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lear 09 2606

  1. 1. 2006 Paris Auto Show JPMorgan Investor Conference September 26, 2006
  2. 2. Agenda Strategic Evolution Bob Rossiter, Chairman and CEO Improving Global Competitiveness Doug DelGrosso, President and COO Financial Review Matt Simoncini, SVP Operational Finance Summary and Outlook Bob Rossiter, Chairman and CEO 2
  3. 3. Strategic Evolution Since the Company Systems Supplier went public, we have Integrator transformed from an automotive seat manufacturer to one of Total Interior Seat Manufacturer Capability the world’s leading automotive interior suppliers. 1994 2005 3
  4. 4. Lear’s Customer Focus Has Supported Sales Growth Net Sales (in billions) $17.1 $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $3.1 $2.0 $0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 “At Lear, we believe if you provide superior quality, outstanding customer service and new product innovation, sales growth is inevitable.” 4
  5. 5. We Have Diversified Our Geographic Mix. . . 2005 1994 Europe Europe 38% 17% Rest Of World North America North America 8% 54% 83% 5 As of 12/31/05
  6. 6. And, Diversified Our Customer Mix 2005 1994 Classic Ford & GM Extended Ford & GM; Classic Ford & GM Saab, Volvo, 44% Jaguar and Land Rover 75% 9% All Other Chrysler Toyota BMW Porsche All Other Fiat Renault VW Nissan PSA Mazda Mercedes Hyundai 6 As of 12/31/05
  7. 7. Factors Adversely Impacting Our Business Declining Big Three market share Major restructuring actions at key customers Sustained high raw material and energy prices Distress throughout supply chain Industry shift away from full size pickups and SUV’s Reversal of trend toward total interior integration 7
  8. 8. New Strategic Direction* Strategic Systems Supplier Partner Integrator • Product-Line Focused Total Interior • Globally Competitive Seat Manufacturer Capability • Working Collaboratively with Customers 2006 and Forward 1994 - 1999 2000 - 2005 8 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  9. 9. Improvement Plans In Place* Sales Growth and Customer Diversification New product innovation to increase sales Growing our content per vehicle in major markets Expanding our infrastructure in Asia Winning new business with non-traditional customers Global Competitiveness $250 million global restructuring plan being implemented Accelerating manufacturing & sourcing footprint actions Aggressively implementing cost reduction and operating improvement initiatives Implementing new strategic direction for Interior Segment 9 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  10. 10. Strategy For Interior Segment* Signed Definitive Agreement to Contribute Substantially all of Lear’s European Interior Business to International Automotive Components Group, LLC in Return for a Minority Stake: Creates a large [20 manufacturing facilities in 9 countries, with $1.2 billion in annual sales] and well capitalized enterprise Solid platform for improving ongoing operating efficiency and financial performance Expected to close shortly Working Aggressively to Restructure Operations and Put in Place a New Business Model for Lear’s North American Interior Business: Continuing to evaluate strategic alternatives Working Toward Definitive New Strategic Direction For Interior Business By Year End 10 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  11. 11. Improving Global Competitiveness 11
  12. 12. Improving Global Competitiveness* Increasing our Product-line Focus Emphasis on New Technology and Product Innovation Delivering Superior Quality and Customer Service Restructuring Initiatives Improving Operating Efficiency Customer, Regional and Segment Diversification Underway Continuous Improvement / Operational Excellence 12 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  13. 13. 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 13 Head Impact Inverters Adjuster Module Countermeasure
  14. 14. Putting It All Together On BMW 3-Series. . . TV Receivers Sound Systems Lighting Power System Body Controller 23 Way Pinheader Terminals & Connectors for Wire Harness Premium Seating System Pre Safe Box with Power Fuse Advanced Front Lighting System 14 Jumper Start
  15. 15. Customer Awards Reinforce Lear’s Quality And Customer Service Commitment Customer Awards General Motors--Supplier of the Year for Seating Systems (Global) Ford Motor Company Special Recognition for Customer Service (Global) Special Recognition for Design Engagement (Europe) Toyota Superior Logistics Performance (Argentina) Superior Supplier Diversity and Excellence in Quality (Global) Mazda--Value Engineering Award for Number of Ideas Submitted (Japan) Volkswagen Excellence in Quality and Product Development (Mexico) Best Quality and Among Top Three in Cost Reduction (Brazil) Supplier of the Year (South Africa) Honda--Delivery and Quality Performance Volvo Cars--Supplier Award of Excellence Mahindra & Mahindra--Best Performance in Product Development GAZ--Best Supplier Award 15
  16. 16. Industry Recognition Validates Lear’s Internal Quality And Customer Service Improvements Industry Recognition Auto Interiors Show--Lear Content on all Six ‘Interior of the Year’ Winning Vehicles (United States) Industry Week Magazine--Lear’s Liberty, Missouri plant among Finalists for Best Plant Award (North America) Philippine Economic Zone--Employer of the Year Society of Plastics Engineers--Excellence in Performance & Customization for the Cargo Compartment on Ford Escape DLC Design--4.7 Rating (out of 5) for Lear Audio System in the BMW 530i (2006 SAE World Congress) JD Power 2006 Seat Quality Survey--Highest Quality Major Seat Supplier for Past Six Years 16
