Lear Corp (LEA) 2003 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Matthew and I will be your conference facilitator today. At this time I would like to welcome everyone to the Lear first quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like turn the all over to Mel Stephens. Circumstances you may begin your conference.

Hello, everyone. By now you should have received your earnings package, including our press release and financial review slides. These materials are also been filed with the Securities & Exchange Commission and they are posted on our corporate web site. Lear.com, through the I investors link. Today we will be reviewing our first quarter results, and updating our guidance for 2003. Joining me on the call and presenting today are Bob Rossiter, our chairman and CEO, Jim Vandenberghe , Vice chairman, Dave Wajsgras, senior vice president and chief financial officer and I'd also like to welcome many Lear employees around the world listening in on the call today. Before we begin, I'd like to remind you all that during the call we will be making forward-looking statements that are subject to risks and uncertainties. Some of these factors that could impact our results are described in the last slide and they are also included in our SEC filing. If you'll turn to slide 2, I'll briefly review the agenda for today's call. First, Bob will provide a perspective on our strategy and cover first quarter highlights. Then Jim will give an update on industry conditions. And some of our Lear initiatives. And finally, Dave will review our first quarter financial results and update the financial guidance. Now, please turn to slide 3 and here's Bob Rossiter.

Thank you, Mel. At Lear, we have a customer focus and performance-driven culture, which we believe is the -- is our competitive advantage and the foundation for success. Our number one objective is to deliver the highest quality products and the best customer service in the industry. We believe this allows us to maintain our leadership position in the automotive interior products business. And deliver the best shareholder value to our shareholders over time. In slide 4, in the first quarter you can see we had record sales, 3.9 billion. Earnings up 44%, person earnings per share up to 101. Strong cash flow and we continued to pay down debt. We were named supplier of the year by general motors for interior products and we recently received three world excellence awards from Ford Motor Company and also the highest quality award from Toyota motors. I'd now like to turn it over to Jim Vandenberghe.

Thanks, Bob. Last month, Lear was ranked by bank of America by Fortune Magazine. On chart 5, we show the complete results from that survey, and while we certainly don't want to blow this survey out of proportion, we would like to point out that Lear did score number 1 in seven out of eight key attributes of the reputation survey with our highest score in product and services. We believe the fortune survey coupled with the ongoing customer recognition awards that Bob talked, again is further evidence that our customer focus strategy is working. Before I provide an update on Lear's key initiatives, I thought I would comment on several major customer initiatives that we are supporting and are shown on chart number 6. In the area of interior integration, Lear is leading GM's total interior integration initiative with the first ever total integrator award. We are working cooperatively to support GM's effort to deliver crafted interiors. Team value management at Ford is a comprehensive program to eliminate waste and improve quality. And Lear has established a TV M benchmarking facility. Our aim is to become Ford's number one TV M supplier and to utilize the PVM process throughout our supply chain. On warranty reduction, recently were just recognized by Daimler Chrysler as their highest quality seat supplier and highest in warranty reduction. And in Europe, Lear's supporting quality and cost initiative improvements with both Fiat and Opal two of our largest European customers. Our strategy is to fully support our customers and we are taking a leadership position as we work in partnership with our customers to ensure their success. In chart 7, we have an update on some of our key initiatives to improve quality, cost and delivery, as well as to profitably grow our business. We are continuing to build on Six Sigma. On a global basis today we have 700 black belts and over 4000 greenbelts in place. We've completed over 8,000 projects since we started Six Sigma. Our focus on lean manufacturing has led to action plans now in place in about 90% of our facilities worldwide. Regarding new product launches globally, we are working closely with all of our customers to ensure high quality launches for a record of 225 programs this year. These programs represent 900 million in new business. And our five-year sales back log backlog is the highest it's before been. Continued emphasis on total interiors, instrument panels and cockpit systems and electronics and again we also continue to focus on growing our business with the OEMs. On chart 8, we highlight our 4 billion backlog, which is one of Lear's key strengths going forward. Based on the business already on hand, Lear will grow revenue at roughly 5% annually over the next five years, assuming trend industry production of 16 million units annually. And we're working to build on that. Beyond the growth potential we see in our traditional market, we see new opportunities in the broader areas of cockpits and electronics. When we talk about cockpit systems, we're talking about fully populated instrument panels and the broader electronics market includes contents such as instrument clusters, safety electronics, power train electronics, switch controls, audio and video capability, telemetric and integrated entertainment systems. While most everyone has a different definition, the point I do want to leave you with is we are taking a broader view of interior content, and Lear has a much larger market opportunity. Turning to slide number 10, we summarize that opportunity in the total market that is potentially available to Lear. Including the opportunities I just discussed, with complete cockpit systems and expanded electronics, our global marketing increases from 61 billion to 191 billion this expanded market potential is our belief we have a lot of room for future market growth. At this point I'll turn it over to Dave for financial results.

