Lear Corp (LEA) 2008 Q2 法說會逐字稿

At this time, I would like to welcome everyone to Lear Corporation second-quarter 2008 earnings conference call. All lines have been placed on mute to prevent background noise. After the remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS) Thank you. I would like to turn the call over the Mel Stephens, Vice President, Investor Relations.

Thank you and good morning, everyone. Thank you for joining our second-quarter earnings call.

You should have received our press release and financial review package. These materials have been filed with the Securities and Exchange Commission and posted on our website lear.com under the Investor Relations link.

Today Robert Rossiter is in Asia and joining the call from India and with Bob is Lou Salvatore, the President of our Seating -- Global Seating business. ere in Southfield, our Matt Simoncini, our Chief Financial Officer and Daniel Ninivaggi, Executive Vice President, Terry Larkin, our General Council, and several of the Company's Vice Presidents, Shari Burgess, Treasurer, Wendy Foss, Controller, Bill McLaughlin, Tax, and John Trithol, Business Planning and Analysis.

Before we begin, I would like to remind you that during the call we will be making forward-looking statements that are subject to risks and uncertainties. And some of the factors that could impact future results are discussed in the last slide of our slide deck and also included in the SEC filings.

In addition, we will be referring to certain non-GAAP financial measures. Additional information regarding these measures can be found in the slides labeled non-GAAP Financial Information, also included at the end of the presentation.

Turn to slide two, we outline the agenda for today's review. Bob Rossiter will provide open and provide the Company overview and then Matt Simoncini will review our second-quarter financial results, discuss the outlook for 2008. Lastly, Bob will come back on for a summary slide and we will be happy to take your questions. If you will please turn to slide number four, I will hand it over to Bob Rossiter.

Thank you, much, Mel.

Business conditions in North America were very difficult in the second quarter. Reflecting a 15% decline in industry production from 2007, dramatic mix shift away from full-size pick ups and large SUVs. Further restructuring by our major North American customers and higher raw material and energy prices. In Europe, industry production remains stable. But sales are beginning to soften. In the emerging markets solid growth is continuing.

In this challenging environment, we continue to focus on the fundamentals of our business and we delivered solid, overall financial results.

Please move to slide five. Business conditions in North America deteriorated this year,the Lear team has continued to be proactive in addressing the challenges. We maintained the positive operating momentum, as we aggressively work to improve our longer-term competitiveness. Specifically, we are focused on the following. Accelerating our restructuring actions, growing and further diversifying our sales, investing in our electrical and electronics businesses and proactively managing our liquidity position.

Please move to slide six. This slide shows the progress we made so far this year in winning new business. We last updated the sales backlog in January. At that time, our three year backlog stood at $640 million. Since then, we won about 600 million in net new business, 60 million of which in 2009, 300 million in 2010 and 240 million beyond 2010. Composition of this new business will further diversify our sales.

Vast majority is coming from outside North America, 55% in electrical electronics, 75% with the Europe and Asian automakers. In addition, we have been awarded nonconsolidated new business of about 150 million. Please move to slide seven. Slide seven provides a summary of our sea quality scores in JD Powers 2008 analysis.

As you can see, on the left of the chart, near C quality is measured by the number of things gone wrong per 100 vehicles improved 19% compared to a year ago. This performance was the best ever and ranked Lear the highest quality among all major seat manufacturers. There has been top-ranking major seat manufacturer overall in JD Powers studies for the seven of the last eight years. Will you please move to slide eight. As we enter the second half of the year, it is clear that business conditions in North America become very tough. It is likely to remain challenging into 2009.

The Lear team is responding by keeping its focus on those things we can control, including maintaining excellence in our operations, concentrated efforts to further diversify our global sales.

Further structural cost reductions and continuing to invest in growth opportunities. The recent example, including our agreement to acquire a majority stake in new trend automotive fabrics and a new center of excellence for hybrid and high-voltage technology on the Southfield campus and our continuing investments in new business development in emerging markets.

