Lear Corp (LEA) 2012 Q1 法說會逐字稿

Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lear Corporation first quarter 2012 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I will now turn the call over to Ed Lowenfeld, Vice President of Investor Relations. Please go ahead.

Thank you, Steve. Good morning, everyone, and thank you for joining us for our first quarter 2012 earnings call. Our earnings press release was filed this morning with the Securities and Exchange Commission, and materials for earnings call are posted on our website, Lear.com, through the Investor Relations link.

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

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

Slide number 2 shows the agenda for today's review. First, Matt Simoncini will provide a Company overview. Next, Jeff Vanneste will review our first-quarter financial results and 2012 outlook. Then Matt will have some wrap-up comments. Following the formal presentation, we will be happy to take your questions.

Now please turn to slide number 3, and I'll hand it over to Matt.

Thanks, Ed. We're off to a good start in 2012 with another quarter of solid financial performance. We continue to receive customer and industry recognition, and we recently announced an acquisition that we believe will further strengthen our seating business.

Sales increased 4% to $3.6 billion in the first quarter. Excluding the impact of foreign exchange, sales were up 6%, in line with global production. Core operating earnings were $195 million, down 5% from a year ago, but still one of our strongest quarters in recent years.

Our Electrical business continued to benefit from greater scale and previous restructuring actions with sales up 6% and earnings up 21%. We were honored last month to be named Corporation of the Year by General Motors and the Supplier of the Year for the fourteenth time. Additionally, last week we received an Automotive News PACE Award for our Solid State Smart Junction Box, recognizing our industry-leading technology in this critical component.

In April, we signed an agreement to acquire Guilford Mills, a leading global provider of automotive and specialty fabrics. I'll cover this acquisition in more detail on the next few slides.

We continue to return cash to shareholders through dividends and share repurchases. During the quarter we announced an increase in both of these programs.

Slide number 4 highlights the strategic benefits of our pending acquisition of Guilford Mills. This acquisition is consistent with our strategy of selective vertical integration and expansion of our component capabilities. Guilford is a leading global provider of fabric for seats, headliners, and other interior applications.

We believe Guilford will strengthen our existing industry-leading seat cover business by providing synergies through increased design and manufacturing expertise which will improve quality and enhance value to our customers. We believe this acquisition will lever both Lear's and Guilford's strong customer relationships to increase sales across both businesses.

Guilford has a competitive footprint with manufacturing locations in the US and Europe, as well as a joint venture in China.

They completed a major restructuring of their operations to improve efficiency and reduce their costs.

Lastly, Guilford has a small specialty fabric business that produces multiple products for non-automotive applications, such as water filtration systems for Dow Chemical and General Electric.

Please turn to slide number 5. We expect the Guilford transaction will close during the second quarter. Last week we received regulatory approval for the transaction in the US and we're waiting to hear from European authorities.

The net purchase price is approximately $260 million, subject to normal post-closing adjustments. We will utilize cash on our balance sheet to fund the transaction.

Guilford has annual sales of approximately $400 million and its margins and other key financial metrics are consistent with our existing seat business.

With that, I'll turn it over to Jeff Vanneste. Jeff returns to Lear after five years as the CFO of International Automotive Components. Prior to IAC, Jeff spent the majority of his career at Lear in senior finance roles in the US and in Europe, and we are very pleased to have him back.

I would also like to take this opportunity to thank Jason Cardew, who is also with us today, and who did an excellent job as our interim CFO. I will turn it over to Jeff, who will take you through the financial results and financial outlook.

Thanks, Matt. Slide 7 provides financial highlights for the first quarter. Global vehicle production was up 6%, reflecting a 16% increase in North America and a 49% increase in Japan, both of which were favorably impacted by increased production following last year's earthquake and tsunami in Japan.

Vehicle production in Europe and China was down 6% and 2% respectively. Lear sales were $3.6 billion, up 4% from a year ago. Excluding the impact of foreign exchange, primarily a lower euro, Lear sales in the quarter were up 6%, consistent with the change in global production.

Core operating earnings were $195 million, down 5% from a year ago. The decrease in earnings primarily reflects increased product and facility launch costs, higher program development costs associated with the backlog, and selling price reductions, partially offset by increased sales and operating performance improvements.

Free cash flow was a use of $65 million in the quarter and we finished the quarter with cash of $1.6 billion. Our reported EPS was $1.32 a share.

On the next few slides I'll cover our first quarter results in more detail.

Slide 8 shows vehicle production in our key markets for the first quarter. In the quarter, global vehicle production was 20.2 million units, up 6% from 2011 and a record for the first quarter. Excluding Japan, global vehicle production was up less than 2%. As we have mentioned on previous calls, our annual sales in Japan are relatively modest at approximately $200 million.

Slide 9 shows our financial results for the first quarter of 2012. As previously mentioned, sales were up 4% to $3.6 billion. In Europe, adjusting for foreign exchange, our sales were down 4%, better than the industry production decline of 6%. I will provide further detail about our European business later in the presentation.