Thanks, Jim. Before I speak to first quarter financial results, I'll briefly comment on the production environment. In North America, industry production was up 3%. The big 3, however, were up only 1%, as they started to adjust their inventory levels. For Lear, our content per vehicle of 594 dollars was up 3% from a year ago. Here, the addition of new business was offset in part by a less favorable mix of customer production. As I've indicated before, CPB, is a macro measure that includes a number of factors. Importantly, however, it excludes the impact of our growing business in non-consolidated joint ventures. In western Europe, industry production was down 2%. The impact to Lear was more significant as several of our key customers and platforms were down more than the industry average. As a result, our content per vehicle adjusted for currency was up only slightly. During the quarter, the Euro was 22% stronger than a year ago. Worldwide, Lear added new business of about 240 million, or about 7%. Regionally, we added 110 million in North America, and 130 million in European and Asian markets. If you now move to slide 12. Worldwide, net sales were a record 3.9 billion, up 364 million, or 10%. Operating income of 162 million, was up 21 million, or 15%, on a comparable basis and our operating income margin improved 20 basis points from 4% to 4.2%. Earnings per share of 1.01 was up 31 cents or 44% from a year ago, again on a comparable basis. This reflects higher operating earnings, lower interest expense, and a lower corporate tax rate. Cost efficiencies worldwide is the primary driver behind the operating margin improvement. Jim spoke to our Six Sigma focus and our lean manufacturing initiatives earlier. These disciplines provide the structured tool set to help us focus on the fundamentals and continually drive efficiencies throughout the company. SG&A costs were up about 15 million dollars from a year ago, reflecting the impact of foreign exchange, higher employee-related costs and higher risk insurance premiums. As a percentage of sales, SG&A was 3.8% in line with our guidance. For the remainder of 2003, we see SG&A as a percent of sales in the mid to high 3% range, reflecting our continued investment in developing new business opportunities, as well as higher insurance premiums, and employee-related costs. The absolute SG&A dollar amount will also be impacted by higher foreign exchange rates versus the U.S. dollar. Interest expense was 53 million, down around 4 million dollars. Lower debt, a favorable interest rate environment, and the positive impact of the first timely managing our debt portfolio, all contributed to the lower expense. Other expense of about 12 million dollars was down about 2 million from the same quarter last year. We see other expense in the range of 10 to 15 million dollars per quarter for the rest of the year. If you would now please move to slide 13. This slide highlights our major financial drivers. The 21 million dollar improvement in operating income reflects the profit contribution from new business globally, the positive net impact from production mix and efficiencies, and favorable net currency changes. The operating improvements were partially offset by higher raw material prices, primarily leather, steel and resins. The increase of net sales of 364 million, was driven by the addition of new business globally and favorable foreign exchange. Higher production in North America was more than offset by lower production and unfavorable mix in western Europe. Fiat was down over 20% and several of our higher content platforms in Europe experienced double-digit declines. Currency impacts were driven by a stronger Euro, offset in part by select weaker currencies around the world, including those in South America. If you would now please move to slide 14. Free cash flow was a solid 80 million dollars in the first quarter, reflecting strong cash conversion on our earnings. Capital spending was roughly offset by depreciation. Networking capital changes, including tooling and engineering, as well as other non-cash items were slightly positive overall. Compared with the year ago, free cash flow was down $14 million. The driver here is higher capital spending in this year's first quarter for major product launches, which includes machinery and equipment for the high volume F-series where we have substantial content in North America and new electronic with BMW in Europe. 10 million dollars higher than a year ago , compared with our guidance of 50 million, free cash flow came in about 30 million dollars better. This is the result of timing of capital expenditures, specifically in early April versus late March. For full year spending is still expected to be around 300 million. My final comment on free cash flow.

We continue to use it to reduce our debt and other financing vehicles. This quarter, our net debt to cap was reduced from 58% at year end 56% at the end of March.