Also, proactively managing our liquidity position. As result, I believe we are well positioned to weather the downturn and merge as an even stronger competitor when conditions improve. I would like to turn it over to Matt for review of our financials.

Turning to slide ten. Our financial results in the second quarter were adversely impacted by a difficult production environment in North America. Despite the increasing challenges in North America, we again delivered solid financial results. Sales of $4 billion, we delivered core operating earnings of $164 million and positive free cash flow of $16 million.

We continued to achieve increased benefits from restructuring initiatives as well as other on going cost efficiencies. However, these favorable factors were not enough to offset the sharply, lower industry production and adverse platform mix in North America.

For the full year, we are revising out look for industry production in North America downward from 13.8 million units to 13.5 million units. Full year out look for core operating earnings has been revised downward to a range of $550 to $600 million to reflect a lower production forecast in North America.

On the next few slides, I will cover our second quarter results and full out look in more detail.

Slide 11 of the presentation breaks down the industry environment in the second quarter. In North America, industry production was 3.4 million units down 15% from a year ago. Domestic three down 21%. And top 15 platforms down 30%. The lower production in North America includes the impact of the strike at American Axle.

In Europe, industry production was 5.5 million units, up 4% from a year ago. Production for top five customers in Europe was up 3%. Prices for key commodities increased in the second quarter. These increases did not have a significant impact on our second quarter financial results because of the contracts in place, price adjustment and mechanisms and a timing of price adjustments. At present levels however, commodity costs for the full year will represent a significant increase compared with a year ago.

Slide 12 provides our financial score card for the second quarter in more detail. Starting with the top line, we posted net sales of $4 billion, down $176 million from last year. Decline reflects primarily the lower industry production and unfavorable platform mix in North America offset partially by favorable foreign exchange. Reported pretax income was $56 million net income was 18 million or $0.23 per share. These are down from a year ago reflecting primarily the lower volume in North America. On the next slide, I will show results excluding restructure costs to highlight underlying operating performance.

SG&A as a percentage of net sales was 3.9%. Compared with 3.4% a year ago. SG&A expenses up due primarily to the impact of foreign exchange. Increase of production product development cost related to backlog and infrastructure cost and emerging markets were largely offset by favorable cost performance in other markets.

Interest expense was about $46 million down about 6 million from last year primarily due to lower net debt balances, as well as, lower borrowing costs. Depreciation and amortization, at about $77 million was relatively flat with a year ago. Other expense was 4 million compared with about zero last year. Last year other expense included foreign exchange gains. This year other expense included a small gain of related to a sale of an equity position in a joint venture. We expect other expense to average about $10 million per quarter for a second half.

Slide 13 summarizes the impact of the restructure actions on a reported second quarter results. Reported income before interest, other expense and income taxes was $105.5 million. Excluding a a restructure cost core operating earnings were 164 million compared with $229 million a year ago. Decline in core operating earnings primarily reflects lower industry production, and unfavorable platform mix in North America. Offset in part by favorable cost performance, including increased savings from restructure actions. To help clarify how they impacted the financial states we indicated the amount by income statement catagory on the right-hand side of the chart.

Slide 14 summarize the impact of major performance items on our second quarter sales and margin compared with a year ago. As you can see, the major adverse factor for the change in sales was lower industry production and unfavorable mix in North America, including the adverse impact of the American Axle strike. Partial offset were the favorable impact of foreign exchange in new business globally. Margins adversely impacted by the lower industry volume and unfavorable platform mix in North America. Favorable operating performance including restructuring savings was a partial offset.

Turning to performance by product line, our seating business continues to perform relatively well in the second quarter. Although, the adjusted margin was was 5.5% compared to 7.7% a year ago.

The decline in our CD margin reflects lower industry production and unfavorable platform mix in North America, including the adverse impact of the American Axle structure. For the full year, we are forecasting seating margin will be in the 5% range. This is below our target range reflecting a sharply lower industry production and adverse platform mix in North America and higher commodity costs.

