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R.W. Baird 34th Annual
Industrial Technology Conference Chicago, Illinois November 9, 2004
world’s leading automotive interior supplier fast forward advance relentlessly
1 1 R Agenda
Industry Trends
Strategic Evolution
Financial Update
Q & A
2 2 R
Industry Trends
3 3 R Industry Trends
Consumers demanding more interior features
Automakers focusing on world-class interiors and “Perceptual Quality”
Industry progressing toward total interior integration
Automotive interiors are the fastest growing segment of the auto industry
4 4 R Top 10 Vehicle Features for Commuters
1. Comfortable seats 2. Automatic transmission 3. Good visibility 4. In-dash CD changer or satellite radio 5. Steering wheel-mounted stereo controls 6. Controlled noise, vibration and handling 7. Good fuel economy 8. Well-designed cup holders and ample storage 9. Two power points and a hands-free voice activated phone system 10. Reasonably compact external size Lear Offers All Desired Interior Solutions of Edmunds.com’s
5 Source: List issued in a press release from Edmunds.com on August 11, 2004. 5 Top Ten Features for Commuters R Priority Emphasis on the Interior
“(In the) Interior is where you spend all of your time. It makes total sense to me to want to get it right.” J Mays, Ford
“Interiors are an area of huge focus for General Motors.” Bob Lutz, GM
“For us, the interior has always been a priority of design.” Helmut Panke, BMW 6 6 R New Emphasis on the Interior in Advertising
Volvo XC90
VW Multivan Reconfigurable Seating
7 Nissan Quest 7 R Automotive Industry Moving to Integrated Systems Increasing Supplier Responsibility Dec., 2002 - - Integrated First Total Interior System Design & Development Integrator Program Awarded Co-located to Lear Design D EN TR Mfg. RY Feasibility ST DU Build to IN Print Increasing Systems Complexity Component Sub Sub System System Assembly System Integration 8 8 R Global Growth of Vehicle Sub-Elements 26% Average Annual Growth 2004 - 2009
9%
6% 5%
Powertrain Electrical Chassis Interior Interiors are the Fastest Growing Segment 9 Source: 2004 CSM Worldwide, Study 9 R Estimated Size of Total Interior Market* (Global)
Global Market (billions) $145
$25 $90 $30 $30 Electrical $25 Distribution $20 Interiors $30 $90 $90 $90 Seats $40
Current Global Add Add Add Cockpits Market Cockpits** Electronics and Electronics A Broader Focus on Cockpits and Electronics Significantly Expands Lear’s Potential Market*** * Based on internal Lear estimates. ** Excludes IP substrate and cockpit electronics, which are included in current global market. 10 *** Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information. 10 R
Strategic Evolution
11 11 R Strategic Evolution
Going Forward Profitably Grow the Business
1999-2003 Operational Excellence; Reduce Debt
Seat Systems to 1994-1999 Total Interior Capability
1990-1994 Seat Components to Seat Systems 12 12 R Lear’s Strategy has Supported Rapid Growth Net Sales (billions) $15.7 $16.0 me co $14.1 $14.4 t In $13.6 Ne 3% $14.0 R 2 $12.4 CAG SALES $12.0 CAGR $10.0 $9.1 20% $7.3 $8.0 $6.2 $6.0 $4.7
$4.0 $3.1
$2.0
$0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Net sales have steadily No strategic hole in Lear’s increased since IPO to about product line up $15.7 billion in 2003 Lear ranks 129 among the 18 major acquisitions over Fortune 500 and is the 23rd last decade fastest growing company in the 60% acquisition growth U.S. over the last ten years 40% organic growth 13 13 At the Same Time, R We have Diversified Our Product Mix…
1994 Present*
Seats and Seating Components Seating Systems 100% 68%
Interior Systems Electronics * Based on 2003 financials. 14 18% 14% 14 R Diversified Our Geographic Mix…
1994 Present*
Europe Europe 17% 36%
North America Rest of World North America 83% 5% 59% * Based on 2003 financials. 15 15 R And Diversified Our Customer Mix
1994 Present*
Extended Ford & GM - Classic Ford & GM Opel, Saab, Volvo, 47% Jaguar and Land Rover Classic Ford & GM 12% 75%
DaimlerChrysler
BMW All Other Fiat VW All Other Asian PSA GP 25% Renault – Nissan
* Based on 2003 financials. 16 16 Going Forward, We have a Focused R Strategy to Grow Our Business Worldwide*
Aggressively expand our presence in Asia and with Improve our Asian OEMs business globally structure and grow our market Leverage our leadership share in Europe position in total interiors in North America
Profitably Grow and Diversify Our Business Worldwide 17 * Please see slide titled “Forward-Looking Statements” at the end of this presentation for further information. 17 In Asia, R We are Rapidly Expanding Our Presence* China Korea •12 facilities • 2 facilities • 1 engineering center • 1 engineering center • 21 customers • 2 customers • Seats, interiors, electrical •Seats distribution, electronics, IP
India Japan • 3 facilities • 3 engineering centers • 1 engineering center • 5 customers • 4 customers • Interior integration • Seats, interior integration
Thailand Philippines • 2 facilities • 4 facilities • 5 customers • 1 engineering center • Seats, seat trim, • 7 customers door panels • Electrical distribution
18 * Includes facilities held through joint ventures. 18 We are Rapidly Growing Our Business R in Asia and with Asian Automakers Globally*
(millions)
≈$1,700
$1,250
$850
2002 2003 2004 Future Asian Sales About Double from 2002 to 2004; ** * Consolidated and unconsolidated sales. 19 ** Please see slide titled “Forward-LookingSolid Statements”Growth at the Expected end of this presentat ionto for Continuefurther information. 19 R