If you would now move to slide 15. before I update our earnings guidance, I'll provide our views on the operating environment. In North America, the second quarter is expected to be challenging, with overall industry production scheduled to be down 10%. The big 3 look to be down close to 15%, while transplant production should be about even with a year ago. We also see some unfavorable mix impact as unit volumes on certain of Lear's high content platforms are scheduled to be down more than the industry. At the end of March, a new round of zero-percent financing programs were announced and early indications are for strong retail sales in April. The combination of lower production and higher sales should bring dealer inventories down. Going forward, however, there is a fairly wide range of production estimates for the second half of 2003. Given all this, we are now moderating our full-year outlook for production. In western Europe, business conditions continue to be challenging. Second quarter production is expected to be down 5%, and down even more for some of our major customers. The consensus estimate for full-year industry production have come down in the last couple of months, and we're also planning a further decline in production compared with 2002. Finally, the Euro is projected to be 12 to 15% stronger than last year. If you would now move to slide 16. To summarize the production outlook I just discussed. In North America, we now see 2003 vehicle production in the 15.7 to 15.9 million unit range. This is down from our prior guidance of 16 million, and down 3 to 4% from last year. For western Europe, we also see 2003 vehicle production in the 15.7 to 15.9 million unit range. This is also down from our prior guidance of 16 million, and down 2 to 3% from last year. And again, in the second quarter we see industry production down 10% in North America, and down 5% in western Europe. Please move to slide 17. Our earnings guidance for both the second quarter and full year are based on our lower production assumptions as well as a less favorable mix. The adverse mix impact cuts across both platforms and customers. In the second quarter, for example, our planning assumptions have the big 3 down 15% versus an industry decline of 10%. Also, key Lear platforms such as the Ford Windstar, GM midsize cars, Ford Taurus, mercury sable and Ford F-series are down more than the industry standard. In Europe, key customers such as BMW, FIAT, VW, and the Ford group, are down more than the 5% average industry decline. For the full year, the negative mix scenario follows a similar pattern. In the second quarter, we see net sales flat to up slightly from a year ago, and earnings per share in the range of 1.20 to 1.30. The addition of new business and a stronger Euro, more than offset lower production, and the outlook we see for both customer and platform mix. Interest expense is expected to be approximately 50 million dollars, capital spending is estimated at roughly 100 billion, and free cash flow should be around 75 billion dollars. For the full year, we estimate net sales at approximately 15 billion dollars with earnings per share ranging from 4.85 to 5.25. A key factors, I just spoke to that influence second quarter results production mix and currency, also impact our full year guidance. We see interest expense to be around 200 million, and free cash flow in the range of 350 to 400 million. I'll now turn it over to Bob for some closing comments.

Okay, Dave. Just like everybody to understand again that Lear is a customer-focused company and we've put our customer first in everything that we do. We can't control external conditions, these are uncertain times, we all know that. What we can do is stay focused on what we can control, and that is quality, the best customer service in the business, and truly focus on becoming the low cost producer in our segment. We have operated for a long time with a mentality that will not change. We believe that asset management, capability and cash generation from operating in this fashion, gives us a lot of options. We work together as a very cohesive team and it is an outstanding team here at Lear and we continue to improve the fundamentals of our business because we are a performance-based company. I want you also to understand that we conduct our business with integrity and I will tell you, we will never quit until our customer is satisfied. So I would like to wrap one those comments and say, we're open for any questions. Thank you.

Once again, ladies and gentlemen, I would like to remind you, if you do have a question, please press star, then the number 1 on your telephone keypad. And your first question comes from John K. with Merrill Lynch.

Thanks very much. Just a handful of things. Dave, first of all, on the change in your outlook, how much of it is related to your business mix and how much is related to your change in production assumption in the industry?

Most of it is related to the change in production assumptions. When we originally provided the guidance of 16 million units, the consensus was at 16 million. Now the consensus is at 15.8, actually slightly under 15.8.

and for the second quarter, are the schedules that the big 3 have lower than your original expectation, or didn't you get sort a peek at these and their long leads schedules that we don't always see?

What we see is out about six or seven weeks. That's what we have good visibility to. Maybe eight weeks in some cases.

So their Q2 numbers were somewhat lower than your numbers?

Right.

Secondly, in terms of mix, which programs really helped you and hurt you in North America and Europe in.

Are you talking second quarter or the full year?

First quarter. I'm wondering which of the biggies helped or hurt.

In the first quarter, GM SUVs were strong, as were the pickups, Ford Explorer and Mercury Mountaineer were strong and in Europe, many of our major platforms were down. The BMW 3 series was down just under 10%. Audi A6 was down 12 to 13%. The Ford Focus was down about 25%. There's a litany of those in the first quarter.

and then a couple little ones. The $8 million cash in working capital and other, what was the working capital or was it the bulk?

