in quality and service from several major customers Continued to win new business with Asian manufacturers Successfully completed the refinancing of $1 billion of debt Company Is Financially Sound And Operating Results Are Expected To Improve This Year* 24 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  25. 25. $1 Billion Financing and Credit Facility Amendment Revisions Completed* Entered into new $1.0 billion first lien term loan facility Matures April 2012 Shares collateral and covenants with revolving credit facility Proceeds of new term loan utilized to: Prepay existing $400 million term loan due in 2007 Retire $317 million convertible bond, putable in 2007 Address a portion of the 2008/2009 bond maturities Existing $1.7 billion revolving credit facility remains in place Amended to provide additional flexibility through 2008 Matures March 2010 Closed, funded and effective on April 25, 2006 25 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  26. 26. Summary and Outlook* Lear is Financially Sound Successfully Refinanced $1 Billion of Debt Operating Results Showing Improvement Continued Progress on Implementing Restructuring Actions First-Quarter Operating Results Better than a Year Ago Full-Year Results On-Track for Improvement Making Progress on Strategic Priorities Signed Letter of Intent to Contribute European Interiors Business to Joint Venture with WL Ross & Co. LLC Continuing to grow Asian Sales, Including New Seating Business with Nissan in N.A. and Several Programs in Asia Longer-Term Outlook Remains Positive Company is Managing Near-Term Challenges Positioning for Improved Long-Term Competitiveness 26 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  27. 27. Q and A Session 27
  28. 28. Use of Non-GAAP Financial Information In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included throughout this presentation, the Company has provided information regarding certain non-GAAP financial measures. These measures include “income before interest, other expense, income taxes, impairments, restructuring costs and other special items” (core operating earnings) and “free cash flow.” Free cash flow represents net cash provided by operating activities before the net change in sold accounts receivable, less capital expenditures. The Company believes it is appropriate to exclude the net change in sold accounts receivable in the calculation of free cash flow since the sale of receivables may be viewed as a substitute for borrowing activity. Management believes that the non-GAAP financial measures used in this presentation are useful to both management and investors in their analysis of the Company’s financial position and results of operations. In particular, management believes that “income before interest, other expense, income taxes, impairments, restructuring costs and other special items” is a useful measure 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 this measure is useful to both management and investors in their analysis of the Company's results of operations and provides 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 and free cash flow should not be considered in isolation or as substitutes for net income (loss), pretax income (loss), cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as measures of profitability or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and therefore, does not reflect funds available for investment or other discretionary uses. Also, these non-GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies. Set forth on the following slides are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. 28
  29. 29. Use of Non-GAAP Financial Information Income before interest, other expense, income taxes, impairments, restructuring costs and other special items 2005 2004 1994 (in millions) (Income) loss before provision for income taxes $ (1,187.2) $ 550.2 $ 114.8 Goodwill impairment charges 1,012.8 - - Interest expense 183.2 165.5 46.7 Other expense, net 96.6 52.7 8.1 Restructuring actions 106.3 - - Fixed asset impairment charges 82.3 - - Litigation charges 30.5 - - Income before interest, other expense, income taxes, impairments, restructuring costs and other special items $ 324.5 $ 768.4 $ 169.6 (Core Operating Earnings) 29
  30. 30. Use of Non-GAAP Financial Information Free Cash Flow Full Year (in millions) 2005 2004 2003 Free Cash Flow Net cash provided by operating activities $ 560.8 $ 675.9 $ 586.3 Net change in sold accounts receivable (411.1) 70.4 298.1 Net cash provided by operating activities before net change in sold accounts receivable 149.7 746.3 884.4 Capital expenditures (568.4) (429.0) (375.6) $ (418.7) $ 317.3 $ 508.8 Free cash flow 30
  31. 31. Use of Non-GAAP Financial Information Free Cash Flow Full Year (in millions) 2002 2001 2000 Free Cash Flow Net cash provided by operating activities $ 545.1 $ 829.8 $ 753.1 Net change in sold accounts receivable 122.2 (245.0) (21.2) Net cash provided by operating activities before net change in sold accounts receivable 667.3 584.8 731.9 Capital expenditures (272.6) (267.0) (322.3) Free cash flow $ 394.7 $ 317.8 $ 409.6 31
  32. 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, fluctuations in the production of vehicles for which the Company is a supplier, labor disputes involving the Company or its significant customers or suppliers or that otherwise affect the Company, the Company’s ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions, the outcome of customer productivity negotiations, the impact and timing of program launch costs, the costs and timing of facility closures, business realignment or similar actions, increases in the Company’s warranty or product liability costs, risks associated with conducting business in foreign countries, competitive conditions impacting the Company’s key customers and suppliers, raw material costs and availability, the Company’s ability to mitigate the significant impact of recent 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 our ability to align our vendor payment terms with those of our 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 addition, the Company’s previously disclosed agreement in principle to contribute its European Interiors business to a joint venture with WL Ross & Co. LLC is subject to the negotiation and execution of a definitive agreement and other conditions. No assurances can be given that the proposed transaction will be completed on the terms contemplated or at all. The forward-looking statements in this presentation are made as of the date hereof, and the Company does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof. 32

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