Lear Corporation · NYSE:LEA
Lear — Q3 2005 Earnings Presentation
40 slides from Lear's earnings presentation, Oct 26, 2005
Slide 1: Third-Quarter 2005 Financial Review
R Third-Quarter 2005 Financial Review October 26, 2005 fast forward 1
Slide 2: Agenda
Agenda Industry Perspective – Jim Vandenberghe, Vice Chairman Operational Review – Doug DelGrosso, President and COO Financial Results – Dave Wajsgras, EVP and CFO Summary and Outlook – Bob Rossiter, Chairman and CEO Q&A 2
Slide 3: Industry Perspective
CORPORATION Industry Perspective
Slide 4: Industry Conditions
Industry Conditions Vehicle production in N.A. relatively flat, with mix of Big Three pickups and SUVs down Industry overcapacity driving fierce pricing competition for market share Key commodity prices remain high Impact of recent Gulf Coast storms driving energy, resin and chemical prices higher A
Slide 5: Industry Events
Industry Events Collins & Aikman and Delphi’s bankruptcies; financial stress at other major suppliers and automakers Visteon’s return of troubled businesses to Ford GM and Ford’s new purchasing initiatives Lear’s partnership with WL Ross & Co. LLC GM’s agreement with union on healthcare costs Indust
Slide 6: Industry Challenges
Industry Challenges Potential labor disputes/production interruption Supply disruptions Decline in Big Three SUV production Higher commodity prices Industry financial stress Significant Near-Term Risks Impacting Outlook 6
Slide 7: Lear's Action Plan to Mitigate Risks
Lear’s Action Plan to Mitigate Risks Focus on Day-to-Day Execution Maintain high quality and ensure flawless launches Aggressively implement cost improvement initiatives Work in partnership to support customer requirements Implement Global Restructuring Plan Eliminate excess capacity Accelerate move
Slide 8: Strong Fundamentals Help Offset Risks
Strong Fundamentals Help Offset Risks A leader in quality and customer satisfaction Experienced management team High consumer demand for Seating, Electronic and Electrical products Manageable pension and postretirement liabilities Strong balance sheet, with sufficient liquidity Lear’s Strengths Prov
Slide 9: Operational Review
CORPORATION Operational Review
Slide 10: Business Conditions
Business Conditions Launched 26 programs in 67 facilities worldwide in the third quarter, representing about $2 billion in annual sales N.A. platform mix still negative but improving, as six of our top fifteen platforms in the U.S. recently changed over Gulf Coast storms increasing costs for energy,
Slide 11: North American Production Environment
North American Production Environment 2005 compared with 2004 First Half Third Quarter 3% (1)% (3%) (8%) Overall Lear’s Top Overall Lear’s Top Industry 15 Platforms Industry 15 Platforms 11
Slide 12: Commodity Price Update
Commodity Price Update Steel prices down in the third quarter, still well above historical levels Resin and chemical prices increased in the third quarter and remain well above historical levels; further increases due to Gulf Coast storms are expected Another quarter of high commodity prices has inc
Slide 13: Restructuring Implementation Status
Restructuring Implementation Status* 2005 Cost and Cash Impact 2005 YTD Actions (in millions) Pretax Initiated closure of five Cost Cash manufacturing facilities Global organizational structure Incurred $ 60 $ 24 streamlined and multiple Estimated administrative offices Fourth Quarter ~ 50 ~ 75 rest
Slide 14: Global Component Manufacturing/Sourcing Footprint Actions
Global Component Manufacturing/ Sourcing Footprint Actions Lear Examples Sourcing Criteria by Product Segment Seating Value Add / Labor Content Mechanisms Latches High Pack Density Lumbar support Raw Material Availability Power motors Leather trim sets No Patent Issues Electronic and Electrical Term