The working capital in the first quarter was positive. Let me give you the three components.

Sure.

Because I'm certain someone else will ask. Tooling and engineering was down around 30 million. Working capital, the traditional working capital items were better by about 13 million. And then the change in all other long-term assets and liabilities, the non-cash impact of that was about 26 million.

Okay, thanks. And just finally, what was the level of -- what was the balance in the accounts receivable program at the end of the quarter? I think you said you reduced the balance by 53 million?

Right. We reduced the balance in total we reduced our accounts receivable program by 53 million. The ABS program was down to around 160 million.

Okay. Okay, thanks, guys.

All right.

Your next question comes from Wendy Needham with Credit Suisse First Boston.

Hi, good afternoon. Hello?

Hello Wendy.

Boy a couple of things here. First, when you're talking about the mix in the second quarter, which I guess is less favorable than you had been anticipating it sounds like a lot of these changeovers are second quarter, or maybe second, third. Could you clarify that maybe a little bit? In other words, does it get better by the fourth quarter?

Right. Let me try to put some color on this. The second quarter industry -- and this is published data. The second quarter industry production is down 10%. And I think I mentioned during the formal portion of the presentation, the big 3 are down about 15%.

Right.

Now, from a platform standpoint, the Ford Explorer, mercury Mountaineer look to be down about 10%. The Taurus and mercury sable look to be down around 20%. GM's mid-sized cars look to be down over 20%. And the F-series pickup looks to be down 15 or 16%. Now, there's a change in that mix as we look out to the balance of the year. I should say now, it's probably appropriate that we have taken a fairly conservative posture on this, with respect to the full year outlook. So some of those vehicles I just mentioned, you know, perform better in the back half of the year, other vehicles are a little bit off, such as -- for example, the GMT, SUV's look to be 5 to 6% off versus last year. So, there's just a litany of vehicles and the mix changes a little bit and we are taking a kind of a conservative look at this.

Okay. Then, the receivables on the balance sheet were up 529 fourth quarter to first quarter?

Right, that's because there's more production days, I think there's five or six more production days in the first quarter, you know, versus the fourth quarter. And in particular you're comparing December, really to March. It's similar to what happened last year. That accounted for, you know, close to between 350 and 400 million of the change, and the balance was really FX.

Okay, and then finally, maybe a big picture question, when we go back to the slide where Jim was talking about the bigger markets overall, is this -- are you now saying you have to go out and do acquisitions to get into these businesses, or do you have to invest heavily to get into these businesses? Is this a big change in strategy or is this a small incremental?

No, I think it's the same strategy we've always followed. I think we want to quarterback as much content as we can and we want to have the ability to make the components that make sense. We said all along that we feel like we have all the capability in place to pursue this business, and if we did any acquisitions, they'd be in niche areas or the Asia Pacific area as we've talked about before, or something where our customer asked to us get involved in. So if there's no -- there's no change in our acquisition outlook at all.

Okay, great, thank you.

Your next question comes from Mike Bruynesteyn with Prudential Securities.

Hi, guys.

Hi

This unfavorable fix impact, taking off from question, when is this going to unwind in when will we see favorable mix on CPV, or are we?

Let me be specific here on CPV, if that's what you're driving up. We were up 3% on the quarter. In the second quarter, from what we're seeing, CPV should be up in the 4 to 5% range, and for the full year we're looking at the low to mid single digits. So there's a number of -- and I've said this before, probably on the last three conference calls, there's a, you know, hundred different variables and you're looking at CPV. It's the same thing when you're forecasting revenues and margins, but overall you know, we feel guidance we've given is conservative and the right thing to do today.

and keep in mind, the loss of market share by the original big 3, obviously, affects that and affects us more so than maybe some other companies.

Okay. Just highlights you need to go quickly outside the big 3, I questions.

Absolutely.

Okay, and then the new business start-ups that Jim mentioned, he said 900 million this year. That coincides with the backlog number, does that imply that Lear didn't lose any business at all for 2003?

for 2003 --.

I think one that comes to mind is the Windstar with phase out for us, I think, in the second half of the year.

Right but that's always been built into the --.There's been no changes.

Okay, I was just saying that if the backlog equals the new start-ups, then you would assume you didn't lose any. If you had lost some, you would actually have probably like a billion or more start-ups if you lost 1 or 200 million of revenue.

When we talk about the 225 programs that we're starting up, okay, that includes the new business, obviously, because we have to launch it if we don't produce it today. And it also includes the replacement programs that we want.

