The document is an agenda for the AANY Detroit Automotive Conference on January 8, 2004. It includes a strategic overview presentation by the Chairman and CEO of Lear Corporation, as well as presentations on industry challenges, Lear's sales backlog and 2004 financial guidance. Lear is a leading automotive interior supplier focused on profitable growth. It has a large sales backlog supporting continued growth and its 2004 outlook forecasts record sales and earnings. Lear is well positioned despite challenges in the automotive industry through its customer-focused strategy and flexible cost structure.
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LEAR 2004 detroitautoconference
1. R
AANY Detroit Automotive Conference
January 8, 2004
fast forward
world’s leading automotive interior supplier
advance relentlessly
3. Agenda
I. Strategic Overview
I. Strategic Overview
Bob Rossiter, Chairman & CEO
Bob Rossiter, Chairman & CEO
II. Industry Challenges
II. Industry Challenges
Jim Vandenberghe, Vice Chairman
Jim Vandenberghe, Vice Chairman
III. Sales Backlog Update and
III. Sales Backlog Update and
2004 Financial Guidance
2004 Financial Guidance
Dave Wajsgras, SVP & CFO
Dave Wajsgras, SVP & CFO
IV. Panel Q & A Session
IV. Panel Q & A Session
3
5. Strategic Focus
Highest
#1, #2 or #3
Rated Tier I Best Equity
Market Share in
Supplier in Quality Value in the
Core Products /
and Customer Industry
Markets
Satisfaction
Customer-Focused and
Performance-Driven Culture
5
6. Regional Business Strategy
North America Outlook
Quality continues to improve
Leverage our leadership
Sales growing
position in total interiors
Ensuring competitive footprint
Europe
Improving operating structure
Improve our business structure
Low-cost country strategy
and grow our market share Growing seats, electronics and
cockpits
Asia/Asian OEMs
Aggressively expand our Top priority
presence with Asian OEMs Fastest growing part of our business
Partnering With Our Customers to
Pursue Profitable Growth Worldwide
6
7. 2003 Highlights
Internal quality improved 27%; received quality and service
Internal quality improved 27%; received quality and service
awards from all our major customers
awards from all our major customers
Ranked as America’s ‘Most Admired’ Company in the
Ranked as America’s ‘Most Admired’ Company in the
Motor Vehicle Parts Industry by Fortune® Magazine
Motor Vehicle Parts Industry by Fortune® Magazine
Record net sales, solid earnings growth and strong
Record net sales, solid earnings growth and strong
cash flow
cash flow
Investment grade credit rating from S&P and Fitch
Investment grade credit rating from S&P and Fitch
Initiated quarterly dividend of $0.20 per share
Initiated quarterly dividend of $0.20 per share
Lear Continues to Deliver Superior Value to
Our Customers and Shareholders
7
8. Highlights of Today’s Presentation
Customer-focused strategy driving our success
Customer-focused strategy driving our success
Lear is well positioned to meet industry challenges
Lear is well positioned to meet industry challenges
Sales backlog supports continued growth
Sales backlog supports continued growth
2004 outlook reflects record net sales, record
2004 outlook reflects record net sales, record
earnings and strong cash flow
earnings and strong cash flow
Maintaining our Momentum Amid a Highly
Competitive Environment
8
10. Automotive Industry Challenges
Global Overcapacity // Slow Growth in Demand
Global Overcapacity Slow Growth in Demand
Continuous Quality Improvement
Continuous Quality Improvement
Profitability Under Pressure
Profitability Under Pressure
Manage Through Business Cycles
Manage Through Business Cycles
Financial Results in Europe
Financial Results in Europe
Industry Environment Remains Difficult in
North America and Western Europe
10
11. Industry Challenge: Slow Growth
Lear Response: Profitable Growth Strategy
Interiors are the fastest growing automotive segment
Interiors are the fastest growing automotive segment
Intense focus on improving interiors by all major
Intense focus on improving interiors by all major
automakers
automakers
Lear’s sales backlog supports ≈ 5% annual growth
Lear’s sales backlog supports ≈ 5% annual growth
Growth potential with Asian OEMs, electronics and
Growth potential with Asian OEMs, electronics and
instrument panels //cockpits
instrument panels cockpits
Industry’s first Total Interior Integrator program
Industry’s first Total Interior Integrator program