Pretax income before equity income, interest and other was $187 million, down $12 million from a year ago.

Interest expense was $13 million, up $9 million, primarily reflecting the refund of interest related to a favorable court ruling on a tax matter in the prior period.

Weighted average diluted shares in the first quarter were 101.9 million, 6.3 million lower than 2011, reflecting the impact of our share repurchase program.

Slide 10 shows the impact of nonoperating items on our first-quarter results. As I just mentioned, our reported pretax income before equity income, interest and other expense was $187 million. Excluding the impact of operational restructuring costs and special items, primarily related to the emergence equity grant and acquisition-related costs, we had core operating earnings of $195 million.

We have 15 nonconsolidated joint ventures, the majority of which are located in Asia or with Asian partners. Earnings from these nonconsolidated joint ventures are reported as equity income on our financial statements. In the first quarter, equity income was $10 million, an improvement of $6 million from a year ago.

Other expense in the first quarter includes income from special items of $1.6 million, reflecting net insurance proceeds related to the previously-reported fire at one of our European component facilities. We will continue to incur costs related to this fire throughout 2012, and expect to receive full recovery from insurance providers.

Adjusted for restructuring and other special items, net income attributable to Lear in the first quarter was $141 million, and adjusted EPS was $1.38.

Slide 11 is a new slide we thought would be useful to provide more color on our European business. Europe is our largest region, representing approximately 40% of our total sales in 2011. European sales represent a little under 40% of our global Seating business and about 50% of our global Electrical business.

Our business in Europe is well diversified and largely reflects the overall European market. The business is also well-balanced by customer and by vehicle segment. On the left side of the page, we've listed our top 10 European platforms based on total sales.

It's also important to note that a portion of our European production, primarily luxury brands, is exported by our customers to other regions, including North America and China.

Please turn to slide 12 for a summary of our results for the Seating segment. In Seating, adjusted margins in the first quarter were 6.7%, up slightly from the fourth quarter of 2011, but down 100 basis points from the first quarter of 2011.

The decrease in margin compared with a year ago reflects primarily increased product and facility launch costs, and higher program development costs of approximately $15 million, as well as selling price reductions which historically run at about 2% of sales. These factors were partially offset by the addition of new business, which typically converts at about 10% and operating performance improvements.

Please turn to slide 13, where I'll provide more detail on some of the drivers impacting our Seating business. Adjusted Seating margins in the first quarter of 6.7% benefited from stronger North American mix and the timing of commercial settlements.

In the first quarter, our top 15 platforms in North America were up 18% versus industry growth in the region of 16%. Our full-year expectations for Seating margins remain unchanged in the 6.5% to 7% range. However, when we provided guidance at the beginning of the year we anticipated that Seating margins would be stronger in the back half of 2012.

As a result of stronger mix in North America and the timing of commercial settlements, our current expectation is that the margin cadence will be consistent between the first half and the second half of the year.

For the remainder of the year we expect margins to benefit from lower launch costs and increased manufacturing efficiencies offset by platform mix, commodity costs, and program development costs.

Slide 14 summarizes the operating performance in our Electrical segment. Financial results in this segment improved both sequentially as margins are up 20 basis points from the fourth quarter 2011, and year over year with margins up 80 basis points as we continue to increase scale and benefit from previous restructuring actions. The year-over-year margin improvement reflects the impact of new business and lower commodity costs, partially offset by higher product and facility launch costs.

We continue to forecast full-year margins in this segment at 6.5% to 7%, representing a third consecutive year of improvement.

Please turn to slide 15. Free cash flow was a use of $65 million in the first quarter, primarily reflecting increased working capital related to normal seasonality and the launch of three new facilities; cash payments related to restructuring actions initiated prior to 2012; and the timing of tooling and engineering recoveries.

Capital expenditures, net of related insurance proceeds of $1 million, were $69 million in the first quarter.

Slide 16 provides our quarterly update on our share repurchase program. During the first quarter, we repurchased 1.2 million shares of stock for a total of $53 million. Since our repurchase program was initiated last year, we have repurchased $332 million of stock.

In January, we announced a $300 million increase to our share repurchase authorization. Taking into account this increase and the repurchase activity during the quarter, we now have $368 million available under the repurchase authorization, which expires in February of 2014.

Going forward, we plan to continue to buy back shares consistently, subject to the Company's alternative uses of capital, prevailing market conditions, and certain other factors.

In February we announced a 12% increase in our quarterly cash dividend. We have returned almost $400 million in cash to our shareholders since the inception of our share repurchase and dividend programs a little over a year ago.

Slide 18 highlights the key assumptions in our 2012 outlook, which remains unchanged. Our outlook reflects updated production assumptions in our major markets. Compared to our prior outlook, global production is about flat at 79 million units. However, mix in our key platforms is flat to slightly negative. Key currency and commodity assumptions remain unchanged from the prior outlook.

