Lear Corporation (LEA)

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Lear (LEA)

Q4 2011 Earnings Call

February 02, 2012 9:00 am ET

Executives

Ed Lowenfeld -

Matthew J. Simoncini - Chief Executive Officer, President and Director

Jason M. Cardew - Interim Chief Financial officer

Terrence B. Larkin - Executive Vice President of Business Development and General Counsel

Bill McLaughlin -

Analysts

Rod Lache - Deutsche Bank AG, Research Division

H. Peter Nesvold - Jefferies & Company, Inc., Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

John Murphy - BofA Merrill Lynch, Research Division

Aditya Oberoi - Goldman Sachs Group Inc., Research Division

Himanshu Patel - JP Morgan Chase & Co, Research Division

Joseph Spak - RBC Capital Markets, LLC, Research Division

Itay Michaeli - Citigroup Inc, Research Division

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

Unknown Analyst

Ravi Shanker - Morgan Stanley, Research Division

Colin Langan - UBS Investment Bank, Research Division

Presentation

Operator

Good morning. My name is Sara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lear Corporation Fourth Quarter and Full-Year 2011 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ed Lowenfeld, Vice President of Investor Relations. Mr. Lowenfeld, you may begin your conference.

Ed Lowenfeld

Thank you, Sara. Good morning, everyone, and thank you for joining us for our fourth quarter and full-year 2011 earnings call. Our earnings press release was filed this morning with the Securities and Exchange Commission, and materials for earnings call are posted on our website, lear.com, through the Investor Relations link.

Today's presenters are Matt Simoncini, President and CEO; and Jason Cardew, Interim Chief Financial Officer. Also participating on the call are several other members of Lear's leadership team.

Before we begin, I'd like to remind you that during the call, we will be making forward-looking statements that are subject to risks and uncertainties. Some of the factors that could impact our future results are described in the last slide of the presentation materials and also in our SEC filings. In addition, we will be referring to certain non-GAAP financial measures. Additional information regarding these measures can be found in the slides labeled Non-GAAP Financial Information, also at the end of the presentation materials.

Slide #2 shows the agenda for today's review. First, Matt Simoncini will provide a company overview. Next, Jason Cardew will review our fourth quarter and full-year financial results and full-year 2011 outlook. Then Matt will have some wrap-up comments. Following the formal presentation, we will be happy to take your questions.

Please turn to Slide 3, and I'll hand it over to Matt.

Matthew J. Simoncini

Thanks, Ed, and good morning. We finished 2011 with another quarter of improved operating performance. Sales and earnings increased at a faster pace than the industry production and we achieved our 10th consecutive quarter of year-over-year improvement in core operating earnings, led by our growing electrical business. We generated $461 million of free cash flow in 2011 and finished the year with cash of $1.8 billion.

Our liquidity was further improved in June when we increased our revolving line of credit to $500 million. The major credit rating agencies acknowledged the improvement in our operating performance and balance sheet with rating upgrades during the year. In addition to investing in the business, we initiated a share repurchase and dividend program in 2011. During the year, we returned $330 million to our shareholders through these combined efforts.

Slide #4 shows our 2011 consolidated sales by region and customer. In addition, we have $1.3 billion in sales at our core nonconsolidated joint ventures, which further diversifies our sales profile. We will provide further detail on the next few slides.

As shown on Slide #5, our sales in China, Brazil, India and Russia have grown significantly over the past several years, from $1 billion in 2007 to $2.4 billion in 2011. This represents an annual growth rate of 25% versus industry growth in these markets of 17%. Lear's total sales in China, including nonconsolidated sales of approximately $800 million, are $2.1 billion. Since 2007, total sales in China, including nonconsolidated joint ventures, have almost tripled.

Slide #6 provides a summary of our 15 nonconsolidated joint ventures. We have 13 core nonconsolidated joint ventures, 10 of which are located in Asia. We consider our 23% stake in International Automotive Components, or IAC to be non-core. We utilized joint ventures, largely in emerging markets, to gain access to nontraditional customers and to facilitate further diversification of our business. We also believe these joint ventures provide a platform for growth. Our joint ventures are profitable and we expect them to continue to grow.

Slide #7 profiles our turnaround in Electrical Power Management segment. Several key drivers enabled this business to increase properly by over $250 million since 2009. In 2009, the Electrical Power Management segment wasn't profitable. Over the past several years, we have invested approximately $300 million to improve our footprint. We have also made incremental investments in high-powered technologies, rationalized certain non-core product lines and improved our overall competitiveness. As a result, our sales in this segment grew faster than the overall industry. We expect continued positive momentum as we launch $1.1 billion in new business through 2014.

Slide #8 details our 3-year backlog, which is unchanged from what we reported at the auto show last month. As a reminder, our backlog only includes new awarded programs over a 3-year period, net of loss, programs or business that is rolling off. We do not include pursued or high-confidence business or nonconsolidated business. The 3-year sales backlog covering the 2012 to 2014 period stands at $1.8 billion, with approximately 16% in EPMS and 40% in Seating. We believe there are additional sourcing opportunities especially in 2014, which will provide further opportunity to increase our business and further diversify our sales.

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