Longer term, we expect our seating margins to return to the mid 6% range. Road map for returning our seating margins to the target range involves realigning capacity to match demand, taking a balanced approach to customer pricing given the commodity cost environment, on going cost improvement actions, including further restructuring, benefits from selective vertical integration, continued growth in emerging markets and some recovery in North American production.

In our electrical and electronics business, second quarter adjusted margins improved from 4.7 to 4.8%. This reflects favorable operating performance including benefits from restructuring, as well as the recovery of previously incurred product related engineering expenditures, which more than offset the lower industry production in North America. For the full year, we expect adjusted electronic margin to be in the mid 4% range.

This will represent a improvement of 100 basis points from 2007 and consistent with our prior guidance. This reflects continued favorable cost performance, restructuring savings and the benefit from new business offset in part by lower industry production in North America and further investment in growth initiatives.

Free cash flow was a positive $16 million in the quarter. This reflects primarily our net earnings for the quarter, higher net working capital about offset by capital spending netted depreciation. Compared with a year ago, free cash flow was adversely impacted by lower earnings and unfavorable net working capital reflecting the impact of the American Axle strike. For the full year, forecasting positive free cash flow of about $150 million, after funding approximately 175 million in cash to implement our restructuring actions.

Slide 18 provides additional detail on 2008 outlook for global automotive production. On a positive side, overall industry production is projected at 70 million units, which is up 2% from a year ago. Increase reflects continued strong growth in the major emerging markets range from 11% increase in Russia to 27% increase in India. In Europe, production of 20.3 million units up 1% from a year ago.

North America, however, industry production is projected to be down 10% this year to a level of 13.5 million units.

Slide 19 summarizes our 2008 financial outlook. We are forecasting net sales for 2008 of approximately $15 billion. This is down about 300 million from the out look reflecting primarily lower forecasted industry production in North America. Our core operating earnings are estimated to be in the range of $550 million to $600 million, down from the prior out look of 600 to $640 million. Reflects the lower production volume in North America. Interest expense is estimated between 190 and $200 million. Forecast for pretax income, adjusted to exclude restructuring cost and other special items in the range of 325 to $375 million. Our estimate for tax expense is about $125 million. Restructuring costs estimated to increase to about $140 million reflecting further capacity actions and census reductions.

Capital spending is expected to be in the range of 230 to $250 million. Depreciation amortization, is estimated at about $300 million. Lastly, free cash flow expected to be about $150 million, including about $175 million of cash restructure costs.

Given the challenging business environment in volatility in the capital markets, we have been proactive in managing our position to maintain significant financial flexibility until business conditions improve.

We amended our US credit facilities in July to extended portion of the $1.7 billion of outstanding commitments from March 2010 to January of 2012, and return for a one-third reduction in commitments and increase in pricing.

As a result, Lear now has a $1.3 billion of revolving credit commitments with $468 million maturing in 2010. $822 million locked in until 2012. In addition, Lear entered in to a committed factoring arrangement that provide for a maximum of EUR315 million capacity for non-recore sale of certain of our european accounts receivable through 2011.

These facilities combined with cash on hand provides significant long-term liquidity and financial flexibility to continue investing in growth opportunities and strengthen our cost structure. Now I would like to turn it over to Bob for the summary of the presentation.

Slide 21, we are continuing to make solid progress in improving long-term competitiveness of our business. Major actions include restructuring of global operations, continuing to sales diversification, further evolution of low cost foot prints, vertical integration in seating and actions to strengthen and grow our electrical electronics business.

Despite the industry conditions particularly in North America, we delivered solid operating and financial results in the second quarter. For the full year, we remain solidly profitable if core operating earnings of 550 to $600 million. We do not expect industry conditions to improve in the near term, and they may even worsen.