Slide 19 summarizes our 2012 financial outlook, which remains unchanged from our prior guidance. We are projecting sales of $13.85 billion to $14.35 billion in 2012. We expect sales to stay relatively flat year over year, reflecting increases from our sales backlog, offset by lower European production, the negative impact of foreign exchange, selling price reductions, and platform mix.

Core operating earnings are projected in the range of $740 million to $790 million.

Tax expense is estimated to be $150 million to $170 million, resulting in an effective tax rate of approximately 23%. Our cash taxes for 2012 should be approximately $125 million. Restructuring expense is forecast at about $40 million.

Capital expenditures, excluding spending related to the fire last year at a European facility, are forecasted to be approximately $425 million. As discussed earlier, we expect to receive full reimbursement from our insurance providers.

Free cash flow is projected at $275 million.

Now I'll turn it over to Matt for some closing comments.

Thanks, Jeff. In North America the recovery appears to be gaining momentum. At the same time, market conditions in Europe remain challenging and a bit uncertain.

Looking at our two business segments, we continue to forecast margins in the 6.5% to 7% range. Our Electrical business will continue its trend of improving year-over-year sales and margins. In Seating we now expect the cadence of margins to be consistent between the first and second half of 2012.

The Guilford Mills acquisition, which we expect to close in the second quarter, will further strengthen our Seating business.

Going forward, we plan to continue to invest in both business segments through a combination of organic investment and niche acquisitions. This strategy is intended to further strengthen both businesses and support profitable growth and increase the shareholder value.

In closing, I want to congratulate the Lear team. The customer and industry recognition we received recently is a testament to the hard work and dedication of our employees. With that, we'd be happy to take your questions.

(Operator Instructions). Peter Nesvold, Jefferies & Company.

Maybe first a question on cash flow. So if I go to slide 19, and you talk a little bit about this in the outlook, but I'm hoping maybe you could just maybe rephrase it a little bit. The midpoint of the adjusted net income for Lear is $505 million for this year; free cash flow of $275 million.

Can you just provide the big picture walk from $505 million to $275 million? Why is free cash flow lagging net income?

Well, let me take it off of EBITDA and give you some of the bigger pieces of it.

CapEx, obviously, is $425 million. Cash interest is about $55 million. Cash tax is about $125 million, restructuring expense about $60 million, and then the rest of it is between pension and working capital. So that is kind of the big major puts and takes.

Okay, alright; that's helpful.

And just a brief follow-up and then I'll hand it off. On the acquisition, because I think this is the first opportunity you've had to speak to the investment community broadly since the acquisition was announced, there's been a lot of debate in the investment community about the value of vertical integration in the Seating business.

Can you maybe speak to how you see the benefit of vertical integration? And is this maybe specific to the fabrics area? Or are there other areas within Seating that you think could be attractive in terms of vertical integration?

I think vertical integration is extremely important in the Seating business because it's a key driver of value, and more importantly, quality, which we're responsible for as the end assembler and designer of a seat system.

The areas that we're looking at besides bolstering, let's say, our industry-leading cut and sew business, is the mechanisms -- recliners and tracks as well as foam, as the key contributors to the quality and value of a seat. So we would look at those components in addition to surface materials and cut and sew capabilities.

And do you get any pressure from the OEMs, with the OEMs moving to a directed-buy model? And does that undercut some of the benefit of this strategy?

No, I think it actually supports it in that. You have to be, as a directed supplier, you have to be the low-cost producer. I think from our standpoint, by controlling the components we can provide better value because it is a complete design solution, designed in its entirety as opposed to trying to get different components to fit together from different manufacturers.

The key to anything is always to be the lowest cost and highest quality producer. And I think by getting selectively vertigrated into it, which we've been doing, and which the industry has been doing for quite a while now, is really the key to success. And I think it has the support of our customers.

The key with anything is each of the subcomponents have a different type of financial footprint and DNA, and it will impact the margins. If we went to pure JIT, or just-in-time assembly model, build-to-print, then obviously the margins would be -- you could support the investment with a lower margin footprint.

As we get more vertically integrated, I think that supports a higher margin, so you can always get back to your cost of capital.

Great. Thank you for the time.

You're welcome.

Brian Johnson, Barclays.

Just one more question on Guilford Mills, and just want to make sure we understand the European exposure. Did that come with any non-automotive -- two questions there -- did that come with any non-automotive fabric businesses that you could potentially resell?

And then secondly, it listed JCI as a major customer. How do you anticipate that relationship going forward?

Brian, it has about 15% non-automotive, which we actually are excited by, because it spreads the engineering and a lot of the structure over a whole new leg of growth, because the technologies are similar and we would not be looking to divest that business.

As far as the business with Johnson, it does have business with Johnson. It's really under headliner fabric, which is state-of-the-art and provides certain cost benefits opposed to other fabric that's in the marketplace. And in our business, it's not uncommon to have buy/sell relationships with your competitors. We have them with Faurecia, with Johnson Controls, with Delphi, [Duzaki].