New product innovation (e.g., IntelliTireTM))
New product innovation (e.g., IntelliTireTM
Lear is Well Positioned in the Fastest Growing
Segment in the Automotive Industry
11
12. Industry Challenge: Quality
Lear Response: Quality First Initiative
Parts Per Million (PPM) Defective*
Management priority
Management priority
27 %
Imp
rov
e me
Global focus
nt
Global focus
Part of Lear culture
Part of Lear culture
Six Sigma discipline
Six Sigma discipline
Sharing best practices
Sharing best practices
Teamwork
Teamwork
Nine Months 2002 Nine Months 2003
Driven to Provide the Highest Level Quality
Products and Services in the Automotive Industry
* Based on internal and customer data. 12
13. Industry Challenge: Quality
Lear Response: Continuous Improvement
Things Gone Wrong (TGW)
Lear’s 2003 J.D. Power
per 100 vehicles
Results
C ont
i nuo u
s Im
prove
ment
11% improvement in 2003
10.3
9.5
8.3 7.9
4th consecutive year of
7.0
improvement in TGW
Highest quality seat
manufacturer that
supplies multiple OEMs
1999 2000 2001 2002 2003
Source: 2003 J.D. Power Seat Survey
Independent J.D. Power Survey Shows
Continuous Improvement in Lear’s TGW
13
14. Industry Challenge: Profitability
Lear Response: Deliver High Value-Added
Outstanding customer relationships
Outstanding customer relationships
Total interior capability
Total interior capability
True partner vs. supplier
True partner vs. supplier
Economies of scale // common architecture
Economies of scale common architecture
Aggressive VA // VE initiatives
Aggressive VA VE initiatives
Ongoing quality and cost efficiencies
Ongoing quality and cost efficiencies
Lear Works in Partnership with Customers to
Eliminate Waste and Add Value
14
15. Industry Challenge: Business Cycles
Lear Response: Flexible Cost Structure
Representative
Core Operating
Lear Advantage
Lear Advantage
Margin * 5%
High variable cost structure
15% High variable cost structure
Fixed
Highest-ever sales backlog
Highest-ever sales backlog
Local labor agreements
Local labor agreements
80%
Variable
Relatively low capital
Relatively low capital
intensive business
intensive business
Legacy costs / /pension
Legacy costs pension
liabilities not significant
liabilities not significant
Materials as a % of Sales: 65%
* Core operating margin represents income before interest, other expense and income taxes divided by net sales.
Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation.
15
16. Industry Challenge: Europe
Lear Response: Improvement Plan in Place
Aggressively grow content per vehicle
Aggressively grow content per vehicle
Grow seats, electronics and cockpits
Grow seats, electronics and cockpits
Source to low cost countries
Source to low cost countries
Improve overall business structure
Improve overall business structure
Intense focus on quality and delivery
Intense focus on quality and delivery
In a Challenging Environment, We are Steadily
Improving our Results in Europe
16
18. Competitive Strengths Deliver Superior Value
Customer & Shareholder Value
High Quality
Customer Satisfaction
LEVERAGE Improving Financials
Strong Cash Flow
STRENGTHS
re
ultu
ly ’ C
s
tles
n
R e le
ce
van
‘A d
Total
DELIVER
Automotive
Competitive Strengths
VALUE
Interior
Customer Focus Capability
Operational Excellence
Economies of Scale
Innovation
18
19. Financial Priorities
We are focused on:
We are focused on:
Profitable growth
Profitable growth
Improving ROIC
Improving ROIC
Generating cash
Generating cash
Financial discipline
Financial discipline
Meeting Our Commitments and
Delivering Shareholder Value
19
20. Focused Strategy has Supported Rapid
Growth for Lear
Net Sales
ome
(in billions)
t I nc % $15.5
Ne 20
$16.0 $14.4
AGR
$14.1
$13.6
C
$14.0 $12.4
SALES
$12.0
CAGR
$9.1
$10.0
20%
$7.3
$8.0 $6.2
$4.7
$6.0
$3.1
$4.0
$2.0
$0.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Guidance
Net sales have steadily No strategic hole in Lear’s
increased since IPO to about product line up
$15.5 billion today Lear ranks 131 among the
Fortune 500 and is the 16th
17 major acquisitions during
the 1990’s fastest growing company in the
U.S. over the last ten years
60% acquisition growth
40% organic growth
20
21. Going Forward,
Strong Revenue Growth Continues
$1,250
$1,000
$900
$750
Sales Backlog
(in millions)
$500
2004 2005 2006 2007 2008
$4,400
$3,900
$750
Cumulative $2,000 $3,000
3-Year and 5-Year Sales Backlog Increases to
Highest-Ever Absolute Levels
21
* Please see slide titled “Forward Looking Statements” at the end of this presentation.