So, I mean, anything that we've lost would be netted out in those numbers.

Okay, thanks.

Your next question comes from Brett Hoselton with MacDonald Investments.

Hi.

You've done a nice job generating cash paying down debt and I'm curious to see what Jim and/or Bob think about what they're going to do with their cash say a year or two years from now, after your debt gets down to a very reasonable level.

Jim, Bob and Dave, or anybody can answer it.

Okay. Let me start off, Brett. Notwithstanding your question was directed at my boss and the CEO --.

Well, I've already asked you, Dave, so --.

You already have, that's true. But for the benefit of everyone else listening. In the near term we're going it continue to pay down debt like we said. As we look into next year, we will, you know, continue to look at niche acquisitions, we are considering, again, as we go into 2004, a dividend program which we spoke to before. It's not considered at the board level yet, but hopefully at year end if everything goes as anticipated, we would bring it to the board. And we do look to expand our product and manufacturing footprint in both Europe and in the pack rim area. So with that, and those are the types of things we would look at in 2004 and beyond. With that, let me turn it over to Jim or Bob.

That's pretty much it.

Did you a nice job on that, thanks.

Okay, thanks. And secondly, the TVM program.

Just like we wrote it.

Good point.

the TV M, program, total value management program that you're working on.

I'm glad you brought that up because I was just there today. We had David over and I took him through, several hundred million plus dollars of ideas.

Can you talk about how things are going to work under the TV M program versus let's say a year ago or year and a half ago in what's changing here?

I think you have to really understand the whole TV M process. It looks at all aspects of the business, but simply said is you take competitive products and you look at what are the key components of those competitive products, and then where are -- where could you replace some components with component that are better or lower cost, or where could you just find ways to get costs out. And it really is the hell of an exercise. We went through, we have six rooms of product that we're -- of all of our competitive products throughout the world, all the components that Lear makes, and against Toyota's against BMWs, Audis, so it's a massive undertaking and there's significant opportunity just by simplifying the product. There was a story out a couple years ago about general motors looking at the number of cigarette lighters that they had, they had 37 different lighters and they wanted to get it down to six or five lighters. Well, we had one today where we showed them a seat system that general motors, Ford and Chrysler all make. The recliner systems almost identical, in fact in one case two are identical and there's a different cost on both of them. Excuse me, a price to us. We buy them. And very simple modification to change it and go with the lower cost method. By combining all the volume. So, I think it's really a significant opportunity -- I'll tell you, when I went through this center, with the people from Lear, I said, we got to get these guys over here right away. And today, they came over and we had lunch and we went through one of the major rooms and the total presentation. He's very excited about it and we are, too. Wish we could spread the process around, but it really is kind of a Ford program right now.

Great, thank you very much. And--.

See, I can talk. They always say when I talk I never shut up.

That's works for me. And I think the answer to Mike's question has to do with the fact that you account for pricing and foreign exchange in your backlog numbers. And your new lunch of 900 million probably don't account for that, or something along those lines. That's just food for thought.

Thanks, Brad.

Thank you.

Your next question comes from David Bradley with J.P. Morgan.

Good afternoon.

Hi, David.

Was that Ken way's idea that you start paying a dividend?

David, I just want you to know that Ken way is listening in on this call. We've got him now, now that he's retired, when he calls in, the people in the back room over there say, Ken lay's on the phone so just be aware, Ken lay is on the phone. So what were you going to say about Ken, now, David?

I figure he'll be wanting dividends to pay for golf lessons.

He probably wouldn't mind.

a couple questions here. Sequentially, with the kind of production you're talking about, we have sequential declines Q1 to Q2, normally have a step-up because production goes up. This year you have production down but sufficient a sequential improvement. Are there seasonal issues there or cost cutting kicking in or what's going on ?

David, if you look back at a number of years, it follows the same pattern and you're absolutely right, production, first quarter, second quarter this year does not follow the same pattern it did last year. So that obviously works against us. But with respect to seasonality, which is what I think you were really getting at, is the commercial discussions we have with our customers as well as our suppliers, toned impact the second quarter favorably relative to the first. And that's really the driver. And it hasn't changed in years.

So that's like price recovery and that kind of thing?

There's a number of elements around it, and --.

Basically you give up pricing in the first part of the year and it takes you the next 12 months to catch up.

to get it back. Okay. And secondly, revenue per vehicle, you had some year over year gains, but you had also some sequential declines. Is that a seasonal issue as or are there some -- are there some adverse force there is in Q1?