So it's not uncommon. And we have a tendency to work through those issues that we have. So I don't anticipate it being an issue.

Okay. And over on slide 11 it looks like, is it fair to say your VW business is mainly with Audi, or is there VW/VW business there as well?

No, it is with both. We've got a good book of business on the Seating. It's with both, probably balanced between the two of them fairly equally.

And any -- since VW is rolling over its product lines to new platforms, any visibility into the backlog and how it is developing in the luxury segment? I know you update that later in the year.

We will update backlog later in the year, but what I would tell you is that as car and automakers are going to the global platforms, I think that is a niche for somebody like Lear that has component capabilities, complete design capabilities, component capabilities in pretty much every region in the world.

So, as car makers are turning over their platforms to go to more global, global small, global midsize, that's an opportunity for Lear. And from that standpoint, we are continuing to win our fair share of business during the first quarter, and I would expect that to continue with Volkswagen as well.

Okay, thanks.

John Murphy, Bank of America.

Jeff, it's great to hear you on the call.

Thanks.

First, just on the sales guidance. As we look at the first quarter, ex-ForEx, you guys were roughly in line with what the global industry did as far as volumes. And then you look at what you're indicating versus full-year volumes, you'd underperformed volumes by about 5% to 8%.

I'm just curious what you think specifically drives that material disconnection as we go through the course of the year, because it looks like the normalization of the Japan boom in the first quarter shouldn't be as big of a headwind as we go into the second, third, and fourth quarter. Just trying to understand what the severe underperformance would be in the second, third, and fourth quarter.

Well, I wouldn't call it severe underperformance, Murph. The way we look at it is there's still a lot of uncertainty, based on our production assumptions that we outlined on page 18 of the slide deck, we're comfortable with the sales numbers. Basically the guidance on production is relatively unchanged.

And also, we don't sell to the industry. We sell to certain car lines within the industry. And we have a little bit more exposure in Europe than we do in China and definitely more than we would have in Japan on the recovery there.

So, from our standpoint, it's still early in the year. The assumptions, broad-based assumptions are relatively unchanged, and so we felt it was prudent at this time not to change guidance.

Okay. Then just a second question, maybe a follow-up to that. How much of an impact did the GMT900 have in the first quarter? And is the slowdown of 40,000 to 50,000 units sequentially part of the reason that we might actually see this slowdown in sales versus production?

Yes, I mean it's an important program, obviously, because there's nothing like it in the industry as far as the volume. And then again, it has a lot of content. And a lot of the content is Lear content. So, if that production number pulled back, it would have an impact on the second quarter.

And then just a last question on the acquisition and potential for acquisitions going forward. In terms with Guilford Mills, some of this stuff is -- outside seating, it's headliners, material for headliners. Just curious, would you guys reconsider IAC as a niche acquisition or something that would be a bolt-on to buy the stake that you don't own?

Because it sounds like -- this Guilford Mills is a little more than just pure seating fabric. It sounds like it's moving into the IAC realm. Just curious what your update is there, particularly because you have the old CFO on board as the new CFO of your Company.

I wouldn't connect those dots. I see the non-core holding -- we've exited interiors, as you know, Murph, to focus on Seating and Electrical distribution.

As far as Guilford, you're right; there is non-Seating fabric in there. But the technology and the engineering of the fabric as well as the manufacturing has certain synergies. So, to me, there is a natural kind of fit as opposed to just doing seat fabric.

It doesn't signal in any way our intention to reenter the interior space, so to speak. IAC is non-core, and we'd be looking to monetize our investment in that entity at some point in the future.

And to that $260 million you mentioned, is that the upper end of niche, by your definitions on acquisitions? Or is that up to $500 million to $1 billion? What is the definition of niche, just curious (multiple speakers)

[That's] about what we think about for a niche acquisition. I don't want to put parameters around it, but that's about a niche acquisition, $250 million.

Great. Thank you very much.

Thanks, Murph.

Rod Lache, Deutsche Bank.

Just a couple housekeeping things, first. First on seating, can you tell us what the FX impact was there? Was it around $60 million on a year-over-year basis?

Yes, we've got it. Going through our notes right now, Jeff.

From a sales perspective?

Yes.

It's around $50 million for the quarter.

$50 million, okay. And you said that that acquisition of Guilford closes in the second quarter. Is that now incorporated into your guidance?

No, we anticipate it to be closed in the quarter, Rod, but it is not incorporated into guidance.

Okay. And then just getting back to the year-over-year bridge in Seating, EBIT was stronger than expected in the quarter but still down about $20 million. You guys had highlighted product development and launches, a $15 million drag.

I would think that the top line growth, the organic volume growth, which historically contributed at 15% and backlog at 10%, would have more than offset that, maybe $25 million or $30 million from that. Can you just address that remaining variance that got you down to this level of profitability? And how does that variance look going forward?