We are managing the business with that in mind by restructuring manufacturing capacity and taking aggressive cost reduction actions. While at the same time investing in opportunities that are important to our long-term success. I will not open it up to questions.

(OPERATOR INSTRUCTIONS) Your first question will come prom the line of Brian Johnson with Lehman brothers.

In terms of recovery on raw materials, what's your outlook for the remainder of '08 and in the past years we have seen some kind of four-quarter discussions that have come out well. What are your expectations going through the year on that?

If you go back to what we talk about in the first quarter call. Our major exposure on the commodities is in steel. What we talked about at the time was a total steel buyer or use of steel in our seats of about 3 billion-pounds of which the majority of it comes through in the purchase of components, about 300 million is a direct steel buy.

Of the purchase components about half is directed from our customers and we would expect to recovery to be worked through directly with the customer that directed the buy.

The remaining portion of it, there is is a whole litany of contracts from fixed prices to pass throughs and collars and what have you. From that portion of it, we seen that the steel has gone from the exit rate of the first quarter of about $0.50 a pound up into the low $0.60 a pound and that is impacting the back half of the year.

We are working with customers. We see the normal seasonality where a lot of the commercial issues get resolved in the fourth quarter. We are working through and what we have included in the back half of the year is our best knowledge of how the negotiations are going to finish based on current thinking.

Where would you that get you in terms of the net dollar impact. Obviously it's not that full --

It's not. It's not that at all. So it's a portion of it. I don't want to put exact bookends around it.

What we included in there is impact commodities in the second half and based on current commodity cost environment that we are in and a status of our negotiations with all our suppliers and customers.

And a question for Bob, is there any difference you see between this year's commodity cost recovery discussions and what you went through say in 05 and 2005?

Well, obviously the commodities are a big issue but the approach we have taken is we always work our customers. I think as Matt explained it, a good portion is directed. I think those -- even though they are going to be difficult negotiations and discussions, we will work through those. I truly believe that in the face of what's going on in the marketplace will get resolution equitable for the company. We are not going to threaten anybody. We are just going to sit down and work through it. As we always and we have always been successful.

The biggest difference is that we don't have the interiors business, so we don't have the exposure we had in 2005.

One last question, are you are updating your backlog for the year given the production environment?

We update our backlog once a year. The way we define our backlog is in a three-year window and it's net committed booked business. We will be updating all the assumptions at the end of the year or at the beginning of 09.

What we have done though, is obviously announced what our net new business wins have been through the first six months of the year, but there is a lot of variance that go in to calculating the backlog. Volume is one of them. Adjusted based on a current volume outlook. FX is another. We have to adjust our backlog based on FX, as well as, customer production plans, certain car lines sometimes the -- production gets pulled ahead and certain car lines get killed off a little early. So we will be providing a full backlog update towards the end of the year. That being said, based on the status of the new business wins that we have enjoyed or experienced through the first six months, we expect it to increase.

Thank you.

I'll add and say I'm really impressed with the progress that the company's made in growing our backlog over the last three years,particularly this past year in Asia and Europe and in our electronics and seating businesses both. We are doing extremely well.

As that backlog grows shifting -- continuing it's shift out of North America Big 3.

It's not shifting out. We want all the business anywhere we can get it. I'm not going to say, it happens there is a significant number of programs we have been working on and coming to fruition.

There is going to be a natural rotation too in the backlog for a couple of reasons. One, we announced some programs that we lost large truck, probably the highest profile was the Ram and the F-150 back prior periods.

The new business wins are disproportionally international customers in Europe and in Asia. Probably three quarters of it. Net comes from the unit. It's not that we are not pursuing business in North America. We are funding the head wind of lost programs.

Just in materials of the math, can we add the wins to the existing backlog?

It's difficult to do it that way. The announced backlog included 2008. The business wins that we announced today really start in 2009. If you think back to what we talked about in the beginning of the year on the 640 million of backlog, roughly half of that was in 2008. Now, if you take that amount and go forward, leave remainder of $300 million in 09 and 10. The business wins today start in 09 and move forward over the next three to four years, if you did the math it would work that way.