Dave, I apologize, I'm not following the question.

I guess I'm looking at your --.

the CPV? The content per vehicle, yes. I called it revenue per vehicle.

Yeah, the content per vehicle in North America overall was up 3%. There were some things that worked against us, with respect to --.

Year over year. I was thinking sequentially, though. Up year over year but down sequentially is that a seasonal issue? I'm sorry, you're saying first quarter to second quarter,

yes, that's definitely a seasonal issue.

and that happens every year?

Yes.

and the Europe increase is that a currency thing in.

the Europe is almost all currency because we had a very negative mix with respect to customers and our significant platforms.

and South America would be platform currency also?

Currency but also up on a currency-adjusted basis.

All right, thank you.

Your next question comes from Darren Kimball with Lehman Brothers.

Hey.

Hey, Darren.

I think David just asked all my questions. Maybe I can ask it from a slightly different perspective. I think you guys asked about the sequential movement in earnings, but when I look at your second quarter on a year over year basis and your telegraphing about flat, or in the range of flat, despite, you know, what we know is going to be a really tough quarter on North American production and negative mix, et cetera, et cetera. That's pretty good. You know, I mean, can you give us a little bit more color on how you're able to, you know, hold earnings flat? I mean cost cutting, organic growth, you know, anything less trans parent?

Dave -- I'm Dave. Darren. The most significant impact in the second quarter is really the benefit from the cost production programs that we started implementing about a year and a half ago. That's really the single biggest driver. .

Okay. And that's -- that's weighted to Europe? .

Well, in the second quarter it's really not weighted to Europe. It's really split about -- it's really split almost 50/50 in the second quarter.

Okay. Okay. And it looks like you hedged a little bit on the free cash flow.

I did.

I don't remember -- maybe I'm just mistaken, but I don't remember there being a range of 350 to 400. Is that just a net income difference?

That's it, it just flexes with the net income difference the range, 350 to 400 really just follows the guidance. In January, we gave sort of a point guidance, so we gave a point free cash flow number. Now we're putting book ends around the guidance and so we're doing that with the free cash flow as well.

Okay, I got it, thanks.

All righty.

Your next question comes from John Rogers with Wachovia securities.

Hi, guys.

Hi, John.

I have a quick question on the chart on Page 10, just seeing the content going from 61 billion -- or the market going from 61 billion to 191, can you give us some color on that? Is most of that outsourcing, or can you give us the breakdown between outsourcing and actual more money spent by manufacturers on the interior?

Yeah, it's mostly, I guess I would call it outsourcing, and the difference between just supplying an instrument panel skin, if you will, versus a fully built-up instrument panel. And the difference, obviously, is it's about a 1500 to 2000 dollar opportunity every time you produce a fully built-up instrument panel.

Okay, great. And Dave, when you were talking about the just the future uses of cash, you mentioned dividends and then expanding the -- well, you mentioned debt, dividends, expanding the foot prints geographically. Was that in any -- obviously debt is first but was dividend and foot print in any particular order?

No, just the first thing that came to mind.

Okay.

I'm not trying to be funny. The debt is primary focus and after that there's a really balance.

Okay, great, thank you very much.

Thank you.

Your next question comes from Rob Hinchcliffe from UBS Warburg.

a couple questions. Can you talk about the percentage of your consolidated revenue in North America that comes from the big 3 and then contrast that, you include all of your non-consolidated JV revenue.

the percent of consolidated revenue that comes from the big 3. The percent of consolidated revenue coming from the big 3 in North America is about 90%.

Right.

and I'm sorry, what was the next question?

if you consolidated the non-consolidated stuff, what would it be?

Let me try to answer it like this. The non-consolidated revenue in North America was roughly 700 million last year.

Okay.

in total. Does that answer your question?

Yeah, it sure does.

Okay. .

and then how much of that was big 3 versus non-big 3, of the 700?

Yeah. 75% of it is non-big 3.

.

Okay. And then, on the total interior, just to bring that up. To what degree do you guys have complete sourcing control? Just talking with other suppliers, I guess everyone's definition is a little bit different. You get to make all the sourcing decisions with the exception of I think it was safety and H-back, I think it was in.

Typically, obviously, your customer is going to be involved. When we speak of the total integrator program, we're speaking of the program we were recently awarded from general motors.

Right.

and basically, we have the ability to source that business out, but with GM's approval.

Okay. But you have the sort of the first say at least, the first crack at it?