I think the pieces that we miss sometimes is mix. Each plant, each obviously platform has its own financial DNA, Rod, but also pricing. And pricing typically runs in our business, about 2% net.

So I think if you plug that in, and then maybe make allowances for the mix not being as rich in the back half, you'll get close to the number if you also add in the step up in launch product development.

I was more looking at the first quarter. So the mix should have been pretty good, I would think, in the quarter.

So if you basically broke down the top line growth, basically there must have been some volume in backlog that contributed here at some 10% for the backlog and 15% for the volume. And it looks like maybe there's $25 million or $30 million of other negative on a year-over-year basis.

Have you taken into consideration the FX and the pricing level?

Well, I would think so, but maybe you can just help us -- if you thought about it in terms of year-over-year bridge, do you have any way of bucketing --

Well, backlog is about $90 million, if that gets you there. Backlog is about $90 million. That typically converts at around 10% incrementally.

Okay, so the backlog was $200 million for the year, but it was like very first -- (multiple speakers)

In Seating it's more front-end loaded than it is in Electrical.

Okay, well that's part of it.

And then you guys had talked about getting to the 7%-plus margin for that business at some point in the back half. Is that still the case? Or have there been other developments which reduce that target?

No, I still think we can exit the year at a 7% clip.

Okay. And then just lastly, you had been talking about guidance for the overall Company of about [$50 million] negative from commodities, but it looks like it was a little bit of a positive. Is that something that appears to be changing if you mark it to market?

No, I wouldn't say that that's changed at all. We're still holding the commodity number impact about the same year over year. Because part of what happens, too, Rod, is there's a time delay between when you're impacted by the commodity price changes. And while they are relatively flat year over year, what ended up happening the last year is we got more of an impact later in the year than we did in the beginning, so overall, still a negative for us.

Okay, thank you.

You're welcome.

Chris Ceraso, Credit Suisse.

So, a couple of questions. On the Seating margin, do you think it's going to be down in Q2 versus Q1 in line with the expected pretty meaningful decline in the output on the full-size trucks at GM?

Yes, I think it will be down, but that's not the only reason why. We're still in launch phase, product development phase. You also have the mix issue in Europe and a pullback, overall pullback in production in the second quarter versus the first quarter. So I think those are contributing factors.

Okay. And then I think you just touched on this, but previously had you been saying that the second-half margins would be better than the first and now you're saying comparable?

Right, we do think the margins first half/second half will be comparable in the seat segment. Really, this quarter benefited somewhat by the timing of certain commercial settlements that we thought would be more linear or more back-half loaded, Chris, than they ended up being.

Okay, so it's not that the second half is worse, it's that Q1 was better than you thought.

Right. It toned down a little bit; you're right, though.

Okay. And then just remind me, on the price downs, do you still disproportionately bear that in Q1? You talk about 2%, it's not 2% of the full year, right? But is it heavier than in Q1 than it is in subsequent quarters?

No, it's not that it's heavier; it's typically pretty balanced and linear during the year. There may be odd cases where it's up a little bit higher based on the mix and the timing of new program awards.

What is different, though, is that the cost savings take more time to implement -- the efficiency offsets to that gain during the year, whether they are supply chain efficiency gains or actually just manufacturing efficiency improvements, usually come back during the year. So that is more of a driver than actually the pricing.

Okay. And then lastly, I think you quantified it, maybe I missed it, but the year-over-year headwind from launch cost and development cost. And then what's your expectation as you roll forward? Do those start to diminish, and by when?

Yes, the year-over-year launch impact -- we had basically a launch cost of around $35 million for the quarter; and that on a year-over-year basis, Jason, Jeff?

Well, on a year-over-year basis, we see launch costs in total being down on a year-over-year basis. As we look at the cadence of launch costs and the various segments, we see that in Seating launch costs would generally tail down in the back half. And on the Electrical side of the business we would see those being relatively flat between the first and second half.

In the quarter they were I think a variance of around what, $10 million, Jeff?

Yes. About $10 million.

I'm sorry, so that was up $10 million year-over-year, that's launch. Does that include the development and the program preparation costs, too? Or is that just launch?

No, that would be an incremental $7 million, $8 million -- thereabouts.

In Q1.

In Q1.

Okay. And these both tail off as you go through the year?

Yes.

Okay. All right, thank you.

Itay Michaeli, Citigroup.

Just a question on the 2012 production guidance, can you refresh us on what you're assuming for Detroit 3 production in North America year-over-year as well as the GMT900 now?

Jeff, do you have a --

On the Detroit 3, we're forecasting volumes to be up on a year-over-year basis by 4%.

And did you have the assumptions for the GMT900 platform?

The GMT900 in our guidance is 988,000 vehicles.

Okay, thank you. Remind us how much of the Seating business today is in North America? And of that, roughly how much of it is Detroit 3 revenue?

