Lear Corp (LEA) 2004 Q4 法說會逐字稿

Please stand by for realtime transcript. Good morning. My name is Judy, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Lear Corporation's fourth quarter and full year 2004 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 key pad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Anne Bork, Director of Investor Relations. MA'AM, you may begin.

Thank you, Judy. Good morning everyone. I'd like to thank you for joining our call. By now you should have received our earnings press release and financial review package. These materials have been filed with the SEC and they're also posted on the main page of our website www.lear.com. Our Chairman Bob Rossiter is meeting with some of our customers. Joining me on the call today are Jim Vandenberghe, our Vice Chairman , and Dave Wajsgras our senior Vice President and Chief Financial Officer.

Also with us are Sherry Bergess (sp), our treasurer, Bill Dircks, our Controller and Mel Stevens, our Vice President of Corporate Communications. 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 factor toes that could impact our future results are described in the last slide of this stack and also in our SEC filing. In addition, we will be referring to certain non-GAAP financial measures. Additional information regarding these measures can be found in the slide labeled Use of non-GAAP Financial Information, also at the end of this presentation.

Now please turn to slide two and you'll see the agenda. First Jim Vandenberghe will provide a company review and then Dave Wajsgras will review our fourth quarter 2004 financial results and provide our first quarter 2005 guidance. After that we'd be happy to take your questions. Now please turn to slide four and I'll turn it over to Jim Vandenberghe.

Thanks, Anne, and good morning. I want to start off and briefly cover our 2004 highlights. In 2004, we delivered record sales of 17 billion which is up 8% from 2003 . And net income per share was up 9% to 577. The 577 includes the 20% -- 20 cent income tax benefit that relates to the settlement of a prior year tax matter. In line with our global strategy we expanded our infrastructure in Asia and we continue to grow sales with Asian automakers globally. We had new business wins which include seating business with Mazda in North America, AUDI in China and GM/Daewoo in Korea. To protect our long term competitiveness we increased our low cost manufacturing and engineering capability.

And we continued to generate strong cash flow and used it to fund growth operating efficiencies and return cash to shareholders. Finally, our balance sheet has never been stronger. At Lear we feel good about what was accomplished in 2004. Last year at this time when we outlined our vision for 2004, we expected North American production of around 16 million units and in Europe we were expecting production of about 18 million units or slightly better than that.

Despite the fact that in 2004, Lear faced significant challenges from lower production in North America, new business costs and unprecedented commodity price increases, the Lear team met our financial commitments, and we congratulate and thank the Lear team for another solid year. Now if we go to slide 5, we'll take a look at our share holder value scorecard. This slide summarizes now we executed relative to our strategy in 2004.

Our first priority is to invest in profitable programs. During the year we were awarded significant new business. And earlier this month we reported that our new three-year backlog stands at 3.8 billion and we continue to build upon our Asian revenue. In 2004, our sales were more than double our 2002 level. Second, we said we would pursue strategic acquisitions. And while we are being selective, we are very pleased with our acquisition of the terminals and connector business last year.

And we continue to expand our joint ventures in Asia and with Asian automakers globally. At the same time, we've been returning cash to the shareholders. In 2004, Lear purchased 1.8 million shares. We paid our first ever quarterly dividend. And earlier this month we announced a 25% increase in the dividend showing our confidence in Lear's future.

Finally we have a strong and flexible balance sheet and we intend to maintain this position. All of the major debt rating agencies now rate Lear as investment grade. Going to slide 6 our strategy and track record remain on course. The company has grown rapidly and our growth has been profitable. Our net sales have advanced in an animal rate of 18% since we went public in 1994 but our annual net income growth rate is even higher at 22%. Now I'd like to make a couple comments on the 2005 operating environment.

As we have previously indicated, our first quarter results will be negatively impacted by lower industry production and unfavorable platform mix, as well as the impact of higher raw material prices. Our outlook for the impact of higher raw material prices in industry production is expected to improve as the year progresses. But the adverse platform mix likely will be a factor throughout the year. From a mixed perspective, I would characterize this as a transition year for Lear.

As a number of our existing platforms are undergoing major changeovers or major refreshening. These include the high volume GMT 800 platform, the Dodge Ram pickup, the Explorer Mountaineer and in Europe, the BMW 3 series as well as some Fiat business. As a result this is having a larger than normal adverse impact on our mix in 2005 and particularly in the first quarter. However, as the year progresses, we see a more positive environment.