Yes, we'll make recommendations, and obviously, you know, things like HVAC, are difficult to source. You're going to use existing products for the most part.

Is this one likely to be the experiments, so we'll see how this one goes before others are handed out. Is that how you think it will work?

Yeah, I think this is the first one, and obviously, I think it's a direction that general motors is going in and is committed to.

Unlikely that you are or perhaps others will get awarded one before we kind of see how this one works out?

We don't really know.

Okay. Thank you, guys.

Your next question comes from David Leiker with Robert W. Baird.

Good afternoon.

Hi, David.

First, a housekeeping question, and I apologize, I was distracted when you were answering this, Dave. The balance outstanding on your securitization, is that -- did you say that was 160?

It's 160 on the ABS program, that's right.

Okay. And that number was 189 at the end of the year ; is that right?

That's right. Total change of 53 includes our factoring program in Europe. We're bringing that down as well.

So, total receive receivables that are sold changed -- it was what in.

the change was down 53 million.

and at year end that same number was? The 160 plus what was in Europe?

Right. I mean, at the end of the first quarter, it's about 140 in Europe. But it's a factoring program which is quite a bit different than an A BS program.

Okay. And then, on the unconsolidated joint ventures, can you -- what was the revenue performance in the quarter for those in the earnings performance on that?

the unconsolidated joint ventures on the quarter, the total revenues was around 200 million.

Okay.

on quarter. And the earnings performance was -- it was under 5 million.

Okay. And that would compare to what last year?

It's slightly up from last year.

and on the revenue line?

the revenue is up, looks to be up 30 to 40 million from last year.

Okay. And then the last thing, on that same topic, what are the key launches you have going through your joint ventures this year?

Our biggest launch is the Toyota Sienna, which we're a 39% partner in.

Okay.

That's by far and away the biggest launch.

Great, thank you.

All righty.

Your next question comes from Gary with Goldman Sachs.

Gentlemen --.

Hi.

You sound tired.

Ford just restated their reporting. North American, instead of losing 200 billion in '02, for example, made two and a half billion in '02. And if Stebbins were there, I wanted to ask Stebbins whether he thinks that means the price pressure at Ford will drop dramatically as it relates to Lear.

He's not here, he's over at our Ford division actually, right now. He was with us when we met with Dave Thirsfield so he's still there.

the joke didn't go over.

Didn't go over on me.

I heard you laughing, though, Gary.

I have that bad habit.

a little slow over here today.

Yeah, it's late. Sort of along those same lines. Could you talk a little bit about commercial reductions versus engineered cost-downs and whether you're seeing not just Ford but in general, are you seeing more focus on the latter? Is there any relief on the former as people focus more on the latter? And I assume, you know, you much prefer the engineered cost-downs, since you're coming up with the ideas.

Yeah, you know, Bob spoke at length on the TV M process, which is a, you know, the next natural step in cost-downs versus price-downs. Over the last two to three years, most of our customers worldwide have moved from the price-down approach to the cost-down approach. It's not to say that there are no price-downs, but there's been a visible shift in the philosophy and the way they approach the relationship with Lear. Because it really, it really does benefit both parties and it's really become much more of a partnership, I believe, than it had been in the past.

I think over the last several years we've always insisted that the engineering cost-downs, be part of the price-downs as well.

We've always gotten the customer commitment to do that.

and there's a productivity element in each of the long-term contracts, by the way. We have all of our deals done with our customers. These are tough times, I think you're speaking of the fact that everybody's out push to go get cost out, some from price, but -- honestly, a good portion with all of our customers is just as Dave said, is really in the TV M process, the GM process, and the pricier process, their cost reduction efforts VAVE, engineering cost out, so I think as they said, it's more collaborative, a better approach. You get more and more people supporting this and there's more and more activity around it at our automotive customers. So I think it's a real change.

to what extent, when you do these with your most important customers, are you sort of operating on an open book basis with them?

When we say open book, I think typically what we'll do is tear apart products and bring ideas to them and tell them what the cost differences are. So basically what we'll do is we'll evaluate content in the products that are sold to them, versus what other products are out in the market, and identify perhaps a non-value-added cost that's in their product or opportunities maybe to provide lower cost components, but when we say open book, it's typically related to those components. Our cost structure, really our competitive advantage and we keep that to ourselves.

So you aren't sharing that with --.

No.

in your negotiations with them, whether you shared or not -- share it or not, and I'm not picking on any one customer, but do you get sense that they know what your cost structures are, or I mean, we hear about the purchasing departments of some of these companies, but I'm curious, do you think they're at the level where they actually come to you with that kind of understanding, or do you sense that no, they don't necessarily have that understanding and as long as you're giving them --.