Slide 15: Backlog Profitability
Backlog Profitability* 2005 is a transition year for Lear’s platform mix; more than half of Lear’s major North American platforms are turning over this year, representing approximately 40% of Lear’s North American revenue Customer pricing negotiations underway to address raw material price increases
Slide 16: Growth Opportunities in Seating and Electronic and Electrical Products
Growth Opportunities in Seating and Electronic and Electrical Products* Capitalize on strong growth prospects in Asia and with Asian automakers globally Pursue global growth opportunities with new seating products that provide added safety features and flexible configurations Leverage reputation as
Slide 17: Financial Results
CORPORATION Financial Results 17
Slide 18: Third Quarter Summary
Third Quarter Summary* Third Quarter Production – North American industry up 3%; platform mix unfavorable but improving – European industry estimated down 4% Net sales of $4 billion, up slightly from a year ago Reported net loss of ($11.17) per share, including goodwill impairment charge of ($9.98)
Slide 19: Third Quarter Sales Changes and Margin Impact Versus Prior Year
Third Quarter Sales Changes and Margin Impact Versus Prior Year Sales Margin Performace Factor Impact Impact Comments (millions) Industry Production / (Very Platform Mix $ (331) Adverse) Concentrated in high-content platforms Net Global New Business / Acquisitions 387 Low Unprecedented level of laun
Slide 20: Financial Highlights – Third Quarter 2005
Financial Highlights – Third Quarter 2005 Third Third 3Q '05 (in millions, except net income (loss) per share) Quarter 2005 Quarter 2004 B/(W) 3Q '04 Net Sales $3,986.6 $3,897.8 $88.8 Income (Loss) before Interest, Other Expense * & Income Taxes ($726.3) $159.1 ($885.4) Margin N/M 4.1 % N/M Net Inco
Slide 21: Impact of 2005 Impairment and Restructuring Charges
Impact of 2005 Impairment and Restructuring Charges* Third Quarter Memo: Net Loss Pre-tax (in millions, except net loss per share) Per Share Loss Income Statement Category Other COGS SG&A Interest Expense Reported Results $ (11.17) $ (788) - - - - Reported results include the following items: Estima
Slide 22: Third Quarter Free Cash Flow
Third Quarter Free Cash Flow* (in millions) 3Q 2005 3Q 2004 Net Income (Loss) $ (750) $ 92 Goodwill / Fixed Asset Impairments 753 - $ 3 $ 92 Depreciation / Amortization 100 88 Working Capital / Other (412) (48) Cash from Operations $ (309) $ 132 Capital Expenditures (135) (91) Free Cash Flow $ (444)
Slide 23: Lear's Debt Maturity Profile
Lear’s Debt Maturity Profile $1,700 Public Bonds (in millions) Credit Facility Convertible Bond Term Loan $800 $400 $400 $300 $317* 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Target $1.0+ billion in excess liquidity – Beyond seasonal working capital needs $2.1 billion in committed bank facili
Slide 24: Debt Levels
Debt Levels (in millions) 10/1/2005 12/31/2004 Balance Sheet Debt: Short-term borrowings $ 43 $ 35 Current portion of long-term debt 8 633 Long-term debt 2,291 1,867 Total Debt $ 2,342 $ 2,535 Cash and Cash Equivalents (135) (585) Accounts Receivable Factoring / ABS 279 - Net Debt* $ 2,486 $ 1,950 *
Slide 25: Fourth Quarter Outlook
Fourth Quarter Outlook* A number of significant uncertainties are impacting the outlook for Lear’s financial results for the fourth quarter: – Instability in the raw material and commodity markets, particularly given the effects of the Gulf Coast storms – Continuing distress throughout the supply ch
Slide 26: Impact of Recent Gulf Coast Storms
Impact of Recent Gulf Coast Storms Impact on Significant Impact Energy Supply* on Resins and Chemicals Over 645 of 819 manned platforms were evacuated during storms Many key Lear suppliers impacted – 210 (25.6%) platforms remain evacuated N.A. capacity down* – 35 platforms destroyed 9/30/05 10/17/05
