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LEAR 2004 msglobalautoconf
1. R
Morgan Stanley Conference
April 7, 2004
fast forward
world’s leading automotive interior supplier
advance relentlessly
2. Traits of a Model Supplier
Agenda
I. Superior Culture
I. Superior Culture
Bob Rossiter, Chairman & CEO
Bob Rossiter, Chairman & CEO
II. Superior Organizational Capability
II. Superior Organizational Capability
Jim Vandenberghe, Vice Chairman
Jim Vandenberghe, Vice Chairman
III. Superior Competitive Advantage
III. Superior Competitive Advantage
Dave Wajsgras, SVP & CFO
Dave Wajsgras, SVP & CFO
IV. Q&A
IV. Q&A
2
3. Traits of a Model Supplier
Superior Superior
Superior
Organizational Competitive
Culture
Capability Advantage
“Can Do” Attitude Bring Best-in-Class Product Focus
Designs
Obsessed with Quality Performance
Continuous Breakthrough
Flawless Launches
Improvement Technology
and Program
Saying “No” the Speed - Go Fast Execution
Right Way
Global Presence Sustainable Cost
Strive for Stretch Advantage
Targets
Best-in-Class Value
Sustainable Contribution and Value
3
5. Superior Culture
Putting Our Customers First in Everything We Do
Stay focused on what we can control – quality,
Stay focused on what we can control – quality,
customer service, cost and delivery
customer service, cost and delivery
Operate leanly with an LBO mentality
Operate leanly with an LBO mentality
Work together as a cohesive team
Work together as a cohesive team
Continuously improve the fundamentals of our
Continuously improve the fundamentals of our
business
business
Conduct our business with integrity and humility
Conduct our business with integrity and humility
Never quit until the customer is completely
Never quit until the customer is completely
satisfied
satisfied
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6. Superior Culture
Strategic Focus
2003 Results
Metrics –– 22% improvement in parts
Metrics 22% improvement in parts
per million quality survey
per million quality survey
Highest Rated Tier I Supplier in J.D. Power ––Highest quality seat
J.D. Power Highest quality seat
Quality And Customer Satisfaction supplier to multiple automakers
supplier to multiple automakers
Fortune ––Highest reputation among
Fortune Highest reputation among
automotive suppliers
automotive suppliers
Recognition ––Awards for quality and
Recognition Awards for quality and
service from all major customers
service from all major customers
World’s leader in seat systems and
World’s leader in seat systems and
#1, #2 or #3 Market Share in
total interiors
total interiors
Core Products / Markets
Presently #1, #2, or #3 in all interior
Presently #1, #2, or #3 in all interior
products except instrument panels
products except instrument panels
Highest total shareholder return of any
Highest total shareholder return of any
automotive company in 2003
Best Equity Value in the Industry automotive company in 2003
Declared first-ever dividend
Declared first-ever dividend
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7. Superior Culture
Our Customers Recognize the Value Added by Lear
“Supplier of the Year”
Three World Excellence Awards
Interior Excellence Award
“Supplier of the Year”
2003 Presidents Award
Green Partner Award
Quality, Cost, Value Awards
Quality Master Awards
News Articles:
Newsweek Named Lear as a “Company of the Future”
Fortune Ranked Lear as America’s Most Admired
Automotive Supplier
7
8. Superior Culture
Most Admired Automotive Supplier Second Year in a Row
Previous Overall Attributes of Reputation *
Rank Rank Company Score
1 1 Lear Corporation 7.68 Quality of Products/Services #1
1 1 Lear Corporation 7.68 Quality of Products/Services #1
2 2 Johnson Controls 7.03
2 2 Johnson Controls 7.03 Long-Term Investment #1
Long-Term Investment #1
3 3 Delphi Corporation 5.86
3 3 Delphi Corporation 5.86
Quality of Management #1
Quality of Management #1
4 N/A Autoliv 5.08
4 N/A Autoliv 5.08
5 5 Dana 4.90 Use of Corporate Assets #1
5 5 Dana 4.90 Use of Corporate Assets #1
6 4 Goodyear Tire 4.89
6 4 Goodyear Tire 4.89 Financial Soundness #1
Financial Soundness #1
7 9 Bridgestone/Firestone 4.46
7 9 Bridgestone/Firestone 4.46
Innovation #1
Innovation #1
8 7 ArvinMeritor 4.22
8 7 ArvinMeritor 4.22
9 8 Visteon 3.77 Employee Talent #1
9 8 Visteon 3.77 Employee Talent #1
10 10 Federal-Mogul 3.08
10 10 Federal-Mogul 3.08 Social Responsibility #1
Social Responsibility #1
* Motor Vehicle Parts Industry Rank
Source: Fortune ® March 8, 2004 Issue
Lear Was Ranked #1 for Each Attribute of
Reputation in the 2004 Fortune Survey 8
10. Superior Organizational Capability
Lear’s Profitable Growth Strategy
Industry Focus
Interiors are the fastest growing automotive segment