22. Here’s How We Define Sales Backlog*
+ New / Replacement Programs
- Roll-off / Lost Programs
- The Projected Pricing / Content Growth
Impact on Lear’s Total Business
= Sales Backlog
* Please refer to the section entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the 2002 Form 10-K for additional
information on sales backlog calculation.
22
23. Sales Backlog Assumptions
Industry Production* Change from Prior
North America - 16 million No Change
Western Europe - 16 million No Change
South America - 1.9 million No Change
Asia Pacific - Program Specific No Change
Currency - $1.20 / Euro Stronger Euro
* Assumes J.D. Power and Associates market share projections
Trend Industry Production Projected to be Flat;
Euro Continues to Strengthen
23
24. Major Backlog Programs – North America
Vehicle/Program 2004 Next 3 Years
Ford F-150
Dodge Durango
Cadillac SRX
Nissan Titan / Armada
Ford 500
Ford Freestyle
LeSabre / DeVille
Chrysler Minivans
Hyundai Sonata / Santa Fe
GM Cavalier / Sunfire
Ford Windstar
GM Grand Am / Alero
3-Year Backlog Grows in North America
Despite Impact of Phased Out Programs
24
25. Major Backlog Programs – International
Vehicle/Program 2004 Next 3 Years
Peugeot 407
Volvo S80 / V70
Ford Focus C-Max
Peugeot 107
Mazda Familia
Hyundai Terracon
Volvo S40 / V50
Citroen C6
Toyota / PSA Sub-B
Backlog for International Operations Strong,
Reflecting Key New Product Launches
25
26. Sales Backlog Highlights
Key assumptions and overall composition
Key assumptions and overall composition
essentially unchanged
essentially unchanged
Strict ROIC discipline on all new awards
Strict ROIC discipline on all new awards
Continued customer, product and geographic
Continued customer, product and geographic
diversification:
diversification:
-- Asian and European customers represent nearly
Asian and European customers represent nearly
half of all new business
half of all new business
-- IPs and cockpits represent about one-quarter of
IPs and cockpits represent about one-quarter of
the backlog
the backlog
Sales Backlog Continues to Represent Customer,
Product and Geographic Diversification
26
27. Strategic Joint Ventures Diversifying Our Customer
Base and Positioning Lear for Future Growth
Europe Asian JVs
China 10 *
3
North India 1*
Thailand 1*
America
Japan 2 **
Asia 12
14
Total 14
----
* Manufacturing JVs
** Sales and Engineering JVs
29 Global Joint Ventures –
9 Consolidated / 20 Non-consolidated
27
29. Lear Korea Overview
Products
- Seats (95%) - Other (5%)
Seoul
- Lear Korea HQ
Customers
- Hyundai - Kia
- Ssangyong
Chunan
- Ssangyong
Key Strategic Points
- Resulted in N.A. Hyundai business
Kyungju
(HQ / plant)
• Seats in Alabama
- Hyundai
• Wiring through JV
- Expanding JVs with Hyundai
suppliers
- Stay within core products
- Controlled growth and investment
Two plants
300 employees
29
30. Return on Invested Capital Improving
Trailing Twelve Month ROIC*
11.0%
10.6%
10.5%
9.8%
10.0%
9.5%
9.0%
8.5%
8.5%
8.0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
2001 2001 2001 2001 2002 2002 2002 2002 2003 2003 2003
* Return on Invested Capital (ROIC) represents income before restructuring charges, amortization, interest, other expense and income
taxes times (1 - effective tax rate) divided by average invested capital. Average invested capital is the sum of total assets, sold accounts
receivable and the present value of operating leases (assuming a discount rate of 10%) less the sum of accounts payable and drafts and
accrued liabilities, based on the account values on the last day of the prior four quarters.
Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation.
30
31. Strong Free Cash Flow Generation
Cumulative Free Cash Flow*
$2,000 (in millions) $1,700
$1,500 $1,301
$907
$1,000
$589
$500
$179
$0
1999 2000 2001 2002 2003
*
Net Debt
to Cap 70 % 65 % 63 % 58 % < 50 %
* Free cash flow represents net cash provided by operating activities before the net change in sold accounts
receivable, less capital expenditures. Net debt represents total debt plus utilization of our ABS facility, less
cash. Please see slides titled “Use of Non-GAAP Financial Information” at the end of this presentation.
31
32. 2004 Outlook
Vehicle Production Assumptions*
North America Western Europe
(in millions) (in millions)
15.9
≈ 16.0 ≈ 16.0
15.9
2003 Forecast 2004 Guidance 2003 Forecast 2004 Guidance
2004 Production Stable in North America
and Western Europe
* Please see slide titled “Forward Looking Statements” at the end of this presentation.
32
33. 2004 Outlook
Net Sales*
(in billions)
≈ $16.2
2004 Guidance
≈ $15.5
2003 Guidance
$14.4
2002
Record Net Sales in 2004 Anticipated
* Please see slide titled “Forward Looking Statements” at the end of this presentation.
33
34. 2004 Outlook
Net Income Per Share**
$6.25
$5.85
$5.50
$5.40
$4.65 *
Approx. 2002 2003 Guidance 2004 Guidance
Effective
Tax Rate 33.5% 29.0% 28.0%
Record Net Income Per Share Anticipated
* Represents income per share before cumulative effect of a change in accounting principle, which excludes the impact of
goodwill impairment of $298.5m after-tax, or $4.46 per share.
34
**Please see slide titled “Forward Looking Statements” at the end of this presentation.
35. 2004 Outlook
Capital Spending*
≈ $350
≈ $315
(in millions)
$273
2002 2003 Guidance 2004 Guidance
Depreciation $301 ≈ $325 ≈ $370
Capital Spending Increases to Fund Major
New Program Launches
* Please see slide titled “Forward Looking Statements” at the end of this presentation.
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36. 2004 Outlook
Free Cash Flow*
(in millions) ≈ $400
≈ $400
$395
2002 2003 Guidance 2004 Guidance
Interest
Expense $211 ≈ $190 ≈ $175
Free Cash Flow Remains Strong
* Please see slides titled “Use of Non-GAAP Financial Information” and “Forward Looking Statements” at the end of this
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presentation.
37. Summary
‘Quality First’ Initiative driving continuous process
‘Quality First’ Initiative driving continuous process
and quality improvements
and quality improvements
Lear is well positioned for profitable growth with
Lear is well positioned for profitable growth with
highest ever sales backlog and improving
highest ever sales backlog and improving
operating fundamentals
operating fundamentals
Key financial metrics improving:
Key financial metrics improving:
Strong net income per share growth
Strong net income per share growth
Continuing strong free cash flow
Continuing strong free cash flow
Solid and improving capital structure
Solid and improving capital structure
Strong Momentum to Continue in 2004 and
Accelerate in 2005
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38. R
ADVANCE RELENTLESSLY™
LEA
Listed
www.lear.com
NYSE
39. 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 “core operating margin,” “free cash flow,” “ROIC” and “net debt.” Core operating margin represents income before interest, other
expense and income taxes divided by net sales. 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. ROIC
represents income before restructuring charges, amortization, interest, other expense and income taxes times (1 - effective tax rate) divided
by average invested capital. Average invested capital is the sum of total assets, sold accounts receivable and the present value of
operating leases (assuming a discount rate of 10%) less the sum of accounts payable and drafts and accrued liabilities, based on the
account values on the last day of the prior four quarters. Net debt represents total debt plus utilization under its ABS facility, less cash.