  17. 17. Restructuring To Improve Operating Efficiency* Pretax Restructuring Costs Restructuring Objectives (in millions) Eliminate excess capacity Eliminate excess capacity $120 - 150 Streamline organization and Streamline organization and improve operational efficiency improve operational efficiency $103 Accelerate move to lower- Accelerate move to lower- cost sources cost sources 2005 2006+ Estimated Payback Of Restructuring Initiatives Is 2.5 Years 17 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  18. 18. Maintaining A Competitive Global Footprint Legend for Product Examples Global Technology Centers Wire Harness……WH Term & Conn…….TC Seat Trim…………ST Metals & Mech…...MM Interior Trim….……IT Electronic Comp….EC Eastern Europe Czech Republic [WH, IT, TC] Hungary [WH, ST] Poland [WH, ST, IT, MM] Romania [WH] Slovakia [IT] Slovenia [MM] Asia Turkey [WH, ST] China [WH, ST, IT, EC] India [IT] Africa Philippines [WH, EC] Morocco [WH] South Korea [ST] S. Africa [WH] Central America Taiwan [ST, TC] Tunisia [WH] Mexico [WH, ST, IT, MM] Thailand [ST] Honduras [WH] South America Argentina [WH, IT] Brazil [ST, IT] Venezuela [ST] Today About 30% Of Lear’s Components Come From 21 Low-Cost Countries; Target Is 40% By 2010* 18 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  19. 19. Global Strategy For Customer And Product Diversification* North America Fully participate in fast-growing Crossover segment Expand emerging relationships with Hyundai, Nissan and Toyota Grow content per vehicle with new products and technology: Safety-Related – IntelliTireTM, Pro-TecTM PLuS and Adaptive Front Lighting Electronics – RKE Technology, Premium Audio/Visual, Home Automation Participate in Hybrid growth with high-voltage Electrical Systems Europe and Rest of World Accelerate growth with Asian automakers and Volkswagen Continue to invest in infrastructure in China, India and Korea Leverage existing relationships with Big Three and European automakers to grow in Emerging Markets 19 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  20. 20. Rapidly Growing Our Total Asian Sales* Revenue in Asia and with Asian Manufacturers (in millions) $2,200 $1,800 27% $1,250 29% $800 73% 32% 71% 16% 68% 84% 2002 2003 2004 2005 2008 Outlook Consolidated Non-consolidated Rapid Growth In Asian Sales Led By Expanding Relationships With Hyundai, Nissan And Toyota 20 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  21. 21. Examples Of New Asian Business Lear Relationship Product Customer Supply 100% of North American seating • Provide value-add technologies (e.g. TPMS) • Wiring harnesses provided through JV with a Korean partner • Leverage Lear’s quality reputation and global footprint to • support Hyundai’s quality reputation Rapid growth potential as a global preferred supplier • Santa Fe -- Seating, IntelliTireTM Nissan evolving its sourcing strategy to global suppliers • Lear’s relationship with Tachi-S now encompasses three • joint ventures: – North America (Mt. Juliet, TN) – Europe (Sunderland, U.K.) – Asia (Guangzhou, China) Collectively these operations will supply seven vehicle • lines for Nissan Qashqai Seats, Electrical Distribution Expanding relationship with headliners, NVH, plastics & • seating by establishing new facilities alongside Toyota in North America & Europe Continued success on seating joint venture in N.A. • (Sienna) and interior programs (e.g. Tundra) provides opportunity on next new N.A. seat program Tundra -- Interior Trim 21
  22. 22. Improving Launch Efficiency* Products Selective vertical integration Lear’s common architecture strategy Lear Flexible Seat Architecture Plants Quality First initiative Lean manufacturing processes Efficiencies from restructuring actions Lear Montgomery, AL Plant Processes / Systems Global sharing of best practices Company-wide standardized launch process Web-based launch information and management system 22 Lear Program Management Process * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  23. 23. Major Second Half 2006 And 2007 Launches Rest of World Europe North America Chevrolet Silverado Mercedes C-Class Hyundai Veracruz Seats, Doors and Car2UTM Seats Seats and IntelliTireTM (Korea) Home Automation System Acura MDX Land Rover Range Rover Dodge Caliber (Venezuela) Wire Harnesses Seats, Electronics Seats Chrysler Aspen Nissan Qashqai Ford Galaxy (China) Seats, Wire Harnesses, Seats, Wire Harnesses Seats Overheads, F&A, Electronics Peugeot 207 Coupe Cadillac STS (China) Nissan Sentra Seats Seats, Doors, Floors Overheads, Trim Fiat Stilo Ford Mondeo (China) Toyota Tundra Seats Seats, Doors, Overheads F&A, Trim Audi A4 Renault Logan (India) Chrysler / Dodge Minivan Seats Seats IP, Doors, Overheads, F&A Ford Mondeo Chang'an (China) Saturn VUE Seats Seats Seats Honda Accord 23 Wire Harnesses
  24. 24. Managing The Business To Improve Product-Line Returns* Strategic Focus Seating Systems Improve Margins Electronic and Electrical Profitable Growth Interior New, More Sustainable Products Business Model 24 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  25. 25. Financial Review 25
  26. 26. Strong History Of Profitable Growth Core Operating Earnings* $768 (in millions) Unfavorable volume / mix Adverse raw material costs $325 $170 1994 2004 2005 * Income (loss) before income taxes was $114.8 million, $550.2 million and $(1,187.2) million for 1994, 2004 and 2005, respectively. Core Operating Earnings represents income before interest, other expense, income taxes, impairments, restructuring costs 26 and other special items. Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information.
