Lear Corp (LEA) 2015 Q4 法說會逐字稿

Good morning. My name is Angel and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth-quarter and full-year 2015 earnings conference call.

(Operator Instructions)

Thank you. John Trythall, Vice President of Investor Relations, you may begin your conference.

Thanks, Angel. Good morning. Thank you for joining us for our fourth-quarter and full-year 2015 earnings call. Our press release was filed this morning with the Securities and Exchange Commission and the presentation for our call is posted on our website, lear.com, through the Investors Relations link. Today's presenters are Matt Simoncini, President and CEO, and Jeff Vanneste, Chief Financial Officer.

Also joining us in the room are several other numbers of Lear's leadership team. 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. Some of the factors that could impact our future results are described in the slide titled Investor Information at the beginning of the presentation.

We will also be referring to certain non-GAAP financial measures. Additional information regarding these measures can be found in the slides labeled Non-GAAP Financial Information at the end of the presentation. Slide 3 shows the agenda for today's review. Following the formal presentation, we will be happy to take your questions. Now, please turn to slide 5 and I will turn it over to Jeff.

Thanks, John. Lear continued its positive momentum in the fourth quarter, with strong sales growth and record core operating earnings. Sales in the fourth quarter were $4.7 billion, up 4% from a year ago, and excluding the impact of foreign exchange, sales grew 11%.

Core operating earnings increased 28% to $359 million, and margins were higher in both our business segments. Adjusted earnings per share increased by 41%, to $3.20 per share. We continue to return cash to shareholders and I will be providing more detail on our share repurchases later in the presentation.

Slide 6 highlights our financial performance for the full year. Sales were a record $18.2 billion, up 3% from a year ago, and excluding impact of foreign exchange, sales grew by 11%, significantly higher than the 2% increase in global production. Core operating earnings increased 25% to $1.31 billion, and margins were higher in both our business segments.

Adjusted earnings per share increased by 33% to $10.85 per share, reflecting our strong operating performance and the benefit of our share repurchase program. 2015 marked the sixth consecutive year of strong cash flow generation. During this time frame, Lear has generated approximately $3 billion of free cash flow. Lear was formally upgraded to an investment-grade credit rating, reflecting our strong balance sheet, consistent cash flow generation, and improved operating margins.

Slide 7 shows vehicle production in our key markets for the fourth quarter and full year. In the fourth quarter, 22.8 million vehicles were produced globally, up 4% from 2014. For the full year, global vehicle production was a record 86.9 million units, up 2% from 2014. Production increased in all our major markets for both the quarter and full year.

Slide 8 shows our reported financial results for the fourth quarter and full year of 2015. In the fourth quarter, pre-tax income before equity income, interest, and other expense was $338 million, up $81 million from one year ago. For the full year, pre-tax income before equity income, interest, and other expense was $1.187 billion, up $258 million from 2014.

Equity income was $18 million in the fourth quarter and $50 million for the full year, with the increase in both periods primarily reflecting higher profitability at our joint ventures in China. Interest expense was $20 million in the fourth quarter, consistent with last year and interest expense was $87 million for the full year, up $19 million, reflecting debt incurred to finance the acquisition of Eagle Ottawa.

Other expense was $8 million in the fourth quarter and $69 million for the full year, both lower than the prior year, primarily reflecting lower foreign exchange impacts. Net income attributable to Lear was $235 million in the fourth quarter and $746 million for the full year. In 2014, the fourth-quarter and full-year reported net income benefited from one-time tax benefits, totaling $97 million and $111 million, respectively.

Slide 9 shows the impact of non-operating items on our fourth-quarter results. During the fourth quarter, we incurred $20 million of restructuring costs, primarily related to census actions. Excluding impact of these items, we had core operating earnings of $359 million, up $79 million from 2014.

The increase in earnings reflects increased production on key platforms, the benefit of new business, the acquisition of Eagle Ottawa, and favorable operating performance. Adjusted for restructuring and special items, net income attributable to Lear in the fourth quarter was $245 million, and diluted earnings per share was $3.20, up 41% from 2014.

Slide 10 provides a summary of free cash flow, which was $427 million in the fourth quarter, and $831 million for the full year. Cash flow improved from our prior guidance, primarily reflecting higher earnings, strong cash conversion, the timing of capital expenditures, and cash restructuring costs.

Slide 11 shows our adjusted margins in the fourth quarter. Total Company adjusted margin was 7.6%, up 140 basis points from a year ago. In Seating, sales of $3.7 billion increased 7% from last year, with adjusted earnings of $279 million, up $76 million, or 37%.

