LEAR 2004 msglobalautoconf
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Transcript of LEAR 2004 msglobalautoconf
R
Morgan Stanley Conference
April 7, 2004
Morgan Stanley Conference
April 7, 2004
fast forward
advance relentlesslyworld’s leading automotive interior supplier
2
Traits of a Model SupplierAgenda
I. Superior CultureBob Rossiter, Chairman & CEO
II. Superior Organizational CapabilityJim Vandenberghe, Vice Chairman
III. Superior Competitive AdvantageDave Wajsgras, SVP & CFO
IV. Q&A
I. Superior CultureBob Rossiter, Chairman & CEO
II. Superior Organizational CapabilityJim Vandenberghe, Vice Chairman
III. Superior Competitive AdvantageDave Wajsgras, SVP & CFO
IV. Q&A
3
Traits of a Model Supplier
Superior Organizational
Capability
Superior Competitive Advantage
Superior Culture
Product Focus
Quality Performance
Flawless Launches and Program Execution
Sustainable Cost Advantage
Best-in-Class Value
Bring Best-in-Class Designs
Breakthrough Technology
Speed - Go Fast
Global Presence
“Can Do” Attitude
Obsessed with Continuous Improvement
Saying “No” the Right Way
Strive for Stretch Targets
Sustainable Contribution and Value
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Superior Culture
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Superior CulturePutting Our Customers First in Everything We Do
Stay focused on what we can control – quality, customer service, cost and delivery
Operate leanly with an LBO mentality
Work together as a cohesive team
Continuously improve the fundamentals of our business
Conduct our business with integrity and humility
Never quit until the customer is completely satisfied
Stay focused on what we can control – quality, customer service, cost and delivery
Operate leanly with an LBO mentality
Work together as a cohesive team
Continuously improve the fundamentals of our business
Conduct our business with integrity and humility
Never quit until the customer is completely satisfied
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Superior CultureStrategic Focus
2003 Results2003 Results
Metrics – 22% improvement in parts per million quality survey
J.D. Power – Highest quality seat supplier to multiple automakers Fortune – Highest reputation among automotive suppliers
Recognition – Awards for quality and service from all major customers
Metrics – 22% improvement in parts per million quality survey
J.D. Power – Highest quality seat supplier to multiple automakers Fortune – Highest reputation among automotive suppliers
Recognition – Awards for quality and service from all major customers
Highest Rated Tier I Supplier in Quality And Customer Satisfaction
World’s leader in seat systems and total interiors
Presently #1, #2, or #3 in all interior products except instrument panels
World’s leader in seat systems and total interiors
Presently #1, #2, or #3 in all interior products except instrument panels
#1, #2 or #3 Market Share inCore Products / Markets
Highest total shareholder return of any automotive company in 2003
Declared first-ever dividend
Highest total shareholder return of any automotive company in 2003
Declared first-ever dividendBest Equity Value in the Industry
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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
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Superior Culture Most Admired Automotive Supplier Second Year in a Row
1 1 Lear Corporation 7.682 2 Johnson Controls 7.033 3 Delphi Corporation 5.864 N/A Autoliv 5.085 5 Dana 4.906 4 Goodyear Tire 4.897 9 Bridgestone/Firestone 4.468 7 ArvinMeritor 4.229 8 Visteon 3.77
10 10 Federal-Mogul 3.08
11 11 Lear CorporationLear Corporation 7.687.682 2 Johnson Controls 7.033 3 Delphi Corporation 5.864 N/A Autoliv 5.085 5 Dana 4.906 4 Goodyear Tire 4.897 9 Bridgestone/Firestone 4.468 7 ArvinMeritor 4.229 8 Visteon 3.77
10 10 Federal-Mogul 3.08
RankPrevious
Rank CompanyOverallScore
Source: Fortune ® March 8, 2004 Issue
Quality of Products/Services #1
Long-Term Investment #1
Quality of Management #1
Use of Corporate Assets #1
Financial Soundness #1
Innovation #1
Employee Talent #1
Social Responsibility #1
Quality of Products/Services #1
Long-Term Investment #1
Quality of Management #1
Use of Corporate Assets #1
Financial Soundness #1
Innovation #1
Employee Talent #1
Social Responsibility #1
Attributes of Reputation *
* Motor Vehicle Parts Industry Rank
Lear Was Ranked #1 for Each Attribute of Lear Was Ranked #1 for Each Attribute of Reputation in the 2004 Fortune SurveyReputation in the 2004 Fortune Survey
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Superior Organizational Capability
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Superior Organizational CapabilityLear’s Profitable Growth Strategy
Lear is Well Positioned in the Fastest Growing Lear is Well Positioned in the Fastest Growing Segment in the Automotive IndustrySegment in the Automotive Industry
Interiors are the fastest growing automotive segment
Intense focus on improving interiors by all major automakers
Interiors are the fastest growing automotive segment
Intense focus on improving interiors by all major automakers
Industry FocusIndustry Focus
Lear’s sales backlog* supports ≈ 5% annual growth
Industry’s first Total Interior Integrator program
New product innovation (e.g., IntelliTireTM)
New process initiatives (e.g., Lear Project Management Program)
Growth potential with Asian OEMs, electronics, and IPs/cockpits
Lear’s sales backlog* supports ≈ 5% annual growth
Industry’s first Total Interior Integrator program
New product innovation (e.g., IntelliTireTM)
New process initiatives (e.g., Lear Project Management Program)
Growth potential with Asian OEMs, electronics, and IPs/cockpits
Lear OpportunityLear Opportunity
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
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Superior Organization CapabilityRecord Sales Backlog*
$750
$1,250
$1,000$900
$500
2004 2005 2006 2007 2008
Cumulative
$750 $2,000 $4,400$3,900$3,000
(millions)
New cockpit and interior programs
Growth in seating systems with Korean automakers
Electrical distribution and electronics systems, including TPMS
Added content on replacement programs
New cockpit and interior programs
Growth in seating systems with Korean automakers
Electrical distribution and electronics systems, including TPMS
Added content on replacement programs
Major New BusinessMajor New Business
* Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information.