Going into 2005, our three-year sales backlog is at a record level. For 2005, the backlog grew to over 1.5 billion and the three-year backlog increased by 25% to 3.8 billion. Our backlog continues to represent healthy sales growth, as well as further customer product and geographic diversification. Two additional points on the backlog, the first is our backlog does not include any non-consolidated joint venture business that we've won. We continue to make improvements there. In fact, over the three-year period we expect about 450 million in -- from our non-consolidated joint ventures. Ant the second is that obviously we're still working on building this. And we see great opportunity, particularly in 2007 where a number of awards are pending.

Finally, I'd like to comment on our overall financial position. In recent years we've utilized our strong cash flow to aggressively reduce debt and financial leverage. We ended 2004 with a net debt to cap ratio of about 42%, which is down from the 65% level we had in 2000. And that's our lowest level ever. Lear is strong and well positioned for continued success. Now I'd like to turn it over to Dave Wajsgras who will take you through the fourth quarter and 2005 guidance.

Okay, thanks, Jim. Let me start by talking about the production environment during the fourth quarter. As you can see on this slide, production in both our major markets was down slightly overall, but our largest customers and key platforms were down even more. In north America, industry production was down 2% and the big three were down 5%. In Europe, industry production was also down 2%. Some of Lear's key platforms in many cases were down more than 10%. The Euro was 9% stronger than a year ago. Moving to slide 12, here's our financial scorecard for the fourth quarter. Starting with the top line, we posted record net sales of $4.3 billion despite the less favorable industry production environment.

Our core operating earnings, however, were lower by 19 million resulting in a 40 basis point decrease in our operating margin. The decline in our operating earnings primarily reflects the less favorable production environment that I just mentioned and the impact of higher raw material price. Net income per share was $1.70 in line with our guidance and down from $1.81 last year. SG&A as a percentage of net sales was 3.4%, about equal to a year ago. Interest expense was about $44 million up 2 million from last year. The increase reflects the pre-funding in 2004 of bonds that are scheduled to mature this year combined with higher short-term rates. Moving to slide 13, this chart explains the impact of the more significant drivers during the quarter.

The $31 million increase in net sales reflects new business globally, the favorable impact of foreign exchange as well as our acquisition of the terminals and connectors business. These favorable factors were about offset by lower vehicle production and adverse platform mix. Our core operating earnings were down $19 million. The drivers here were lower production, a less favorable platform mix and the impact of rising raw material costs offset in part by improved net operating performance and the profit contribution of new business. The extent and duration of high raw material prices has subjected the supply chain to cost pressures that are even greater than we had earlier anticipated. Lear's focus has been on insuring an uninterrupted supply while at the same time implementing cost mitigation actions.

But again, the benefits from these actions will not be realized until later this year. Moving to slide 14, free cash flow was a positive $87 million for the fourth quarter bringing the full year to $317 million. The positive contribution from earnings in the fourth quarter and for the full year was offset in part by capital spending net of depreciation. Full year capital spending of $429 million was up from our prior guidance. The increase largely is made up of supplier-owned tooling on recently awarded programs and the impact of foreign exchange, principally, the Euro. Moving to slide 15, here we summarize our current thinking on 2005's production.

In north America, we estimate full year industry production in the range of 15.6 to 16 million units with a low end in line with 2004. In the first quarter our production forecast is about 3.9 million units, down 200,000 units from last year. This reflects the announced planned shutdowns as well as a general softening in first quarter production releases. In Europe, full year industry production is in the 18.3 to 18.6 million unit range. The first quarter's forecast about 4.7 million units, down 100,000 from last year. If you please move to slide 16, we see Lear's worldwide net sales growing from $17 billion last year to a range of between $17.6 and $18.6 billion this year, reflecting the new business from our backlog as well as the stronger Euro. Partially offsetting these increases are the estimates for our platform mix.

Although not shown, our content for vehicle resumes its growth trend in north America during 2005, supported by the strong backlog after a down year in 2004. In Europe, we see continued but more moderate growth in our CPV. Moving to slide 17, our 2004 reported net income per share was $5.77 which, as we discussed in the third quarter, includes a 20 cent income tax benefit, primarily related to the settlement of prior year tax matters. As we discussed at the analyst meeting in Detroit a few weeks ago, three critical swing factors are impacting our 2005 earnings outlook.