I think they have a fair understanding of what the market is. I think, obviously, with our size and mass, one of our competitive advantages, is our ability to buy in our product areas. And it's not something that we're prepared to share with the rest of the world.

but, you know, we think they have a good understanding of our commodities as well.

That was one of the things, you know, buying was a big piece of that. The TV M show we put on today was by combining three different customer products in a similar product category. Buying limply that we got out of that created a lot of that savings.

Yeah. Okay, all right, guys. Thank you.

All righty.

Your next question comes from Jonathan with Morgan Stanley.

Good afternoon, everybody, can you hear me.

Yes, Jonathan.

I want to switch gears to Europe for a minute. Can you tell me when the absolute level of operating income excluding FX, impact in Europe was up or down from last year?

It was up'.

Okay, great, thank you very much. Any quantification of magazine sued?

No.

All right, thanks, guys.

All righty.

Your next question comes from Jason Cutler with Goldman Sachs. .

a -- my question was answered, thank you.

Thank you.

Your next question comes from Kirk Lutke, with J.P. Morgan.

Hello, guys.

Hello.

Back to Europe, I was hoping we could get a little more color about second quarter in 2003 full year production by manufacturer and model. Do you have any color on those?

Sure. In the second quarter, and again, I mentioned this earlier, it seems to be -- looks to be down about 5%. It's the same case for the third quarter, looks to be down about 5%, with the fourth quarter positive 2%. Full year western Europe looks to be down about 2%.

Okay. Any color on it by manufacturer or major model?

Sure. Let me just walk through this here. I'll to it briefly. Because we could also talk after the conference call.

Okay.

on a full year basis Volkswagen down about 8%. TSA, down 2%. We know Nissan up 2%. The Ford group up 1%. The OPAL, and SAAB, up 10%. Our planning assumption around FIAT, and there's a lot of assumptions out there, but we're planning to is down between 15 and 20%. We see Daimler down about 5%, and BMW down about 11%. .

Those are all full year numbers?

Those are all full year. If you would like, you can call us after the call and we can talk through some of the platforms details.

Great, thanks. On slide 13, this is the revenue bridge, 2002 to 2003 first quarter.

Right.

Do you break out the pricing impact in the first quarter, and how that will become less of a --.

the pricing impact is baked into the production mix and efficiencies.

and any color on how much that was and how it will change during the course of the year?

No. But we appreciate the question.

Okay. And then last topic, this slide 10, the broader focus on cockpits and electronics. It looks like the 60 billion-dollar number is just cockpits, instrument panels and the electronics that go into the instrument panels. Is that -- and then the 70 billion of electronics is some other type of electronic?

Yeah, that's the expansion of some of the other -- I mean, some of the broad picture of the electronics. Things like tire pressure monitoring systems, audio and visual modules and things like that. .

With respect to the cockpits, has something changed? I mean, this was something that was --. Available for you to pursue earlier. I'm just curious what --.

I think we've always talked about this as a huge potential market for us, and I think what we just tried to do is quantify it. What the opportunity is and what each of those programs can do for us.

Do you sense that your customers are more interested now than before, in you getting into this business?

Obviously with GM just awarding us a total integrator for one package, it is starting to happen.

Great, thank you very much.

Thank you.

Your next question comes from Mike can with Salomon Smith Barney.

Yes, a couple questions. You talked about mix efficiencies all in one basket. I was wondering in terms of the cost impacts on second quarter, how much was raw materials in you mentioned leather, steel, plastic. How much of it was that in the first quarter and what should we expect in second quarter.

In the first quarter, this year's first quarter versus last year's first quarter, taken together, the impact was about 12 to 14 cents. In the second quarter, comparing it to last year's second quarter, the impact it looks to be around 7 or 8 cents.

Okay. Great. And one housekeeping question. On your bank facility, how much did you have drawn on your revolver at the end of the first quarter and how much unused?.

At the end of the quarter we had 88 million drawn on the revolver and unused was well in excess of 2 billion.

Great, thank you.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. Gentlemen, are there any closing remarks?

Yeah, I'd just like to again thanks everybody for being on. Thank the Lear team for good performance. We had a good quarter. Got our work cut out for us in the quarter coming up but confident we're going to have a great year and hope everybody has a great break here during the Easter season. So thank you all very much.

This concludes today's conference call, you may now disconnect.--- 0