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Superior Organizational CapabilityIndustry’s First Total Interior Integrator Program
2006 Buick LeSabre / Cadillac DeVille$825 million in annual salesLear to provide total interior, including electrical distribution system
Systems Systems Integrator
Total InteriorTotal InteriorIntegrator (TI)Integrator Integrator (TI)
A single supplier responsible for the design, engineering, sourcA single supplier responsible for the design, engineering, sourcing, ing, integration, manufacturing, subintegration, manufacturing, sub--assembly and sequencing of the total assembly and sequencing of the total vehicle interior (excluding certain directed items such as HVAC,vehicle interior (excluding certain directed items such as HVAC, safety safety
and restraints, etc.)and restraints, etc.)
Design OEM Lead Supplier Lead Engineering Shared Supplier Lead Sourcing OEM Directed Supplier Lead Manufacturing Supplier Supplier
Sub-Assembly Supplier Supplier
Sequencing Supplier Supplier
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Superior Organizational CapabilityNew Product Initiatives
IntelliTireIntelliTireTM
ClearViewClearViewTMTMMediaConsoleMediaConsoleTMTM
TM OccuSense ROccuSense
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Superior Organizational Capability New Process Initiatives
Spray Polyurethane
2-Shot Molding
Lear Flexible Seat Architecture
Lean Principles and
Lear Product Management Process
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Superior Organizational CapabilityGlobal Presence
Venezuela
Germany
Brazil
UK
South Africa
India
UnitedStates
Mexico
Argentina
FranceSpain
Italy
Hungary
Singapore
Thailand
China
Turkey
Morocco
Czech Republic
Russia
Portugal
Belgium
Netherlands
Slovakia
Romania
Japan
Philippines
South Korea
Honduras
Tunisia
Sweden Poland AustriaCanada
111,000 Employees / 289 Facilities Worldwide 111,000 Employees / 289 Facilities Worldwide Operations in 34 CountriesOperations in 34 Countries
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Superior Organizational CapabilityLear China Overview
Eleven Joint Ventures
4,000 employees
Shenyang- CBA-BMWNanjing
- Fiat
Shanghai (3)- SGM, SVW
Nanchang- Isuzu, Suzuki, Ford
Chongqing- ChangAn, Suzuki- Ford
Wuhan (2)- Citroen- Renault/Nissan
Shiyan / Xiangfan- Nissan
Products- Seats - Door Panels - Wiring - Carpet/Acoustics
Customers- Jiangling (Ford) - ChangAn (Ford)- SAIC (GM) - FAW (VW)- Nanjing - Iveco (Fiat) - DFM (Nissan, PSA)- China Brilliance (BMW) - Others
Key Strategic Points- Follow customers’ footprint- Potential manufacturing for export- Leverage partners’ resources for technology
• Lower technology risk- Controlled growth and investment
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Superior Organizational CapabilityLear Korea Overview
Kyungju(HQ / plant)- Hyundai
Chunan- Ssangyong
Seoul- Lear Korea HQ
Two plants
300 employees
Products- Seats (95%) - Other (5%)
Customers- Hyundai - Kia- Ssangyong
Key Strategic Points- Resulted in N.A. Hyundai business
• Seats in Alabama• Wiring through JV
- Expanding JVs with Hyundai suppliers
- Stay within core products- Controlled growth and investment
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Superior Competitive Advantage
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Superior Competitive Advantage Overall Environment
Challenging Automotive Industry DynamicsOvercapacity
Fierce CompetitionMassive Pension & Healthcare Liabilities at Big 3
Challenging Automotive Industry DynamicsOvercapacity
Fierce CompetitionMassive Pension & Healthcare Liabilities at Big 3
Combined With Uncertain Demand Outlook Has Resulted In:Incentives at Record Levels
Major New Product Development Efforts
Combined With Uncertain Demand Outlook Has Resulted In:Incentives at Record Levels
Major New Product Development Efforts
To Remain CompetitiveAutomakers Aggressively Striving To Improve
Quality, Cost and Delivery
To Remain CompetitiveAutomakers Aggressively Striving To Improve
Quality, Cost and Delivery
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Superior Competitive AdvantageDeliver High Value-Added
Strategic acquisitions
Flexible cost structure
Low-cost manufacturing capabilities
Aggressive VA / VE initiatives
LBO mentality to drive strong balance sheet
Ongoing quality and cost efficiencies
Strategic acquisitions
Flexible cost structure
Low-cost manufacturing capabilities
Aggressive VA / VE initiatives
LBO mentality to drive strong balance sheet
Ongoing quality and cost efficiencies
Lear Works in Partnership with Customers to Lear Works in Partnership with Customers to Eliminate Waste and Add ValueEliminate Waste and Add Value