We don't get that specific on the revenue breakdown. Roughly, I would tell you that what we do say is roughly 20% of our revenue, 40% of our revenue combines globally between Ford and GM. The North American split on revenue, I don't think we have been that specific on Seating and Electrical. I'd like to keep it that way.

Sure. And then on the commercial settlement, I'm not sure if you actually quantified what that was, but do you have a sense of what the margin would have been ex-some of the -- it looks like you expected some commercial settlements in Q1, but perhaps more linearly, do you have what it would have been excluding the higher commercial settlement that you did receive?

Yes, it was about $10 million, 35 basis points, probably.

35, okay. And then just lastly, I noticed CapEx in the quarter of $69 million looks fairly low relative to your full-year guidance. You did have a fair amount of launches in Q1. Any color on how we should think about the rest of the year there?

Yes, I would take the remaining CapEx and keep it pretty steady. Second quarter looks like the remaining balance from the guidance -- it's pretty linear for the remainder of the year. I would probably model it that way.

Terrific. Thanks so much, guys.

You're welcome.

Emmanuel Rosner, CLSA.

I was a bit surprised by the Electrical sales growth of 6% year-over-year in the quarter. You had disclosed a backlog of $600 million in the Electrical alone for the year, which by itself is about 19% growth versus 2011. So does it have to do with the timing of the business launches in Electrical?

Yes, it's a couple things. It's the timing of the launches. The backlog in the first quarter is not linear. It's a little bit lower. And it builds up as the year goes on.

But also, you need to take into consideration the impact of foreign exchange and pricing when you do your walk.

Okay, so can you just quantify how much backlog you had in the first quarter in Electrical?

It's about $60 million.

And that is out of $600 million for the year still, right?

Well, we think that the backlog for this segment in 2012 will be a little over -- I think it's $430 million or $425 million.

And then regarding your Guilford acquisition, the disclosed purchase price of $260 million, that seems to represent a fairly hefty multiple of EBITDA of probably more than 7 times.

Now I fully understand the strategic rationale for this vertical co-integration. I'm just curious, financially speaking, how do you expect this to help the business? Are you seeing some synergies? Will it help you get some more business wins? Will margins overall improve over the next few years from that?

Well I think, one, we're not talking about the multiple and I'm not confirming that your multiple is correct, let's put it that way. But that being said, anything that we're looking at buying, it's a fair statement to say it's probably going to trade at a multiple that is higher than Lear's.

We need to continue to invest in our business to ensure that we can continue to provide value to our customers or -- and stay competitive if we are going to be successful for the longer term. There are synergies that are both sales synergies, technology synergies, as well as cost synergies by putting it together so that the value is greater than the sum of the two parts. And that's our investment rationale for doing it.

Understood. And just finally on the restructuring cash in the quarter, in your working capital side I think you were talking about $46 million spend in excess of the expense. I think for the year you were looking at about $60 million. Did you spend most of the restructuring in the first quarter this year?

It was a big quarter for restructuring cash, because if you remember, in fourth quarter we exceeded our cash flow. At the time what we were explaining is that we took the expense for a closure of the facility in Spain. But the cash actually did not -- wasn't spent until January. That's the big driver of our restructuring cash for 2012.

Restructuring expense, however, is greatly reduced in 2012 as we get to a more normalized type number of around $40 million.

Okay, understood. Thank you very much.

You're welcome.

Brett Hoselton, KeyBanc.

I wanted to ask you a little bit about your margins and your longer-term expectations. It appears as though Seating margins are stabilizing here in that 6.5% to 7% range. And as you move into 2013 and maybe 2014 and so forth, is your expectation that Seating margins will remain in that 6.5% to 7% range? Or is there some reason to believe that it might get better or worse?

I think it's a function of the up-front investment both in engineering and capital, and the level of vertical integration that we are in now. The current level of vertical integration that we are at now and up-front investment, this business should run in the 7% range, 7% to 7.5%, which we think at that point there is a fair enough gap to our cost of capital, the return on investment.

So, really, to us, the margins are more a function of what's this going to take to produce the products that you're sourced on, and the programs that you are sourced on, Brett. So if it was a build-to-print, just-in-time assembly of a seat, it obviously would warrant or require less of a margin to justify the investment.

For us, longer-term, we think at our current level of vertical integration that the return, the 7% range of earnings is the right earnings. And we're still confident we would get there.

And then on the electronic side, you clearly have seen some very nice improvements with some of the new business coming online. And it looks like your backlog is fairly robust, at least into next year. Would you expect to continue to see improvement in the electronics margins and therefore possibly push it above that 6.5% to 7% range in 2013?

I don't want to get into giving guidance on 2013 in the first quarter of '12, but what we've said historically, and we still believe it to be true, is that again the margins are a function of the investment required to do the programs and the mix of the components, and the engineering you need to produce the programs you're on.

In this particular segment, it had been impacted negatively historically by a lack of scale on a high fixed cost structure as we put these facilities in all around the world and continued to invest in high power, which drove a high fixed cost. As we've gained scale and approach the $4 billion number, what you're seeing is the margins recover. And we're taking advantage of the restructuring that we spent in this segment over the last three, four, five years.