Thanks.

q-and-a next question will come from the line of Chris Ceraso with Credit Suisse.

Thanks, good morning. One clarification on the last point, Matt. Previously I think you said the net new business 409 was the 60 million, is that 60 million on incrementals and so now it's 120 in 09.

Correct.

Okay. Can you give us rough estimate of what your current business in North America, how much is based on bodies, on frame trucks, big pick ups, SUVs, mid sized SUVs?

You set the analysts scrambling for that definition. We don't have it exactly on hand. Give us one second, please. About 25%.

Of the North America business?

Of the North American business, correct.

Okay. The there was a comment earlier about Europe that was okay in the quarter but starting to get a little bit softer.

I know you guys have a lot of Fiat in Italy and Spain have been particularly weak. What's your outlook for build in the second half of the year in Europe?

We see it relatively flat, year-over-year basis but softer than the first half. We are seeing some weakness in the Fiat shutdowns and other car lines that have exposure to export into North America. So from a production standpoint, it's a little bit flat in the back half of the year but down from the first half.

Where there any commercial settlements in the quarter that either helped our hurt your operating profit?

There is always -- you know in any given time, we are in negotiations with every supplier and customer around the world. There is a lot of puts and takes.

One area where we spiked out was electrical and electronics. Now part of the issue there is that it's relatively small segment in comparison to the seats.

The threshold for impact is smaller. That being said, for that segment in particularly, the adjustment or the recovery on the engineering was in our full year out look and thinking.

We are still up from a engineering spending standpoint in that segment because of the backlog and the investment we are making in some of the new product. Overall, it doesn't change our thinking whatsoever. We are on a full year guidance for a 100 basis point improvement. Overall, there is probably as many puts as takes.

So but in the electronic segment in the quarter, favorable?

It was favorable. But there is also other things that went against it the other way.

Commodities for that segment, copper specifically, while for the full year we expect it to be neutral. We believe in the quarter provide -- quarters provide volatility because of the timing of customer recoveries of typically a 30-day lag.

We had head winds in that segment against the recovery of the engineering and overall engineering with the recovery was up as we continue to invest in the emerging markets and technology.

Last question. You said that for the quarter foreign exchange helped the top line by 550 million, I think. What was the impact on the operating profit line in dollars?

Can you ask that again?

What was the benefit profit to operating profit from foreign exchange?

Typically its going to convert at the margins for Europe overall, which are lower than the North American margins. In the past reviews, we have talked about Europe in the 4% range.

Okay. Thank you very much.

Your next question will come from the line of Himanshu Patel with JP Morgan.

Hi, Matt. I want to go back to Chris question. Was there a positive currency translation because I thought the slide said that the impact EBITDA was neutral.

Impact on margin was neutral. The was a positive impact for it. But obviously, currency translation doesn't convert at the same rate as sales.

So it comes in pretty much the biggest driver was the euro, and that's going to come in as your European margins.

Neutral on margin but accretive to dollar amounts.

Freight costs is that a big issue this quarter?

Not a lot. Diesel is up quite a bit. It impacts our costs somewhat.

We done a lot of good things from freight consolidation, route consolidation, both domestically and internationally.

So it has not had a impact on us yet.

You're not seeing diesel surcharges or anything like that imposed.

We are seeing them but we are getting offsets through freight savings overall through route consolidation, vendor consolidation, trying to share routes with other companies what have you, pretty aggressive in our freight studies.

Could you repeat, I know you provided the cash restructuring expense for '08 and could you give initial thoughts on where you think cash and expense for restructuring would be in 09?

Yes, what we said in the past about 09 was first off, start in 08, from a cash standpoint we obviously have a tail wind from the restructure actions that we announced in the fourth quarter that we didn't use the cash for in 2007.