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Superior Competitive Advantage New Acquisition – Electrical Distribution Systems
Grote & Hartmann GmbH & Co. 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; Acquisition Consistent with our Electronics Strategy; Expected to be Accretive in 2005Expected to be Accretive in 2005
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Superior Competitive AdvantageFlexible Cost Structure
80%
15%
5%
RepresentativeCore Operating
Margin *
Variable
Fixed
Lear Advantage
High variable cost structure
Highest-ever sales backlog
Local labor agreements
Relatively low capital intensive business
Legacy costs / pension liabilities not significant
Lear Advantage Lear Advantage
High variable cost structure
Highest-ever sales backlog
Local labor agreements
Relatively low capital intensive business
Legacy costs / pension 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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Superior Competitive AdvantageLow-Cost Manufacturing Capabilities
# of FacilitiesMexico
- Maquila CurrentJuarez & Chihuahua 16
- Maquila FutureJuarez, Chihuahuaand Veracruz 16
- Mexico Interior 8
Honduras
- Maquila Current 3
- Maquila Future 5
AmericasAmericas# of Facilities
Eastern Europe - Poland 4 - Hungary 4 - Czech Republic 2 - Turkey 2 - Romania 1 - Slovakia 1
Africa - Tunisia & Morocco 2 - South Africa 6
Philippines 4
Rest of WorldRest of World
24
Superior Competitive Advantage Global Total Value Management (TVM) Centers
5 5 -- Dearborn, MIDearborn, MI1 1 -- Southfield, MISouthfield, MI
Sao Paulo, BrazilSao Paulo, Brazil
Barcelona, SpainBarcelona, Spain
Frankfurt, GermanyFrankfurt, Germany
Customer Feedback Customer Feedback –– Lear is the #1 Performing Cost Lear is the #1 Performing Cost Reduction Supplier by 6 Global OEMsReduction Supplier by 6 Global OEMs
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Superior Competitive AdvantageLBO Mentality Drives Strong Balance Sheet
$3.4
$3.0
$2.7
$2.3
$1.946%
70%
65%63%
58%
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
1999* 2000 2001** 2002** 2003
(in billions)
Net
Deb
t
Net DebtNet Debt******/Capital/Capital
Free Cash FlowFree Cash Flow****** $179M$179M $410M$410M $318M$318M $395M$395M $509M$509M
* 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 Financial Information” at the end of this presentation for further information.
26
Superior Competitive AdvantageResults, Results, Results
Today, we are the world’s largest and most admired automotive interior supplier
Operating fundamentals strongest ever
Record sales and steadily improving financials
Strong cash flow, reduced leverage and Investment Grade status from S&P and Fitch
Record backlog supports continued sales diversification and growth
Today, we are the world’s largest and most admired automotive interior supplier
Operating fundamentals strongest ever
Record sales and steadily improving financials
Strong cash flow, reduced leverage and Investment Grade status from S&P and Fitch
Record backlog supports continued sales diversification and growth
Focused Strategy Has Allowed Lear to Meet Aggressive Customer Focused Strategy Has Allowed Lear to Meet Aggressive Customer Requirements and Deliver Improving Financial ResultsRequirements and Deliver Improving Financial Results
ADVANCE RELENTLESSLY™
www.lear.com
R
LEA
NYSEListed
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.
29
Use of Non-GAAP Financial InformationFree Cash Flow
(in millions)Free Cash Flow
Net cash provided by operating activities $ 586.3 $ 545.1 $ 829.8 $ 753.1 $ 560.3
Net change in sold accounts receivable 298.1 122.2 ( 245.0 ) ( 21.2 ) 10.4Net cash provided by operating activities
before net change in sold accounts receivable 884.4 667.3 584.8 731.9 570.7Capital expenditures ( 375.6 ) ( 272.6 ) ( 267.0 ) ( 322.3 ) (391.4 )Free cash flow $ 508.8 $ 394.7 $ 317.8 $ 409.6 $ 179.3
2003 2002 2001 2000 1999December 31,
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Use of Non-GAAP Financial InformationNet Debt
(in millions)Net debtShort-term borrowings $ 17.1 $ 37.3 $ 63.2 $ 72.4 $ 103.6Current portion of long-term debt 4.0 3.9 129.5 155.6 63.6Long-term debt 2,057.2 2,132.8 2,293.9 2,852.1 3,324.8Total debt 2,078.3 2,174.0 2,486.6 3,080.1 3,492.0Cash 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
2003 2002 2001 2000 1999December 31,
Note: net debt to capital is defined as net debt divided by net debt plus stockholders’ equity.
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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.