The production environment, raw material prices and the outcome of our raw material mitigation actions. For the full year, net income per share is in the range of $5 to $6. This wider than usual range results from the uncertainty surrounding the factors that I just spoke to. And as Jim mentioned earlier, these factors will impact our first quarter earnings. We see first quarter net income in the range of 50 cents to 70 cents per share compared with $1.24 per share last year. Over half of the decline is from lower industry production and the adverse impact platform mix.

The remainder is essentially the timing and impact of offsetting raw material prices which includes commercial negotiations with our customers and suppliers. If you move to slide 18, here we summarize other important elements of our overall 2005 financial guidance. While I'm not going to read the entire slide, I would like to point out again that our forecasted free cash flow estimated at around 250 million includes the impact of a one-time change in customer payment terms. Excluding the net impact of this change, our cash flow would be in the $350 million range.

If you'd move to slide 19, here we provide some additional details on our recently announced sales backlog. For the three-year backlog, north America makes up about 58% of the total, with Europe at 34% and Asia at 8%. Again, it's important to understand that this does not include new business in our non-consolidated joint ventures. In addition, our product mix continues to become more diverse with seating systems representing half of the total, interiors making up one third and the balance being electronic and electrical products.

If you'd move to slide 20, here we show the alternatives we consider as potentially uses for our available cash. We'll continue to invest in higher term programs and pursue strategic acquisitions. We are returning cash to share shoulders through dividends, having just announced an increase this quarter. And we have actively pursued share repurchases during the year. During 2004 we purchased almost 2 million shares. You may recall we have available authorization to purchase an additional 5 million shares. Please move to slide 21. To summarize, Lear remains a steadfastly committed to our strategy to drive further quality and operating improvements while supporting global sales growth.

This strategy delivered solid overall financial results last year despite a much more challenging environment. These challenges continue in 2005 with the most significant negative impact early in the year. The recently announced dividend increase reflects our confidence in the longer term value proposition for our business. Now we'd be happy to take any questions.

At this time I would like to remind everyone if you would like to ask a question, please press star and then the number one on your telephone key pad. We'll pause for just a moment to compile the q and a roster. Your first question comes from the line of John Casesa with Merrill Lynch.

Good morning, thank you. I was wondering if we could -- you could address this issue of platform mix. What do you expect specifically to happen through '05? I mean, where do you think you might see improvement in the platform mix? And is it fair to say, Jim, based on your comments, that you expect a meaningful improvement in the mix in '05 to '06? And I'm just wondering how you think that plays out. I mean, how much new three series will there be available? How much new GMT 900? What happens with Dodge? Or could we just expect this sort of disadvantageous platform mix to continue well through '06?

Hey, John, I think the first question is, our expectations for the year were that we expected these products because they were older in the cycle to be down somewhat from -- from the previous year. And what we've seen is that the first quarter they have been down fairly significantly, particularly the products I mentioned. For the balance of the year, we have factored in some of the capacity cuts that were made and announced by GM. And those are factored in there. We factored in the capacity cuts that were made on the Ford Explorer. We don't expect any significant shutdowns over the last nine months.

And we would expect the last nine months industry production to line up reasonably close to the nine months that we experienced last year and, in fact, to reach the 59 level, it would even be positive. So, we don't expect the platform mix to be as negative on a comparable basis before the last nine months. For 2006, obviously, and really, for later in the year, as these new models are freshened up and are launched like the Ram truck that comes on in the second half, the new Explorer that comes on in the second half, GMT 900 starts launching the new SUVs next year, we think those will be great products and those will be received well and, you know, we'll benefit, really, probably more so than in a normal year.

Okay. So if we go to '06 and you got the 900, which starts -- you start to get volume. The Ram and Explorer are refreshed. They ought to run a little bit better then they've been running better than they've been running presumable.

Absolutely. We won't see the down time that we've seen in Europe on BMW and some of the Fiat business.

Just because BMW's had this downtime for the change over?

That's correct.

And then would there be -- are there '06 incremental models? Are there other things happening in '06 that would be particularly incremental to you?

Yeah, we have the Hyundai business that launches in the latter half of this year, so that will be -- that will be coming up. We -- somebody's flashing me a note here and I can't read it. What's it say, Mel? Oh, yeah. Obviously, I forgot about it total interior program on the Cadillac Deville and the Buick Lucerne.