That tail wind is now starting to come in to 08. Typically cash used for restructuring, runs at 90% of the expense. Cash restructuring. Going in to next year what we talked about initially about $100 million amount. Now we see the amount more consistent with this year as a result of some customer announced capacity actions.

We would expect restructuring from a expense standpoint to be consistent with this year.

So 140 of expense this year.

Ballpark. It's early to be talking about 2009. If I had to peg a number it would be in that ballpark.

I'm sorry, what is the expected cash expense for this year, 90% of 140?

No, its a little bit different. The cash use for restructuring this year is about 175 million. So it's in excess of our expense, and the reason for that is last year if you remember in the fourth quarter, we took a significant fourth quarter charge to close several high cost facilities.

The cash is now catching up to the expense. Last year's expense was in the $180 million range but the cash used for restructuring was 100 million. So now what we are seeing is the catch up.

Last question, any sort of high level thoughts on recremental margins we should think about for the business in Europe? Because obviously, the outlook for '09 could be softer in terms of volume.

Overall, we say for the business when there is a pull back, a short-term pull back in volumes, typically on average for the business as a consolidated basis 20% downward conversion. Platforms are higher, certain are lower,obviously.

What drives it is, first of all, how many rows of seats and how much content on the platform, the other driver is the vertical integration.

In Europe, typically we have less vertical integration. And the content per vehicle because of the type of vehicles are more pass car, typically lower in Europe than I would expect a downward conversion to be less than our average of 20%.

Great. Thank you.

Your next question is from John Murphy with Merrill Lynch.

Good morning. Other than the obvious pressures of incremental production cuts from your big customers, I was wondering if you're seeing new pressures? Really specifically on changing payment terms or anything like that on the working capital side?

No. We haven't seen any of those pressures at all.

Thinking about the supply base and the stress intensifies. I was just wondering, how are you doing with that and what are you seeing from them as far as pass through of raw materials and terms with them.

Also Mat you made a interesting comment when you were talking about seating about going to more vertical integration. I was wondering as you deal with this stress you might absorb tier two guys.

Let me start and put a frame up around it John, starting with distress in the supply base. Back in 05, we saw collective kind of distressed cost we disclosed of $50 million, which included price uplift, as well as capital and tooling subsidies and funding. In '06, we saw that number come down probably in half and last year neutral because we had recoveries that offset expenses.

Our business has changed significantly from the time we saw all the distress in '05 and the biggest change obviously is we divested the interiors business which had a disproportion amount of those distressed cost. The other thing is there has been a consolidation of a supply base in the smaller sub-tier suppliers. Our vertical integration does take into some small suppliers in the sweet spot of the business that we want, Metalon Mechanisms for instance, we think is a core competency and we have taken some of that into house.

So right now, there has been some distress costs, but it's been relatively minor. We are actively managing or reviewing and evaluating our supply base on a weekly basis. We have taken that into consideration in our guidance in the back half of the year.

Just when we think about mix going forward, pick ups in SUVs declining is and cuvs growing. As you walk through next year and hopefully 2010 and this top down pressure is alleviated to some extend, I was just wondering if you could talk about the at a high level pick up SUVs, cuv mix for your seats and electrical business and what the big deltas there? Maybe seeing in the form of magnitude.

Well, we have seen so far I think a come off in the sport utility, large pick up in the 30 to 40% range off of the peak, which was I think in 05. Certain platforms are off 40% on a year-over-year basis on the large SUVs.

We think the rotation to crossovers and we believe we have a proportionate share to the crossover market overall which is running between 15 and 20%, we are slightly lower than that but close to the market overall, John.

The content on the SUVs that we experienced actually averages some place in between pick ups, and large SUVs, and are in excess of what we are seeing in the pass cars. So don't think the rotation necessarily hurts us. The key is obviously to get on the platforms that are selling. On a go forward base in '09 and '10, I mean I would say your estimate is as good as mine at this point.