So we would expect to see a continued improvement in the margins as we continue to gain scale. And we expect to continue to gain scale in this segment.

And then switching gears just briefly on the new business backlog, your cadence, you've got $800 million this year; $700 million next year; and $300 million in 2014. Typically your out-year, your third year, you see a nice improvement as you bid on new contracts and win new business.

Is there any reason to believe that that $300 million in 2014 is not going to improve materially? I guess I'm basically asking, how has your bidding been going?

We've been winning business at a fair clip, consistent with prior years. I would use probably prior-year business wins as a guide, Brett, but we've been winning our share of business and I would expect that 2014 number to improve.

Thank you very much, Matt.

You're welcome, Brett.

Colin Langan, UBS.

I apologize if this was asked already, but could you provide any color on the other expenses in the equity income line? It seems a bit stronger, and I think, over last year, it tends to be a net cost and it seems it was about a net $8 million benefit. Is that a sustainable rate or should that slow going forward?

The equity income in the quarter of $9.7 million was roughly 40% attributable to one of our non-core joint ventures which we've already talked about, IAC. And with respect to that, obviously as Matt talked about, we view that as non-core and are seeking to monetize that investment. So, on a longer-term basis, we would see the equity earnings in the slightly lower than that adjusted for IAC.

So the net rate there -- but until you monetize it, it should stay at this kind of rate?

I'm sorry, you broke up a little bit. Could you repeat your question please?

But in the interim, until you monetize that asset, it should stay at this rate?

I would keep it -- I'd probably -- [I'd bottle that] at about $5 million a quarter or thereabouts, and you won't be that far off.

Okay, all right. Thank you very much.

Matthew Stover, Guggenheim Partners.

Thank you, two questions. One is on PA-12 and I'm wondering if you folks have any insight or how it looks as to how that may or may not impact you specifically. And then I have a bigger picture question.

I'm not sure. You're saying page 12 on the Seating margins?

No, PA-12 resin, I'm sorry.

It doesn't really affect us directly and we have not yet seen production disruptions associated with it. That's not to say that we won't in the future. But in the history of the auto industry, they are pretty resilient when there are disruptions like this, Matt.

And if a car line is selling, they'll figure out a way to get the allocation to it to produce it. But we haven't seen a disruption yet. I wouldn't really think that it would be meaningful for the full year. It may put a chop in a quarter, but I really haven't seen it yet.

The second question is -- so your friends in France have a parent that has cash flow and capital issues and a very weak environment, and a source of capital for them may be to do something strategic with Faurecia. And I'm wondering if -- as you look at the behavior in the market, have you seen any change in behavior from them?

And two, do you have any opinions about how that might unfold?

Not really. And there's nothing in the marketplace that I'd like to discuss. We are taking a disciplined approach to pricing. Our focus is to make sure that the business models and the quotes that we provide to our customers are sustainable up front when we provide them, and make sure we have a business model to support a cost-competitive footprint, all of which we are doing.

We are not interested in purchasing Faurecia. I want to make that very clear. But other than that, it's not a whole lot more I want to say about it.

Thanks very much, Matt.

Joseph Spak, RBC Capital Markets.

I recognize that Guilford is not in your official guidance, but even if we assume it closed in the second quarter, it's in the back half of the year, is there anything in terms of deal cost or maybe amortization that should prevent the deal from being accretive in the back half?

At 1% interest on a cash, pretty much everything is accretive.

What I would do, Joe, is just use -- take six months of $400 million in sales and use the margins for Seating if you're trying to figure out what it would impact us, in the event that we're able to close this deal in the second quarter as we anticipate.

Okay, great. That's helpful.

And then in the quarter -- I appreciate the commentary on the impact from the commercial settlements, and I recognize there was stronger GMT900 production as well, but it does seem like the cost efficiencies are maybe coming in a little bit quicker as well. Can you comment on that? And is that a source for your continued confidence in the margins for the rest of the year?

The business continues to improve from an efficiency standpoint and cost reduction standpoint. They are making progress.

Ray Scott, the president of the division and his team, is doing an outstanding job of putting in standardized business processes and improving the operations. So I wouldn't say they came in quicker; they came in pretty much as expected, but we expected them to improve.

Okay. And then just one housekeeping. I think previously you said launch costs for the year, positive $15 million. I know you still said a tailwind in the back half. Is that still a good number for the year?

It's a little bit less than that, but yes, it's pretty close, and we would expect them to improve as the year goes on in relation to the prior year.

Okay. And I think you had a comment on the buyback -- (inaudible) you'll buy back shares consistently. Is that -- should we assume that means consistent with the first quarter? Or do we see that rate accelerating a little bit here going forward?

I would assume at this point to take the remaining authorization that is open for the next seven quarters and just assume that it's going to be done pretty steady over those seven quarters for now.