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 core operating margin is a
useful measure in assessing the Company’s financial performance by excluding certain items that are not indicative of the Company’s
continuing operating activities or that may obscure trends useful in evaluating the Company’s continuing operating activities. Management
believes that free cash flow is useful in analyzing the Company’s ability to service and repay its debt. Management believes that ROIC is a
commonly used measure that provides useful information regarding the efficiency with which the Company’s assets are deployed.
Management believes that net debt is generally accepted as providing useful information regarding a company’s financial condition.
Further, management uses these non-GAAP measures for planning and forecasting in future periods.
Neither core operating margin, free cash flow, ROIC nor net debt should be considered in isolation or as substitutes for net income, net cash
provided by operating activities, total debt or other balance sheet, 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 thus, 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.
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40. Use of Non-GAAP Financial Information
Free Cash Flow
(in millions) Twelve Months
2002 2001 2000 1999
Free cash flow
Net cash provided by operating activities $ 545.1 $ 829.8 $ 753.1 $ 560.3
Net change in sold accounts receivable 122.2 ( 245.0 ) ( 21.2 ) 10.4
Net cash provided by operating activities
before net change in sold
accounts receivable 667.3 584.8 731.9 570.7
Capital expenditures ( 272.6 ) ( 267.0 ) ( 322.3 ) ( 391.4 )
Free cash flow $ 394.7 $ 317.8 $ 409.6 $ 179.3
40
41. Use of Non-GAAP Financial Information
Return on Invested Capital Earnings
Twelve Months
(in millions)
Q3 2003 Q4 2001 Q1 2001
Income before restructuring charges,
amortization, interest, other expense
and income taxes
Income before income taxes $ 528.9 $ 89.9 $ 395.9
Restructuring charges - 159.3 4.2
Amortization - 90.2 90.1
Interest expense 196.0 254.7 313.9
Other expense, net 58.6 85.8 44.1
Income before restructuring charges,
amortization, interest, other expense
and income taxes $ 783.5 $ 679.9 $ 848.2
(return on invested capital earnings)
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42. Use of Non-GAAP Financial Information
Net Debt
(in millions) December 31,
Net debt 2002 2001 2000 1999
Short term borrowings $ 37.3 $ 63.2 $ 72.4 $ 103.6
Current portion of long-term debt 3.9 129.5 155.6 63.6
Long-term debt 2,132.8 2,293.9 2,852.1 3,324.8
Total debt 2,174.0 2,486.6 3,080.1 3,492.0
Cash ( 91.7 ) ( 87.6 ) ( 98.8 ) (106.9 )
Asset backed securitization 189.0 260.7 - -
Net debt $ 2,271.3 $ 2,659.7 $ 2,981.3 $ 3,385.1
Note: Net Debt to Cap is defined as Net Debt divided by Net Debt plus Stockholder’s Equity.
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43. 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 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 and fuel prices,
fluctuations in the production of vehicles for which the Company is a supplier, labor disputes involving the Company
or its significant customers or that otherwise affect the Company, the Company’s ability to achieve cost reductions
that offset or exceed customer-mandated selling price reductions, the impact and timing of program launch costs,
costs associated with facility closures or similar actions, increases in warranty costs, risks associated with conducting
business in foreign countries, fluctuations in currency exchange rates, adverse changes in economic conditions or
political instability in the jurisdictions in which the Company operates, competitive conditions impacting the
Company’s key customers, raw material cost and availability, the outcome of legal proceedings, unanticipated
changes in free cash flow and other risks detailed from time to time in the Company’s Securities and Exchange
Commission filings. These forward-looking statements are made as of the date hereof, and the Company does not
assume any obligation to update them.
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