Okay, just to close it off what's the timing on that program? Is that a normal model year launch, so you really don't get the volume until early '06?

It appears like it's a normal model year launch now.

Okay. Thanks very much.

And just finally, Jim, on the backlog, would it be fair to say all things being equal that your margins would improve or deteriorate as the backlog mix is different from your base mix. You got more electrical, you've got more interior. Wouldn't this tend to be positive for your mix?

I would say as a rule, John, it's comparable. We have interior business and integrator business. I think it's the right combination of manufacturing and also systems business that is comparable to what we do today.

And you mean on a margin basis not a -- ?

Yes.

Okay. Thank you.

Next question comes from the line of Rod Lache of Deutsche Bank.

Good morning, everybody.

Hi, Rod. Got a couple questions.

First of all, could you be a little bit more specific on how you guys fair with the T-900 versus the T-800? Is it a significant content opportunity for you guys?

It's the -- the content on the 900 is expected to be very much in line with the content on the 800.

Okay.

I mean, plus or minus a few percentages.

It's basically the same concept.

Okay. And can you talk a little bit about, you know, the north American content per vehicle and, you know, the outlook for the first quarter? I know you provided us with the full-year backlog, but how does that sort of progress over the course of the year?

Yeah. In the first quarter of 2005, we expect North American content to be, the CPV to be up in the 5 to 7% range.

Okay.

I'm sorry -- that's -- I'm sorry. The 5% to 7% range is in Europe. In North America it's about flat.

Okay. And that's for the first quarter?

That's for the first quarter.

Okay. And then it sounds like customers are having you guys commit a bit more capital between the change in the payment terms on supplier owned tooling. Is that -- is this really a change that's occurring, or -- and is there anything you're getting in return, in terms of margin?

No. That's really not the correct view. The payment terms change is a one-time impact and essentially puts our company in line with the overwhelming majority of the supply base.

With respect to what's going on with overall capital spending, we've mentioned in the past the most significant program we have is our flexible seating architecture program. Last year we invested over $30 million with respect to that equipment. And in 2005, we expect to invest around $70 million to $75 million. Taking that out of the equation, the capital spending, you know, would be more sustainable in the low $400 million range.

Okay. Great. Thank you. That's very helpful. One last question. The pace of buybacks obviously picking up here. Is there anything you'd suggest in terms of a guidance for the pace in '05?

No. It's not something we would go out with publicly, but if you look at the history, especially in the back half of last year, we were in the market investing in our company, believing it to be a very good investment at the time. And we'll continue to, to strongly consider that in 2005.

Great. Thank you.

Next question comes from the line of Jonathan Steinmetz with Morgan Stanley.

Good morning, everybody.

Hi, Jonathan.

Hi. First question relates to the guidance. If I use the midpoint of your first point guidance of 60 cents and then used the mid point of 550, that suggests you would be earning about 490 for the last few months and that compares to 433 in the last nine months of '04. I'm just trying to figure out not what gets less bad, but what gets better year over year?

We may have spoke to this during John Casesa's question. The cadence of the back log and size of the backlog is two important features. One is, the backlog is about 50% larger overall year over year 2005 to -- little bit less, 2004.

And the cadence is shifted to the back half of this year. That's the most significant positive. Also, Jim spoke to the quarterly flow of the way we see our more important platforms or our platform mix playing out in the balance of the year. The trucks from in particular, in North America which makes up about 70% of our North American revenue is disproportionately impacted in the first quarter. And although down the last nine months of the year, following the inventory correction, we do see it not nearly as adverse.

Okay. And just a couple housekeeping questions. Do you have the currency translation impact on revenue in operating profit in the quarter?

During the fourth quarter, the currency translation overall was about $175 million.

And the even impact?

Operating earnings were between 8 million and $10 million.

Okay. How much less -- I don't know whether you call it restructuring or footprint change. How much less of those types of costs were there in 4Q - '04 relative to 4Q - '03?

In 4Q - '04 you may recall we talked about this on the third quarter earnings call. We incurred about $16 million in costs related to actions were we taking to continue to improve the cost structure. With respect to -- I'm sorry. What were you comparing it to?

4Q - '04 versus 4Q - '03?

Yeah, 4Q - '03 we had roughly 37, $38 million of cost. And that related to two of our most uneconomical facilities going through closure and reduction actions.

Great. Thank you very much.