Okay, thanks a lot, guys.

You're welcome.

Adam Brooks, Sidoti & Co.

Just a few quick questions. Could you maybe give us a sense of those top 10 platforms in Europe, what percentage of revenue they account for in Europe?

Do we have that offhand, guys? Just a minute, Adam, let's see if we can get you some help on that. About 25%? About 25%.

All right. And then real quickly on the Electrical segment revenue, the underperformance there relative to how you've been doing recently, I know -- I think you're a little bit [overweight Ford] there. Was that really a function of that, plus the launches being more back-half weighted? Or is there anything else involved?

I'm sorry, on the Electrical segment, did you say?

On the Electrical segment, yes.

I thought the Electrical segment performed very well, actually, and it stepped up in the margins year-over-year. So the performance there really was scale and the benefits of prior restructuring actions and the backlog coming on. So I don't see -- I don't think I understand your question.

I guess it's just more from a revenue point of view; you've been doing 20%-plus the past four quarters.

I see. Yes, I think what it is, is that the backlogs are more back-end loaded.

Okay.

The backlog in the quarter was probably half of what we'll see it in the quarters three and four.

Okay. And then lastly, you talked a little bit about acquisitions and looking at a return on invested capital. Do you have a hurdle rate that you've thrown out there?

Not necessarily, but we estimate our cost of capital in the 10% to 11% range. We'd like to get investments that are greater than that, obviously, to create value for our shareholders.

Okay, thank you.

Aditya Oberoi, Goldman Sachs.

So I just wanted to take your opinion on T900 production. Recently GM took up their full-year SAAR forecast for US. And if that means that the T900 demand also goes in line with increased forecast, do you think they have the capacity to produce T900s, which is up year-on-year? Or do you think they will be capacity constrained?

No, they absolutely have the capacity to make everything that they can sell. So if they had -- if we saw a 20% step-up in the rates, they would still have the capacity, as we would, to support that level of volume.

Great. And my second question is on the Guilford acquisition -- actually, not on the Guilford acquisition, but on your acquisition strategy. Now that Guilford is almost done, would you have any preference for acquisitions in a specific segment? Or are you still open to both the segments?

We're open to both the segments and in all regions of the world. Again, our focus is on components and strengthening our component capabilities, as well as emerging markets, looking at capabilities in emerging markets or anything that comes in with diversification or adds diversification from a sales base standpoint. But no, we're open to both segments still.

Okay, great. Thanks a lot, guys.

You're welcome.

I think that does it -- is there one more, Ed? There's one more?

Yes, your final question comes from the line of Ravi Shanker from Morgan Stanley. Your line is now open.

Thanks for squeezing me in. A couple of quick questions on the acquisition. One is, you said that the Guilford Mills margins are pretty similar to Seating. And in the past, you said that one of the benefits of vertical integration is to boost margins because the margins of components are higher than the overall Seating business.

Do you see potential to grow these margins over time with restructuring or with anything else? Or is it pretty steady at these levels?

No, I think really the margins are more of a function of the level of investment required to do it. The Mills, which we also have a mill based out of Asia, it's pretty consistent with the capital intensity of the seat business overall and on average.

So from our standpoint, it really doesn't change the footprint, or the financial footprint, so to speak, of what the returns are going to be or what the returns requirement or the margin profile. So from our standpoint, no, it does not change it.

The synergies that we're looking for right now are really to me, more than anything, to penetrate the sales and grow and utilize our expertise in cut and sew a little bit more efficiently.

Got it. And also you said that your focus is on making further component acquisitions. Can I just get a sense on how you're going about this? Are there targets that you've identified globally that you're just having conversations with them and persuading them to sell? Or are there even enough targets out there? How are you going about this?

What we do is, first off, we set what we're looking for from a strategic standpoint, anything that would provide component capabilities with added benefit of emerging markets, components in emerging markets -- anything that would diversify our sales base or add -- facilitate the growth with customers that we're maybe -- are not as represented as well as we would like, or facilitate the growth in Electrical. Those are our main sweet spots of what we're looking for. Then we'd go out and we have a very active monitoring process of what is out there in the marketplace.

Third, we look to see if it's actually actionable and start to dialogue with the equity group or the equity owners. And then we start looking at valuation and whether or not it makes sense and whether or not it would fit well into Lear. So at any given time, there's multiple, multiple entities being evaluated.

And that's not new or recent. That's been going on. It's just, in many cases, a lot of people are looking for the same things, and where you find -- you may not find that it's actionable; and where it's actionable, it may not be something that really fits. And so we're being very judicious in our search process and our selection process.

Great. Thank you.

You're welcome. Now with that, I think it rolls up and we've answered everybody's questions. And probably who remains are the Lear employees.

I want to thank Jeff for his great job on his first earnings call and the entire Lear team for their great work in the quarter. And I want to thank you personally for all your hard work.

So with that, thank you very much and I'll see everybody later. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.