Excluding the impact of foreign exchange, sales increased by 13%, reflecting the acquisition of Eagle Ottawa, improved production on key platforms, and the addition of new business. Adjusted Seating margins were 7.6%, up 170 basis points from a year ago. The increase in margins primarily reflects the strong sales growth, including the impact of the Eagle Ottawa acquisition, and favorable operating performance.

In Electrical, sales of $1 billion were down 5% from last year, but excluding the impact of foreign exchange, sales were up 4%, primarily reflecting improved production on key platforms, and the addition of new business. Adjusted electrical margins improved to 14.1%, up 80 basis points from a year ago, reflecting strong operating performance and the benefit of new business.

Slide 12 highlights our earnings growth trend. Since 2010, our operating earnings have increased at a 16% compounded annual growth rate, and over the last three years, our compounded growth rate was even faster, at 20%.

During both periods, our earnings growth rate was double the peer group average, and over the last three years, our earnings have grown faster than any of our direct competitors. Over the last five years, we have doubled our operating earnings and increased our operating margins from 5.2% to 7.2%.

Slide 13 provides a summary of the growth in our non-consolidated joint ventures. The vast majority of these JVs are located in China, with key customers as our partners. These relationships provide unique growth opportunities. In 2015, we had $2.3 billion in sales at our non-consolidated joint ventures, which is about double our sales of $1.2 billion in 2010.

Our equity earnings at these JVs also doubled from $24 million in 2010 to $50 million last year. We expect these JVs to continue to grow faster than the market and exceed $3 billion in sales by 2018, based in our three-year non-consolidated sales backlog of $700 million. These joint ventures have become a significant part of our business in Asia and are a meaningful component of our earnings.

Slide 14 highlights our track record of strong cash generation. The ability to generate free cash flow is a hallmark of Lear, and as I mentioned previously, we have generated approximately $3 billion in cash flow since the beginning of 2010. Our free cash flow yield of 11% is among the highest in the automotive sector and greater than our direct competitors.

Slide 15 provides a snapshot of our cash, debt, and pension and OPEB obligations. We have a very cost-effective capital structure, with low borrowing costs and no significant debt maturities for the next five years. At the end of 2015, we had approximately $1.2 billion of cash and total liquidity of approximately $2.4 billion.

Our unfunded pension and OPEB liabilities are $339 million as of December 31, 2015, which is down from a year ago. Substantially all of the US plans are frozen or at closed locations, with no future benefit accruals. We're committed to maintaining a strong and flexible balance sheet with sufficient liquidity and investment-grade credit metrics. This strong capital structure provides Lear with significant financial resources and flexibility, which will allow us to invest in our business and drive profitable growth.

Slide 16 provides an update on our share repurchase program. In 2015, we repurchased 4.4 million shares for a total of $487 million, including $104 million in the fourth quarter. Since initiating the share repurchase program in 2011, we have repurchased 35.2 million shares for a total of $2.4 billion. Including dividends, total cash returned to shareholders over the same time period is $2.7 billion.

Our share repurchases represent a reduction of approximately 34% of our shares outstanding at the time we began the program. The average price payed to repurchase shares over the life of program is about $68 per share. At the end of 2015, we have a remaining share repurchase authorization of $513 million, which expires on December 31 of 2017.

Slide 18 highlights our 2016 financial guidance. We are reconfirming our guidance, which includes sales and earnings growth and strong cash flow generation. Our sales are projected to grow and be in the range of $18.5 billion to $19 billion. Core operating earnings are projected to be in a range of $1.35 billion to $1.4 billion and free cash flow is expected to be approximately $800 million.

Slide 19 shows our industry production assumptions by major market for 2016 as compared to 2015. Global industry production is forecasted grow by 3% to 89.7 million units in 2016. Our 2016 financial outlook is based on an average euro assumption of $1.10 per euro, which is down 1% from 2015. Slide 20 shows our financial outlook for 2016, which as I mentioned, is unchanged from the guidance that we provided on January 12.

Slide 21 shows our revenue walk for 2016. Our backlog for 2016 is approximately $800 million. Volume and mix is expected to increase revenue by an additional $400 million. Sales in 2016 are being negatively impacted by weakened foreign currencies, primarily related to the euro, lower commodities, and pricing. Now I'll turn it over to Matt for some final comments.

Great. Nice job, Jeff. Thank you. In summary, we continued our positive momentum in 2015, achieving continued sales growth, record earnings, and margin improvement in both business segments. Our unique component capabilities in Seating allows us to differentiate our seats with unique designs and the highest level of quality and craftsmanship at the lowest possible cost.