All right.

Next question comes from the line of Scott Merlis with Thomas Weisel.

Good morning, everybody. Taking a regional look at this mix issue, if Europe is going to -- CPV is going to grow 5% to 7% in Q1, U.S. is flat, is the European margins below average so the lower margin platforms are growing -- just happen to be growing faster? Or are you starting to win some European business that have healthier margins, comparable margins to corporate average? So it's a Europe versus U.S. question.

You asked a couple of questions there. European margins for 2004 did exceed our overall target which we had stated early in the year, of around 3%. Again, it exceeded that.

As we go through 2005 and looking forward, we do see European margins more closely approximating the consolidated margins. With respect to content for vehicle, although I spoke to the first quarter, I think it's important to note that I do see North America content for vehicles for the year in the same range as the European content for vehicle growth, both being between 5% and 7%.

That's actually very helpful. And the last question would be back to commodity issue.

Yes.

Can you just discuss general commodity sourcing and timing? In other words, are you able to have tandem negotiations with your suppliers and your customers? In other words, how explicit is the linkage generally between what you're buying and what you're trying to get back? And -- or is there a certain point in time here where most of your supplies, your commodity supplies, are locked in either a short-term contract or long-term contract?

That's an excellent question. We have, as I spoke to during the formal part of the presentation, essentially secured an uninterrupted supply of raw materials for 2005.

And many cases we were able to negotiate price caps while concurrently benefiting, if commodities -- if the commodity markets softened. But importantly, with respect to negotiations, the key players throughout the supply chain are continuing to be involved in negotiations with regard to how the burden of the raw material economics is going to be shared. And that's happening -- that's happening as basically one group.

Interesting. Great. That's very helpful. Thank you very much.

Next question comes from the line of Chris Ceraso with CSFB.

Oh, thanks. Good morning.

You bet.

A few items. First if the, the time pie chart on slide 19 where you break out the back log by region, how much of that North American business the 58% is Japanese and Korean customers in north America?

Well, let me try to address this a little more specifically. Excuse me. We broke out the regions on that page. With respect to business in Asia or business with Asian OEMs globally, combined, that makes up about 20% of the total backlog. Now, about half of that is in North America.

Okay. And that's still excluding the JV?

That excludes the JV and as Jim mentioned during his presentation, we have about $450 million in backlog business in the non-consolidated joint ventures. So if you're looking at Lear's total business, the -- with respect to the backlog, the Asian business globally essentially is between 30% and 35% of business coming online over the next three years.

Okay. The -- did you address -- if you did I apologize -- why the tax rate was below where you expect it to be going forward in the fourth quarter?

In the fourth quarter, the 22 nine is impacted by the R & D credit between the third and fourth quarter. And for the year, adjusting out for the prior year's tax settlement, the overall tax rate would have been about 26%, which is in line with the midpoint of what we're guiding to for next year.

Not to beat the materials issue but it sounds like you've kind of locked in supply. Maybe most of the remaining risk is how these negotiations play out and maybe risk associated with people further down the supply chain that may still be on shaky footing. Is that fair?

Yeah, I think that's accurate. I mean, we're still working to nail down what the cost impact is. I mean, it's one thing to receive a price increase. It's another thing to understand what the actual cost impact is to the individual companies involved and what we can do to mitigate that.

So it's an on going process. But, you're right, the first thing is it's to nail down the cost estimate as best we can and work that into our productivity negotiations.

Let me add one thing to that. We have a number of programs that do not involve working with our customers to offset the economics associated with raw materials.

The most important of which is the -- is our in-sourcing capability with respect to plastic parts. Through our lean manufacturing and [inaudible] initiatives over the last 18 to 24 months, we've been able to free up capacity and we're in the process today and in the first half of this year of tooling our facilities and readying our facilities to start producing parts in house versus purchasing parts externally.

Okay. And then, last one. Fourth quarter margins in North America, mix was not great in the fourth quarter either, as you highlighted. Were margins in North America down maybe as much as 150 basis points year over year? I know you don't want to give specifics but maybe directionally if you could help us gauge.

Yeah, you framed the question perfectly. Margins in North America were down, and directionally it's around 150 basis points.

Thanks a lot, gentlemen.

Next question comes from the line of Darren Kimball with Lehman Brothers.

Good morning. I was just wondering if you could comment on facilities cost expected for 2005?