  27. 27. Financial Review And Outlook First Half Operating Earnings Improved Income Before Interest, Other Expense and Income Taxes* Core Operating Earnings** (in millions) (in millions) $219 $165 $136 $79 2005 2006 2005 2006 * Income (loss) before income taxes and cumulative effect of a change in accounting principle was $46.3 million and $(53.3) million in the first half of 2006 and 2005, respectively. Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information. 27 ** Core operating earnings represents income before interest, other expense, income taxes, impairments, restructuring costs and other special items. Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information.
  28. 28. Financial Review And Outlook Improvement Driven By Strong Seating Performance First Half Segment Results 2005 2006 Comments Seating ■ Strong new business globally Net Sales $ 5,628.6 $ 6,088.6 ■ Improved Asian profitability Segment Earnings* $ 98.7 $ 297.4 ■ Net cost improvements % of Sales 1.8 % 4.9 % Adjusted % of Sales** 2.5 % 5.2 % Electronic and Electrical ■ Higher commodity costs Net Sales $ 1,546.9 $ 1,575.0 ■ Competitive price pressure Segment Earnings* $ 110.6 $ 91.2 ■ Transition to low-cost locations % of Sales 7.1 % 5.8 % Adjusted % of Sales** 7.8 % 6.7 % Interior ■ Insufficient pricing Net Sales $ 1,529.8 $ 1,825.1 ■ High raw material costs Segment Earnings* $ (26.2) $ (96.7) ■ Inefficiencies related to major % of Sales (1.7) % (5.3) % Adjusted % of Sales** (1.5) % (4.3) % launches & capacity utilization * Segment earnings represent income (loss) before interest, other (income) expense and income taxes. Income before interest, other expense and income taxes for the Company was $164.5 million and $78.8 million for the first half of 2006 and 2005, respectively. Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information. ** Adjusted % of sales excludes restructuring and other special items of $53.8 million (Seating - $20.0, Electronic and Electrical - $14.9, Interior - 28 $18.9) in first half 2006 and $56.3 million (Seating - $42.9, Electronic and Electrical - $10.2, Interior - $3.2) in first half 2005. Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation for further information.
  29. 29. Financial Review And Outlook Second Half Operating Earnings Now Below A Year Ago* Recent Big Three schedule reductions have totaled about 260,000 vehicles These production cuts have reduced our full-year net sales outlook by about $300 million and our core operating earnings by about 15% The revised outlook for full-year free cash flow is now slightly positive We are continuing to aggressively implement cost reduction and restructuring actions to mitigate the impact of the production cuts and to align our cost structure to the current production outlook We Will Formally Update 2006 Financial Guidance On Our October 26th Conference Call * Please see slides titled “Forward-Looking Statements” and “Use of Non-GAAP Financial Information” at the end of this presentation 29 for further information.