Interiors are the fastest growing automotive segment
Intense focus on improving interiors by all major automakers
Intense focus on improving interiors by all major automakers
Lear Opportunity
Lear’s sales backlog* supports ≈ 5% annual growth
Lear’s sales backlog* supports ≈ 5% annual growth
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
New process initiatives (e.g., Lear Project Management Program)
New process initiatives (e.g., Lear Project Management Program)
Growth potential with Asian OEMs, electronics, and IPs/cockpits
Growth potential with Asian OEMs, electronics, and IPs/cockpits
Lear is Well Positioned in the Fastest Growing
Segment in the Automotive Industry
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* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
11. Superior Organization Capability
Record Sales Backlog*
(millions)
Major New Business
$1,250
New cockpit and
New cockpit and
$1,000
interior programs
$900 interior programs
$750 Growth in seating
Growth in seating
systems with Korean
systems with Korean
$500
automakers
automakers
Electrical distribution
Electrical distribution
and electronics
and electronics
systems, including
systems, including
TPMS
TPMS
2004 2005 2006 2007 2008
Added content on
Added content on
$4,400
$3,900
$750 $2,000 $3,000
replacement programs
replacement programs
Cumulative
11
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
12. Superior Organizational Capability
Industry’s First Total Interior Integrator Program
2006 Buick LeSabre / Cadillac DeVille
$825 million in annual sales
Lear to provide total interior, including electrical distribution system
Systems Total Interior
Integrator Integrator (TI)
Design OEM Lead Supplier Lead
Engineering Shared Supplier Lead
Sourcing OEM Directed Supplier Lead
Manufacturing Supplier Supplier
Sub-Assembly Supplier Supplier
Sequencing Supplier Supplier
A single supplier responsible for the design, engineering, sourcing,
integration, manufacturing, sub-assembly and sequencing of the total
vehicle interior (excluding certain directed items such as HVAC, safety
and restraints, etc.)
12
14. Superior Organizational Capability
New Process Initiatives
Spray Polyurethane
2-Shot Molding
Lear Flexible Seat Architecture
Lean Principles and
Lear Product Management Process
14
15. Superior Organizational Capability
Global Presence
Netherlands Sweden Poland Austria
Canada
Czech Republic
Germany
Hungary
Belgium UK Russia
France
United South
Spain
States Korea
Portugal
Japan
Italy China
Morocco Tunisia India
Venezuela
Mexico
Slovakia Philippines
Turkey
Romania
Thailand
Honduras
Brazil
Singapore
South Africa
Argentina
111,000 Employees / 289 Facilities Worldwide
Operations in 34 Countries
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19. Superior Competitive Advantage
Overall Environment
Challenging Automotive Industry Dynamics
Challenging Automotive Industry Dynamics
Overcapacity
Overcapacity
Fierce Competition
Fierce Competition
Massive Pension & Healthcare Liabilities at Big 3
Massive Pension & Healthcare Liabilities at Big 3
Combined With Uncertain Demand Outlook Has Resulted In:
Combined With Uncertain Demand Outlook Has Resulted In:
Incentives at Record Levels
Incentives at Record Levels
Major New Product Development Efforts
Major New Product Development Efforts
To Remain Competitive
To Remain Competitive
Automakers Aggressively Striving To Improve
Automakers Aggressively Striving To Improve
Quality, Cost and Delivery
Quality, Cost and Delivery
19
20. Superior Competitive Advantage
Deliver High Value-Added
Strategic acquisitions
Strategic acquisitions
Flexible cost structure
Flexible cost structure
Low-cost manufacturing capabilities
Low-cost manufacturing capabilities
Aggressive VA // VE initiatives
Aggressive VA VE initiatives
LBO mentality to drive strong balance sheet
LBO mentality to drive strong balance sheet
Ongoing quality and cost efficiencies
Ongoing quality and cost efficiencies
Lear Works in Partnership with Customers to
Eliminate Waste and Add Value
20
21. Superior Competitive Advantage
New Acquisition – Electrical Distribution Systems
Grote & Hartmann GmbH & Co.
Total transaction value: $220 million
Headquarters: Wuppertal, Germany; 1,900 employees
Products: Terminals and connectors, junction boxes, machinery to produce
wire harnesses
~$275 million in revenue, with about 75% in Europe
Customers: VW, BMW, Ford, Opel, DCX, Renault, MAN, and PSA group
Manufacturing locations in Germany, Czech Republic, Mexico, France,
South Africa
Acquisition Consistent with our Electronics Strategy;
Expected to be Accretive in 2005
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22. Superior Competitive Advantage
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.