Well, the facilities cost in 2004 as we've spoke to was around $55 million. About $11 million of that was in the first quarter of 2004. We see a similar impact in the first quarter of 2005, but for the full year, it's, it's -- what we're seeing today is it's roughly half, or less than half of what we, you know, the impact of 2004. Again, we're still considering various actions.

I mentioned with respect to Chris' question that we are in the process of in-sourcing and it's not just in north America. It's a global action. And some of these actions may compel us to take further actions.

Okay. And secondly, in terms of the effect of the customer payment term changes, is that -- are you also working with your suppliers to make offsetting changes in terms of deferring your payments? And I'm just curious if that's something that you already netted against the number that you're giving us? Is that a possibility? You know, would the timing also fall into '05 or will it take you longer? That, that's the question.

Sure. We have already started working with our supply base. It is a -- it is a net impact number. We're quite comfortable with the cash flow guidance we gave for the year. And given that Lear closes on a fiscal -- on a different fiscal ca- on a different fiscal calendar than we are our customers close, we're still determining whether it's a third quarter or fourth quarter impact.

Okay. So 100 is net. So we can't expect you to claw back against that by changing supplier terms because that's already factored in?

No, Darren. 100's a good number to work with.

Okay. And just lastly, I don't know if you said anything about this or you're not saying anything about it, but can you give a rough estimate of what, you know, sort of the net raw material hit was in the 4Q ?

In the fourth quarter, well, let me try to characterize it like this. Production was down and mix was also impacting our earnings adversely.

That was offset by our new business backlog, as well as our overall operational and commercial performance. The impact of the raw materials was the driver in us changing our guidance with respect to the fourth quarter. And that essentially dropped through to the bottom line.

Okay. Thanks very much.

Next question comes from the line of Bret Hoselton with Key Bank Capital Markets.

Thank you very much, good morning.

Good morning.

Wanted to talk about the customer productivity negotiations and in particular I was hoping you could give some idea roughly -- and I realize you got a number of customers, but roughly, do you have any sense as to when you might have that resolved or feel more comfortable in getting a little more specifics on the impact of that?

Yeah. Again, this is the process. I think when we were couple weeks ago at the auto show, we talked about this. And some people were surprised that sometimes these things run 10, 11 months. I mean, you have a feel for it going in and I think through the first quarter we'll have a good understanding of where we're at.

And I believe during the auto show you mentioned that you were going to -- you were hopeful that you might be able to get some retroactive adjustments. Is that -- is my understanding correct? And then, if that's the case, if you resolve something in the second or third quarter, would we affect a fairly large benefit since it would be retroactive?

Well, I think when we say retroactive we're probably only talking about the fiscal year. So I mean, there could be some claw back benefit to the first quarter. But I mean, no I wouldn't expect any huge benefit beyond that. Beyond just recovering what our cost increases are for the year.

And, Dave, when you look at the first quarter guidance 50 to 70 cents, the swing factor as you mentioned production levels platform mix, so for the. Is that -- the production level's platform mix more a comment with regards to the full year guidance or do you think there's a possibility you could see some significant changes in the first quarter as well?

Well, in the first quarter, I'd like to just say that I highlighted the more significant variables impacting sales and earnings. On a full year basis from an overall production stand, that's essentially unchanged. So the more significant impact is our platform mix as well as the -- what we are estimating to be our net impact for raw materials.

Thank you very much, gentlemen.

Okay, thanks.

Our next question is from the line of Ronald Tadross with Banc of America Securities.

Well, Ron.

Just on the -- I don't know if you mentioned this, but on a sharp decline on SG&A from 3Q to 4Q it seemed unusual. Can you just talk to kind of why that was?

It's fairly seasonal. It's in line with our fourth quarter of last year. Number one. And number two is we're continuing to take action to improve the overall cost structure and some of that obviously shows up on the SG&A line.

All right, but I mean, typically it doesn't seem like it's down from 3Q to 4Q so it seems like you're doing some stuff that, you know, pretty material on a cost basis. I mean, is there something that can kind of drag into '05 in terms of impacting your '05 SG&A run rate?

The SG&A run rate will still be in the high 3% range or relative to sales. But, again, Ron, we are -- everything is on the table with respect to improving our overall cost structure. And, again, some impact from these actions is going to benefit the SG&A line.

Okay. What'd you say 3 - 5% range?

High 3% range.