If we assume for argument sake $1000 in content on pick ups and SUVs for the interior or for seats and electrical, cuv would be in the same ballpark.

Cuv's are going to be higher than pick ups. Our content on pick ups are probably 1000, 1100 on average. Depending on if its two roll pick up. In the amount of high end, if it's leather, if it has high electronics, what have you. View the number of about $2000 of content on the large fully content SUVs. And I think cuvs what we experienced for the most part splits the difference.

Thank you very much.

Your welcome.

Your next question comes from the line of Rod Lache with Deutsche bank.

Good morning, everyone.

Good morning, Rod

Adjusted margin was down 77 million on $123 million decline in sales. Can you tell us the FX impact was just in that business?

Probably two-thirds of the FX that we reported as a company overall. Impacted that segment. I might be a little bit off but that's about the shape of it.

So what it's doing is it's disguising the fact that the majority of the revenue come off came from that segment. As you would expect.

If you were to adjust Italy Michaeli would be like $77 million decline on $490 million decline in organic sales? Is that roughly correct?

Kind of lost you on the math there a little bit.

Excluding FX, if you were to look at the decline in margin, are you actually getting a 20%?

No, it's slightly higher than that, Rod, for a few reasons. One is the type of vehicles impacted our higher-end type vehicles. Two, it was the nature in which is volumes came out, a good chunk in lost revenues came out via a strike.

You're not going to be efficient in your downward conversion, the conversion on the revenues were higher than the average 20%.

Okay. Can you just give us sense of what the gross raw material costs it would be for the back half of this year and based on spot prices right now, what would you anticipate year-over-year '09 versus '08 for full recovery?

Well, I think if you go back to the math we provided already, our biggest exposure is in steel. Basically that -- the majority of our steel exposures in the purchase components, and if you look at it 3 billion-pound use and did the math and said roughly half of it is directed, you could probably get to a gross exposure on a go forward basis, Rod.

1.5 billion-pounds is the risk? And you said something about 300 million is that pounds --

300 million of steel is the raw buy we converted to components, 1.2 to 1.3 is the steel that's used in the components that we buy and direct.

The remaining is directed by the customers. If you looked at the exposure you just have to do the math on the amount of steel increases on a year-over-year basis.

Okay. And can you just also elaborate little bit on the European outlook in the back half.

If you looked it on your key platform, how would that compare to the sort of the aggregate production changes.

Our top five customers and again, the platforms are much smaller in Europe as far as production volume, so you don't have the dominant kind of top 15 platforms you would see in North America, but in the top five customers they are going to be down 2.5% on a year-over-year basis, Rod.

How is that evolving on a consolidated basis. Okay. Then lastly, can you just maybe tell us a little about what you are going to be what your contents for vehicle would be in the BRIC countries right now. How is that evolving on a consolidated basis. Brazil, Russia, India, china, you're seeing as you are pointing out here, substantial growth in those markets. How should we there any about content per vehicle in those markets.

Content per vehicle is lower than the European content per vehicle. Obviously, a wide range of what the content is depending on what product we are selling and what product is going in there. Whether it's a kick-type vehicle coming in from Europe versus a domestic vehicle made for domestic market. On average less than Europe on all three.

Aggregate revenue from those markets.

Pardon?

Do you have a revenue that you can share.

What we talked about in the past, in Asia at least, I don't have the other two handy in front of me. What we talked about in Asia is roughly 1.2 billion of consolidated sales and roughly half of that comes out of China on a consolidate id basis.

Thank you.

You're welcome.

Your next question is from the line of Rich Kwas with Wachovia.

Good morning. Matt, on the business wins that you just announced, are you assuming production levels that are going forward, have you -- I assume you have different production estimates for the '09, '10 and then the revenue that you're booking beyond ten versus what you put out earlier in the year, is that correct?

It is. But it is important to know that on a new business wins, we use pretty much what we expect that specific platform to do as opposed to the industry because we are selling to specific platform and not if industry overall.