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23. Superior Competitive Advantage
Low-Cost Manufacturing Capabilities
Rest of World
Americas
# of Facilities
# of Facilities
Eastern Europe
Mexico
- Poland 4
- Maquila Current
- Hungary 4
Juarez & Chihuahua 16
- Czech Republic 2
- Turkey 2
- Maquila Future
Juarez, Chihuahua - Romania 1
and Veracruz 16 - Slovakia 1
- Mexico Interior 8 Africa
- Tunisia & Morocco 2
Honduras
- South Africa 6
- Maquila Current 3
Philippines 4
- Maquila Future 5
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24. Superior Competitive Advantage
Global Total Value Management (TVM) Centers
Frankfurt, Germany
5 - Dearborn, MI
1 - Southfield, MI
Barcelona, Spain
Sao Paulo, Brazil
Customer Feedback – Lear is the #1 Performing Cost
Reduction Supplier by 6 Global OEMs 24
25. Superior Competitive Advantage
LBO Mentality Drives Strong Balance Sheet
(in billions)
70%
$4.0
65%
Net Debt***/Capital
63%
$3.4
$3.5
58%
$3.0
$3.0
Net Debt
$2.7
$2.5 $2.3
46%
$1.9
$2.0
$1.5
1999* 2000 2001** 2002** 2003
Free Cash Flow*** $179M $410M $318M $395M $509M
Flow***
* UTA acquisition 5/99
** Includes ABS utilization of $261 million in 2001 and $189 million in 2002 (implemented in 2001).
*** 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 and cash equivalents. Net debt
to capital is defined as net debt divided by net debt plus stockholders’ equity. Please see slides titled “Use of Non-GAAP
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Financial Information” at the end of this presentation for further information.
26. Superior Competitive Advantage
Results, Results, Results
Today, we are the world’s largest and most
Today, we are the world’s largest and most
admired automotive interior supplier
admired automotive interior supplier
Operating fundamentals strongest ever
Operating fundamentals strongest ever
Record sales and steadily improving financials
Record sales and steadily improving financials
Strong cash flow, reduced leverage and
Strong cash flow, reduced leverage and
Investment Grade status from S&P and Fitch
Investment Grade status from S&P and Fitch
Record backlog supports continued sales
Record backlog supports continued sales
diversification and growth
diversification and growth
Focused Strategy Has Allowed Lear to Meet Aggressive Customer
Requirements and Deliver Improving Financial Results
26
27. R
ADVANCE RELENTLESSLY™
LEA
Listed
www.lear.com
NYSE
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 “core operating margin,” “free cash flow” 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 appropriately as a substitute for borrowing
activity. Net debt represents total debt plus utilization of the Company’s ABS facility, less cash and cash equivalents.
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
net debt provides useful information regarding the 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 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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29. Use of Non-GAAP Financial Information
Free Cash Flow
(in millions) December 31,
2003 2002 2001 2000 1999
Free Cash Flow
$ 586.3 $ 545.1 $ 829.8 $ 753.1 $ 560.3
Net cash provided by operating activities
298.1 122.2 ( 245.0 ) ( 21.2 ) 10.4
Net change in sold accounts receivable
Net cash provided by operating activities
884.4 667.3 584.8 731.9 570.7
before net change in sold accounts receivable
( 375.6 ) ( 272.6 ) ( 267.0 ) ( 322.3 ) (391.4 )
Capital expenditures
$ 508.8 $ 394.7 $ 317.8 $ 409.6 $ 179.3
Free cash flow
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30. Use of Non-GAAP Financial Information
Net Debt
(in millions) December 31,
2003 2002 2001 2000 1999
Net debt
Short-term borrowings $ 17.1 $ 37.3 $ 63.2 $ 72.4 $ 103.6
Current portion of long-term debt 4.0 3.9 129.5 155.6 63.6
Long-term debt 2,057.2 2,132.8 2,293.9 2,852.1 3,324.8
Total debt 2,078.3 2,174.0 2,486.6 3,080.1 3,492.0
Cash and cash equivalents ( 169.3 ) ( 91.7 ) ( 87.6 ) ( 98.8 ) (106.9 )
Asset backed securitization - 189.0 260.7 - -
Net debt $ 1,909.0 $ 2,271.3 $ 2,659.7 $ 2,981.3 $ 3,385.1
Note: net debt to capital is defined as net debt divided by net debt plus stockholders’ equity.
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31. 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 foreign 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.
This presentation also contains information on the Company’s sales backlog. The Company’s incremental sales
backlog reflects: (i) formally awarded new programs; (ii) targeted programs for which the Company believes there is a
substantial likelihood of award; (iii) phased-out and cancelled programs; (iv) estimates regarding customer-mandated
changes in selling prices; and (v) estimates of expected changes in vehicle content. Changes in any of these
components may significantly impact the Company’s backlog. In addition, backlog may be impacted by various
assumptions imbedded in the calculation, including vehicle production levels on new, replacement or targeted
programs, foreign exchange rates and the timing of major program launches. For purposes of the backlog data
included in this presentation, the Company has made various assumption, including the following: (1) North American
vehicle production of 16.0 million units; (2) Western European vehicle production of 16.0 million units; (3) South
American vehicle production of 1.9 million units; and (4) a Euro exchange rate of $1.20/Euro. Please refer to the
Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003 for further information on the
Company’s calculation of sales backlog.
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