Financial Update
20 20 R Profitable Global Growth Strategy
Industry Focus
Interiors are the fastest growing automotive segment Intense focus on improving interiors by all major automakers
Lear Opportunity Deliver record sales backlog (supports ≈ 5% + annual growth) Awarded General Motors’ first total interior integrator program Accelerate new product innovations (e.g., IntelliTireTM) Pursue strategic acquisitions (e.g., Grote & Hartmann) Win new business in Asia and with Asian OEMs globally
Lear is Well Positioned in the Fastest Growing Segment
21 21 of the Automotive Industry R Infrastructure Cost Reduction Actions
Low cost country strategy
Selective in-sourcing of value-add components
Global Cost Technology Optimization initiatives
Leverage Lear’s scale and commonization expertise
“Lear Flexible Seat Architecture”
22 22 R Low Cost Manufacturing Capabilities and Engineering Centers Poland – 4 Hungary – 4 Czech Republic – 3 Turkey – 1 Mexico – 24 Slovakia – 1 Romania – 1 India – 1 L China – 2 L LL Thailand – 1 LL L L L L L L L L
L Philippines – 4
Honduras – 3 China – 1 India – 1 Africa – 7 Korea – 1 Philippines – 1 23 23 R Electronics / Electrical Market
Terminals & Connectors Acquisition Average Wire Harness Composition High quality producer with technical expertise Terminals 40% 60% & Connectors Wiring Improves overall / Assembly competitiveness in electronics / electrical market Provides avenue for growth and customer diversification Wire Harness
Terminals & Terminals & Connectors are an Integral Connectors
24 Part of a Wire Harness Assembly 24 R Cost Technology Optimization (CTO) Centers
Munich, Germany
Dearborn, MI Southfield, MI Barcelona, Spain
Sao Paulo, Brazil Cebu, Philippines
CTO Evaluates All Areas for Cost Reduction 25 25 R Lear Flexible Seat Architecture (LFSA) Modular system that can be packaged in several vehicle environments through the utilization of power and common components Currently on over a dozen programs, totaling nearly 4 million vehicles
Benefits Faster implementation timing Reduced development costs and tooling / capital Enhanced comfort and safety features Increased quality and craftsmanship 26 26 R Continuing to Reduce Our Net Debt
(billions)
$4.0 70% 65% Net Debt***/Capital 63% $3.5 $3.4 58% $3.0 $3.0 $2.7 Net Debt Net $2.5 $2.3 46%
$2.0 $1.9
$1.5 1999* 2000 2001** 2002** 2003
Lear’s Goal is to Maintain Investment Grade Status * UTA acquisition 5/99 ** Includes ABS debt of $261 million in 2001 and $189 million in 2002 (implemented in 2001). *** Net debt represents total debt plus utilization of our ABS facility, less cash and cash equivalents. Please see slides titled “Use of 27 Non-GAAP Financial Information” and “Forward-Looking Statements” at the end of this presentation for further information. 27 R Alternative Uses of Cash Flow. . .
Where We See Value Creation
Invest internally Repurchase in high return shares programs
Pursue strategic Increase acquisitions the dividend
. . . 28 While Maintaining a Strong Balance Sheet 28 Focused Strategy will Allow Lear to Deliver R Value to its Customers and Shareholders
Challenging Automotive Industry Dynamics Overcapacity Fierce competition Production outlook
Lear Works in Partnership with Customers to Add Value Focus on quality, customer service, cost and delivery Invest opportunistically in value added growth vehicles Implement aggressive cost efficiency actions / flexible cost structure Maintain strong balance sheet with LBO mentality 29 29 R
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ADVANCE RELENTLESSLY™
LEA Listed NYSE www.lear.com 30 30 R 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 “net debt” (a non-GAAP financial measure). Net debt represents total debt plus utilization under the Company’s ABS facility, less cash and cash equivalents.
Management believes that net debt is useful to both management and investors in their analysis of the Company’s financial condition. Further, management uses net debt for planning and forecasting in future periods.
Net debt should be not considered in isolation or as a substitute for total debt or other balance sheet data prepared in accordance with GAAP or as a measure of profitability or liquidity. Also, this non-GAAP financial measure, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies.
Set forth below is the reconciliation of net debt to total debt.
(in millions) December 31,
Net debt 2003 2002 2001 2000 1999 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 31 Note: Net Debt to Capital is defined as Net Debt divided by Net Debt plus Stockholders’ Equity. 31 R 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 suppliers 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, the costs and timing of facility closures or similar actions, increases in the Company’s warranty or product liability 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 Company’s ability to successfully integrate the recently acquired terminals and connectors operations, the outcome of legal or regulatory proceedings to which the Company is or may become a party, unanticipated changes in free cash flow and other risks described from time to time in the Company’s Securities and Exchange Commission filings.
The forward-looking statements in this presentation 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. 32 32