In Electrical, we are well-positioned to capitalize on trends for increased content and connectivity. Given our strong competitive position and unique capabilities in both our product segments, we are confident our business will continue to perform well. In short, we are in the best competitive position in our history. Now we would like to take your calls.

(Operator Instructions)

John Murphy, BofA Merrill Lynch.

Hey John, you are on mute.

Colin Langini (sic), UBS.

Any color -- Seating margins here look quite strong. What is the trajectory here? Do you think they can get even higher than -- [in 2017] -- or what is the -- is it just an (multiple speakers)?

We will make a meaningful improvement in the margins in 2016. It really comes down to the mix of the components because each one of them has its own financial footprint, if you will. Certain of the subcomponents like leather and the structures and mechanisms command a higher margin because it's a little bit more capital and engineering intense, if you will. So from our standpoint, it depends a little bit on the mix, but yes, the margins can continue to improve and that segment and we would expect them to improve in 2016.

But your full-year comments were mid-7% margins for this year (multiple speakers).

Yes.

Okay. Can you give a quick reminder of what -- your cash flow is extremely strong, you have a great free cash flow yield -- what is your position on NOLs and what is your effective cash tax rate now?

The effective tax rate for 2015 ended up to be approximately 27%. As you look forward on that, we feel that, given the mix of earnings, we will probably be in the 28% going forward. That's really subjected to the mix of earnings.

On the cash tax rate for the 2015, we were in the high teens. 19% is where we ended. Going forward, we would see that, given our tax attributes, which are a little north of $900 million in total at the end of 2015, the cash tax rate would be in that 20% range for the foreseeable future.

Okay. And one last question, with the shares been down quite a bit year-to-date, how are you thinking about buyback versus M&A. Is that something you may accelerate at this point?

We have the ability with our balance sheet to both. Right now, obviously, with the pull-back in our stock price, it is a great investment and it is undervalued. I do believe we'll be opportunistic, if you will, in our buyback program once we clear the blackout period, which is not for a few more weeks until we get the -- after we get our 10-K filed. But having the type of capital structure and liquidity [on] file that we have allows us to both, and right now, quite frankly, Lear is a great buy.

Okay. All right. Thank you very much.

Matt Stover, SIG.

As we look out over the course of the next two years, Matt, how should we think about the margin structure developing on Electrical side of the business? Do you see room for further scope in the margins or are we doing about as well as we can right now?

I never want to say we are doing as well as we can. There's always the opportunity to do better and take cost out. Where we are at right now, running at approximately 14% margins, we have a great return on our invested capital in that space and if that balance will allow us to continue to grow an accelerated pace, could we see improvements? We could.

Right now, I'm happy at 14% and I believe that's a nice balance, if you will. But as we get even larger, that will give us a chance to possibly leverage our fixed infrastructure around the world, both from an engineering standpoint, but also from brick-and-mortar. So yes, could it go higher? It could, but right now, we're guided to around 14%.

If we look at that business over the course of the next five years, hybridization will continue to grow as a percent of the overall population. I would imagine that's a favorable factor for you. Should we anticipate that the pace of M&A should accelerate over the next two years to three years in the electrical side of the business or is it just a function of opportunism?

No. It's both. There's always an asset that may come available that we were not aware of, or maybe a private concern that the ownership group decides to maybe exit or diversify their holdings, and that's the opportunistic side of it. From our standpoint though, we are our looking actively to increase our capabilities.

Our focus largely is on increasing the capabilities in software and the ability to move data from outside the vehicle to the vehicle, and then once in the vehicle, around the vehicle and cyber security and being able to translate the different data domains, if you will. So it's about capabilities about intellectual property, as well as growth.

And so I don't think we're just sitting back waiting for something to come available. We're actively out there looking for the right asset at the right strategic fit, at the right price and I do think the pace in that segment will pick up.

Thanks, Matt. I appreciate.

John Murphy, Bank of America Merrill Lynch.

Hey, guys. Can you hear me now?

Yes, we can hear you, Murph.

Sorry about that. There seems to be some confusion with the operator. First question for you, Jeff. You definitely are in a blackout period and you cannot buy back shares right now, from the end of year to where we are right now to when you file. Is that correct? And if that is correct, could you consider putting a program in place so that you can buy through blackout periods?