Oh, okay. And then just one other question. What were your fourth quarter startup costs? Do you guys have a rough number on that?

Yeah. Fourth quarter startup costs were around $16 million.

Okay. And can you just remind us, I guess, of, well, what your thinking on '05 for the startup costs and then roughly what your definition of is this? Cause I'm trying to get at -- trying to figure out how the new business launches are going to impact your startup costs.

Yeah, that's a good question. Startup costs are quite a bit higher in 2005 approaching around $90 million. The cadence of the startup cost is fairly in line with the launches or the cadence of the backlog. Just to put this in kind of buckets, in the first quarter of total backlog we see about 15% coming online. About 25% for the second and third quarter and the balance in the fourth quarter. So it is very much second half weighted.

Okay. And that's basically -- the definition of a startup cost is basically, like, if you're assuming a 6% margin on a piece of business and you're at 4% in year one, the difference is your startup cost, basically?

Yeah. It's -- that's a fair way to look at it. It's essentially the inefficiencies that any manufacturing company or plant go through when you're launching a product.

Right.

It's the differential between your run rate margins and what you're seeing in the first 12 to 18 months.

Okay. And you did like what, $55 million in '04? Does that sound right?

Little higher. Between $55 million and $60 million.

Okay. Thanks a lot.

Okay, Ron.

Next question comes from the line of Rich Kwas with Wachovia Securities

Morning. Just wanted to ask about the open sourcing opportunity in 2007 for the backlog. Wanted to get a sense for how meaningful the opportunity is and then regional basis, where would you characterize the greatest opportunity?

Let me take the second part of the question first. On a regional basis, it's primarily in Europe and in Asia, with the balance being in North America. From a product stand point, we are looking at primarily interior products and electrical products with some potential for seating systems.

And I would liken it to what we accomplished last year, when we were able to take over the Mazda seating business in North America in the midyear and also we had a conquest win on the AUDI business in China that came out very rapidly. So we still have opportunities like that out there and we're pursuing them.

And regards to the first part of the question, is it more meaningful than in the past, say, relative to your recent experience, being three years out and what not?

Yeah, I would say -- particularly in business in Asia and so forth, that can come on relatively quickly. So I would say it is probably -- it's a greater possibility than it has been historically.

Importantly to Jim's point, as we continue to expand our overall sales footprint with customers globally, it gives us more opportunity to fill the pipeline which obviously translates into new business.

Thanks so much.

Okay.

Next question comes from the line of Himanshu Patel with J P Morgan

Hi, Dave. Your -- going back to that backlog slide on page 19. You mentioned 20% of it was with Asian OEMs. Can you just give us that breakdown over the course of the three years how that progresses?

With respect to how the 20% plays out in total. Okay. It's -- over the three-year period it's basically weighted to the second and third year with I would say roughly 5% in the first year and then the balance split between years two and three.

Okay. And then, your negotiations on the raw materials front with the OEMs. I'm just wondering, are you guys seeing or still seeing notably different postures on this issue from the European and Japanese OEMs versus Detroit?

I wouldn't comment on that 'cause I think every customer is different. And every region is different. So, I don't think we'd comment on that.

Okay.

Next question comes from the line of David Leiker with Robert W. Baird.

Good morning.

Hello, David.

A handful of number of questions here. What was the dollar amount of the share repurchase in the fourth quarter and then also for the year.

The dollar amount was 47 million fourth quarter and about 98 million for the year.

Okay. [background chatter] Were there any acquisition impact on the revenue line in the quarter?

I'm sorry say that.

Did the acquisitions add anything to the revenue line in the quarter? At least, I don't think we've anniversaried that yet, have we?

The acquisition, your're talking about the terminals and connectors business?

Yes.

Yeah. In the fourth quarter it added $65 million in revenue.

Have we anniversaried that yet or not on this one work order?

No. We purchased midyear last year.

Okay, so two more quarters on that. And then the last thing here is -- no, that's all I need. Thanks.

Okay, David.

Ladies and gentlemen, we have reached the end of the allotted times for questions and answers. I will now turn the call back over for any closing remarks.

Okay. I want to thank anybody who heard the announcement today and listened in. Again, we're focused on the fundamentals that we talked about over and over again. I'd like to thank the Lear team for another solid year, for outstanding performance and we'll be around all day if you have any questions. Thank you.

This concludes today's conference call. You may disconnect at this time. .