So the business wins are based on what we expect that specific platform to do.

Okay.

There is really no truck business in the backlog. If that is your concern.

Okay. So when you update the backlog it's beginning of next year, there is more liquidity in the original backlog versus what you announced here?

Right, right, right. What I would anticipate happening, Rich, is the new business, net new business wins are positive.

We will see growth in the emerging markets and pull back in the mature markets. We will see -- we will see changes in the volume assumptions overall and a change in the FX, which I think mainly the euro, where we obviously have seen strength since the last time that we updated the backlog. So there is a lot of moving parts.

What we have given today is net new business but not necessarily a backlog update. That being said, based on what we seen to date and the success we had through the first six months of the year, we expect to see a fairly significant increase to the $600 million backlog that we announced in January.

Then just moving over the margins for the year, did you say 5% for the year for seating is that correct?

That's correct.

4% for electrical for the year?

4.5, 100 basis point improvement year-over-year.

4.5%.

Right.

Okay. Thank you so much. You're welcome.

Your next question will come from the line of David Leiker with Robert Baird.

One thing I wanted to walk through a little bit and testing my memory here but the seat margin of 7.7%.

If we go back years ago, before you started buying into your company, how does this compare to what the profitability of the business was that the time.

If we go back -- help me out again -- if we go back to the 7.7%, you're talking about the adjusted margin in Q2 for the seat segment last year?

How would that compare historically.

Last year was a record year in margin for the seat business.

Right.

I don't ever, my history would remember a margin that was that high.

Does the source of that profitability really what you have done on the cost side of the equation?

It's two fold. Obviously last year wasn't the greatest production year that we have seen for North America or for trucks overall. So really came off of the back of a few things.

Restructuring efforts, two-thirds of which impacted segment have been successful. We have been successful in the vertical integration, Metal strategy in North America has paid significant dividends for us and also we have seen growth -- significant growth in our international operations. So it's not one thing. I will tell you, it definitely wasn't production.

Thanks, Mat.

You're welcome. .

Today's final question will from from the line of [Etah Mccaly] with Citi.

Good morning. Just a couple of final questions, Matt, just you talk about the covenant room you have in your EBITDA comment to the end of the quarter. I know that comes out in 10Q. I was just wondering, given that, I think that you can't add back as much restructuring costs. Can you give an update there?

You are right. We do disclose our covenant calculations in the cue. You can get there from the information we provided. We have not changed or modified our financial covenance with the recent amendment of the credit facility. If you refer to the 10Q in the first quarter, we had significant operating cushions at a leverage covenant.

We monitor our covenant cushion and it needed to be. We would adjust our discretionary spending, whether it was restructuring R&D, what have you. But we are comfortable with our operating cushion on a go forward basis.

And then on the CapEx with the backlog moving higher, do you think 230 to 250 million can be sustained the next couple of years?

It's probably low for a few reasons. We are continuing to invest in infrastructure in the emerging markets. Now what we said on a go forward basis, is 1.7, 1.8% as a percentage of sale. Obviously, its going to be some years its lower. Some years its a little bit higher based on the cadence of the backlog. Some of the things we are investing in whether infrastructure in India, in Asia, rest of Asia to you know business growth. If you used -- if you model a 1.7, 1.8% of sales, you would be pretty close.

Thanks.

Since there is no more questions. I'll just go to the team, there is probably nobody left on the call. Matt you did a great job.

Thanks, Bob.

Fantastic.

Obviously, we all know that we are faced with tough issues. Especially in North America, but we are tough. We had to do some things that we wouldn't like to do normally, and I know no one likes them but I know we are doing the right things.

I'm proud of you, all of you, the team. I appreciate your support, your understanding and your hard work. Believe me, we have a solid company and I promise you we will be successful.

I want to thank everybody for being on the call. Thank my team. Adios amigos.

Ladies and gentlemen, this concludes the Lear Corporation second quarter 2008 earnings conference call. You may now disconnect.