We could obviously put something in place that would allow us to buy through the blackout period. Our blackout period right now will extend through a couple days after we file the K, which we anticipate doing, obviously, in conjunction with the SEC timing for that. But it is certainly something that we could consider to eliminate the downtime associated with the blackout period.

And you could just put a simple [grade] in place so you would be somewhat price-sensitive, right?

Right.

Okay. Matt, just a question that we're getting from a lot of people right now, and obviously there's a lot of concern in the market. I disagree with this, but there is this concern in the market that we might be facing a downturn in the near-term. God forbid that did happen, it doesn't seem logical, but if it did happen, can you just explain maybe your readiness to deal with that and what variability you have in your cost structure and what you would do to react to that?

We're not seeing it either, John, right now. We've seen steady growth in the releases, and the releases, although be it early, are very consistent to the guidance. I would say a couple things to that point. One, overall, the business is much more balanced by product segment, by customer mix, by platform mix, and by geography, so when one market is down we have strength in other markets.

Europe is making a nice recovery. And in North America itself, we've had a nice steady growth rate, so we haven't had the spike or the bubble that we've seen in other boom-and-bust periods. As far as our ability to maybe withstand a correction or a market adjustment, if you will, it starts with our capital structure and liquidity profile, where, when that happens, it means that, in many cases, businesses and assets and programs are available as others struggle to put the investment forward that's going to be required.

So it starts with liquidity and capital. As far as variable cost structure, one of the hallmarks of Lear is our ability to adjust our variable structure to address market corrections and take cost out. We're in a never-ending, even when sales are increasing, a never-ending search for cost reductions and efficiencies and improvements, whether it's restructuring, or just day-to-day efficiency gains at our 200 or so manufacturing operations.

When we talk about the variable cost structure at Lear, depending upon which car line and which market is down, we think that downward conversion is anywhere from 15% to 20% and then we try to carve into that based on restructuring and other actions to help mitigate the downturn.

Again, though, we're not seeing it. The macros tell us it's not there, that jobs, wages, inflation, interest rates, oil being down actually helps this industry, so from our standpoint, the macros tell us we're still in the middle of a good run.

Yes, I agree. Just lastly, on the Seating side, obviously there's been a lot of upward pressure, which is great on margins there. How much of this is Eagle Ottawa and how much more opportunity is there with Eagle Ottawa to push that business both on the revenue side, but maybe more importantly on the margins side because of mix?

I would say about one-third of it was Eagle Ottawa and the ability to use of their business to upsell and get synergies from the combined design staffs. And also having them help us in our leather business that we had. So there's been an improvement with the combination no doubt and it's been an outstanding acquisition for us, not just because of the financial contribution that it's making, but because it allows us to uniquely position ourselves to provide a level of craftsmanship that is not possible by our competitors because we're in the design studios earlier.

When you combine that with our ability to manufacture seat covers through cutting and sewing operations, combining it with lamination and [balming the] structures, we're able to provide a unique seat at the highest possible level of quality and craftsmanship at the lowest cost.

We're just scratching the surface of what that segment can be. More and more you're going to be hearing about the Lear's craftsmanship initiative, we call it Crafted by Lear. It uniquely positions us in the right segment of the seat business.

Really great results. Thank you very much.

Thanks, John.

Richard Hilgert, Morningstar.

Are you at all more heavily weighted one way or the other with respect to passenger trucks versus passenger cars in the United States?

We're pretty balanced. We have the large GM platform from the large full-size pickup truck, but that's about it. We have some electrical content on the F-150, but we don't have the seats on that program and we don't have the Chrysler Ram, so we have about one-third of the pickup truck market in North America. The rest of ours are pass cars.

We're hearing from outside of the sector that some businesses obviously having some difficulties especially in markets like Texas where you've got a lot of folks laid off because of oil. That means potentially fewer trucks purchased, but on the other hand, we've got very low gasoline prices, which could offset that in other markets. Are you seeing any dynamic going on there between those things?

We're making, and GM is making as many they can. All three automakers are doing well in that sub-segment, so no we have not seen it because a lot of times, with pickup trucks, they become almost like a lifestyle choice, where before they were work vehicles tied to housing starts, maybe oil, what we're seeing is actually oil being down helps that segment overall because there is a vast majority of these vehicles that get sold as lifestyle vehicles.

People just like the larger vehicle and the pickup truck-type brand and large SUVs, which are built off of the same platforms. Especially now that -- I don't know what the breakdown is, but a lot of these vehicles have double rows of seats, two rows of seats even in a pickup truck. So no, we are not seeing that.