Slide 27: Directional 2006 Outlook
Directional 2006 Outlook* Given the level of uncertainty, financial guidance for 2006 will not be provided at this time. Shown below is a directional assessment of our outlook for next year: Strong backlog supports sales growth in all segments Marked improvement in earnings Capital spending trends n
Slide 28: Interior Product Segment – Key Financials
Interior Product Segment– Key Financials Actual YTD ($ in m illions) 2002 2003 2004 2005 Net sales $2,550 $2,817 $2,965 $2,261 Incom e (loss) before goodw ill im pairm ent charge, interest, other expense & incom e taxes** 141 104 85 (140) * % of net sales 5.5% 3.7% 2.9% -6.2% Depreciation 101 108 10
Slide 29: Proposed Interior Product Segment Joint Venture with WL Ross
Proposed Interior Product Segment Joint Venture with WL Ross* Entered into a framework agreement providing for a joint venture with Wilbur Ross [WL Ross & Co. LLC] to explore acquisition and rationalization opportunities in the automotive interiors business sector . . . Develop better platform for I
Slide 30: Summary and Outlook
CORPORATION Summary and Outlook 30
Slide 31: Summary
Summary* Proposed Joint Venture for Interior Product Segment Proposed JV provides a framework for re-positioning the Interior product segment, while allowing Lear to continue its focus on profitably growing the Seating, Electronic and Electrical segments Growth in Seating, Electronic and Electrical
Slide 32: Outlook for Business
Outlook for Business* 2005 – Transition Year Adverse platform mix Peak capital spending and product launches High raw material prices; distress in supplier base Change in customer payment terms Global restructuring plan Interior product segment partnership with WL Ross & Co. 2006 – Results Improve M
Slide 33: Q&A
CORPORATION Q&A 33
Slide 34: Advance Relentlessly
R R ADVANCE RELENTLESSLY™ LEA Listed NYSE www.lear.com 34
Slide 35: Use of Non-GAAP Financial Information
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 measure
Slide 36: Use of Non-GAAP Financial Information: Income (Loss) Before Interest, Other Expense & Income Taxes
Use of Non-GAAP Financial Information Income (Loss) Before Interest, Other Expense & Income Taxes (in millions) Income (loss) before interest, Three Months other expense and income taxes Q3 2005 Q3 2004 Income (loss) before income taxes $ (787.8) $ 105.8 Interest expense 45.1 43.3 Other expense, net
Slide 37: Use of Non-GAAP Financial Information: Net Loss Excluding Impairment & Restructuring Charges
Use of Non-GAAP Financial Information Net Loss Excluding Impairment & Restructuring Charges Three Months (in millions) Q3 2005 Net loss excluding impairment Net Loss and restructuring charges Net Loss Per Share Net Loss $ (750.1) $ (11.17) Goodwill impairment charge, net of tax 670.0 9.98 Costs rela
Slide 38: Use of Non-GAAP Financial Information: Cash from Operations and Free Cash Flow
Use of Non-GAAP Financial Information Cash from Operations and Free Cash Flow (in millions) Three Months Nine Months Free Cash Flow Q3 2005 Q3 2004 Q3 2005 Q3 2004 Net cash provided by (used in) operating activities $ (297.3) $ 131.9 $ 228.8 $ 444.0 Net change in sold accounts receivable (11.9) - (2
Slide 39: Use of Non-GAAP Financial Information: Interior Product Segment
Use of Non-GAAP Financial Information Interior Product Segment (in millions) Income (loss) before goodwill impairment charge, YTD interest, other expense and income taxes 2002 2003 2004 2005 Income (loss) before provision for income taxes $ 120.8 $ 49.0 $ 50.6 $(806.3) Goodwill impairment charge - -
Slide 40: Forward-Looking Statements
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. Actual results may differ materially from anticipated results as a result of cert