  30. 30. Margin Outlook For Seating And Electronic And Electrical Segments Unchanged* 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 30 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  31. 31. Summary And Outlook Preliminary 2007 Outlook* Definitive direction for Interior Business New Seating and Electronic & Electrical business of about $800 million coming on-line Further customer and product segment diversification Continued earnings growth in Asia Increasing benefits from global restructuring actions Improved launch efficiency and lower launch-related costs Potential for moderation in commodity costs While The Industry Volume Environment Is Uncertain, A Number Of Lear Factors Turn Positive In 2007 31 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
  32. 32. Q and A Session 32
  33. 33. 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 and income taxes”, “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 and income taxes and core operating earnings are useful measures in assessing the Company’s financial performance by excluding certain items that are not indicative of the Company’s core operating earnings or that may obscure trends useful in evaluating the Company’s continuing operating activities. Management also believes that these measures are useful to both management and investors in their analysis of the Company's results of operations and provide improved comparability between fiscal periods. Management believes that free cash flow is useful to both management and investors in their analysis of the Company’s ability to service and repay its debt. Further, management uses these non-GAAP financial measures for planning and forecasting in future periods. Income before interest, other expense and income taxes, core operating earnings and free cash flow should not be considered in isolation or as substitutes for net income (loss), cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as measures of profitability or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and therefore, does not reflect funds available for investment or other discretionary uses. Also, these non-GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies. Set forth on the following slides are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Given the inherent uncertainty regarding special items in any future period, a reconciliation of forward-looking statements is not feasible. The magnitude of these items, however, may be significant. 33
  34. 34. Use of Non-GAAP Financial Information Income before interest, other expense and income taxes and core operating earnings Six Months Ended Q2 2006 Q2 2005 (in millions) Income (loss) before income taxes and cumulative effect of a change in accounting principle $ 46.3 $ (53.3) Interest expense 100.9 93.0 Other expense, net 17.3 39.1 $ 164.5 $ 78.8 Income before interest, other expense and income taxes Restructuring actions 44.2 27.1 Goodwill impairment charges (N.A. Interior Segment) 2.9 - Fixed asset impairment charges (N.A. Interior Segment) 7.2 - Litigation charges - 30.0 Income before interest, other expense, income taxes, impairments, restructuring costs and other special $ 218.8 $ 135.9 items (core operating earnings) 34
  35. 35. Use of Non-GAAP Financial Information Segment Earnings Six Months Ended Q2 2006 Q2 2005 (in millions) Segment Earnings Seating $ 297.4 $ 98.7 Electronic and Electrical 91.2 110.6 Interior (96.7) (26.2) Segment Earnings $ 291.9 $ 183.1 Corporate and geographic headquarters and elimination of intercompany activity (127.4) (104.3) Income before interest, other expense and income taxes $ 164.5 $ 78.8 Interest expense 100.9 93.0 Other expense, net 17.3 39.1 Income (loss) before income taxes and cumulative effect of a change in accounting principle $ 46.3 $ (53.3) 35
  36. 36. Use of Non-GAAP Financial Information Adjusted Segment Earnings First Half (in millions) 2006 2005 Electronic and Electronic and Seating Electrical Interior Seating Electrical Interior Segment Earnings $ 297.4 $ 91.2 $ (96.7) $ 98.7 $ 110.6 $ (26.2) Restructuring actions 20.0 14.9 8.8 12.9 10.2 3.2 Goodwill impairment charges 2.9 - - - Fixed asset impairment charges 7.2 - - - Litigation charges 30.0 - - Adjusted Segment Earnings $ 317.4 $ 106.1 $ (77.8) $ 141.6 $ 120.8 $ (23.0) 36
  37. 37. 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 (core operating earnings) $ 324.5 $ 768.4 $ 169.6 37
  38. 38. Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated financial results and liquidity. Actual results may differ materially from anticipated results as a result of certain risks and uncertainties, including but not limited to, general economic conditions in the markets in which the Company operates, including changes in interest rates or currency exchange rates, fluctuations in the production of vehicles for which the Company is a supplier, labor disputes involving the Company or its significant customers or suppliers or that otherwise affect the Company, the Company’s ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions, the outcome of customer productivity negotiations, the impact and timing of program launch costs, the costs and timing of facility closures, business realignment or similar actions, increases in the Company’s warranty or product liability costs, risks associated with conducting business in foreign countries, competitive conditions impacting the Company’s key customers and suppliers, raw material costs and availability, the Company’s ability to mitigate the significant impact of 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 the Company’s ability to align its vendor payment terms with those of its customers, the finalization of the Company’s restructuring strategy, the outcome of various strategic alternatives being evaluated with respect to its Interior Segment and other risks described from time to time in the Company’s Securities and Exchange Commission filings. In particular, the Company’s financial outlook for 2006 is based on the Company’s current vehicle production and raw material pricing forecast; the Company’s actual financial results could differ materially as a result of significant changes in these factors. In addition, the Company’s agreement to contribute its European Interiors business to International Automotive Components Group, LLC, a joint venture with WL Ross & Co. LLC, is subject to its various conditions, including third-party consents and other closing conditions customary for transactions of this type. No assurances can be given that the proposed transaction will be completed on the terms contemplated or at all. The forward-looking statements in this presentation are made as of the date hereof, and the Company does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof. 38

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