Okay. Good. And then over in China, the JVs that you pointed out this morning and becoming a much more significant part of the bottom line earnings, the SUV market over there has just been fantastic, SUV and crossovers. It's the small car side that really had the issues this year.

But then we got a nice boost from the tax incentives that the government put out for the 1.6-liter equipped vehicles and smaller. It looks like you had a nice pick-up in that region in the fourth quarter. Are you more on passenger car over there than you are in the crossover segments?

No. We reflect the market overall there. It's probably more balanced in that segment than anywhere else. We have a nice mix of what we call partner-type vehicles, meaning the JVs that have foreign partners, but we also are well represented on the domestic brands. We have a nice mix of crossover, probably more than SUVs.

I don't know if there's a true SUV over there per se. To me, they all like crossovers because they are on car platforms, minivans and pass cars. No, it's pretty well-balanced. So whatever product segment wins over there, we will be the beneficiary of.

Okay. Great. Thanks.

You're welcome.

Adam Jonas.

Matt, I just had a question about pricing with the OEMs who are looking at your margin performance every quarter. Is pricing cyclical?

Pricing has been difficult; it will remain difficult.

No, not difficult. Is it cyclical? Sorry. Is there a cyclical element?

Yes. There is. I would tell you it goes like this. In good times, the demands are greater. Probably the only relief we saw, Adam, in pricing, was in the 2008, 2009 time frame as [lines] came down. The good news about it is that the customers are in, as you know, and you've pointed out, at a very price-sensitive product.

With us, and Lear controlling so much of the design and the sub-tier components, we're in a unique position to be able to meet a lot of those cost reduction targets without attacking the margins, without just lowering our prices. More and more, that is the solution that car companies are going to. But yes it is cyclical. In good times, they ask for more, and when there's a pullback, they stand down a little bit.

So it's not pro-cyclical then. You're describing it where it's (multiple speakers)--?

It's not -- as times get worse, they ask for more. It's the opposite

Okay. All right because I just wanted to know if there was some kind of -- if there was a point at the shoulder period, when say, some of your big, big customers are doing -- would historically do 0% margins are doing margins closer to [Porsche] and if that starts to move the other way, whether there's a temporary period at the shoulder where you get a bit of intensity before you get the relief towards the bottom, but I don't want to overanalyze it?

I haven't seen it. There has been, and there is this year, huge cost reduction targets but everybody's looking towards more of an engineer solution, if you will, than just off the top or price downs. For us, in a strange way, Adam, it's actually a competitive advantage. Because we control so much of the supply chain and have the ability to design cost out, we can provide some unique solutions that can get the customer there in a way that others can't.

Okay. Thanks very much

Joe Spak, RBC Capital Management (sic).

Just following up on John's question earlier with Eagle Ottawa, can you give us an update on how those synergies that you originally planned for came in versus that plan and maybe how much is left or if there's any more to do as we think about 2016?

We came in a little bit hot. We were able to execute a little bit faster than we originally anticipated. And it was a different type of synergies than we would normally see in that, normally, we would consolidate the administration centers. In this particular case -- or the Management teams -- that was an outstanding team and is an outstanding Management team.

We kept them whole and what they were able to execute was really helping us run our leather business, which we turned over to them. There has been some back-off of savings, as you would expect, as we consolidate shared service centers and whatnot at some locations. So we were talking about a number of [15] to [20]. We were more than one-half way through -- I would say, probably three-quarters of those synergies were achieved through the first 12 months

Okay. That's helpful. And then just sticking with the leather, one of the other fears that we're hearing out there is just on the luxury side, and maybe a little bit of a potential slowdown or roll-over. Are you seeing anything as it relates to leather seats, which I would assume are more prevalent on the higher end than on the mass volume -- are you seeing anything that would support or suggest--?

Not at all. In fact, it's the opposite. Leather seats are continuing to penetrate the market and it's coming to a point where, at certain cases, it is almost hard to keep up with the folks that want premium leather in their vehicles. If you look at Europe as a case study, when there was a pullback in the market, the luxury brands actually were the ones that sustained their sales rates.

So no we have not seen anything like that. We're selling everything that we possibly can. The demand for premium leather, which is the area that's our expertise, is outstanding.

Great. Congrats again on the results.

Thank you.

Chris McNally, Evercore ISI.

Matt, if I just step back and look at Seatings growth, you're talking about a $700 million backlog and ex price-downs, that implies that you should grow 3% above production. If we look over the last two years, you have been growing at a number much more than that, so it's this mix that you discuss in your revenue walk.

My question is really specifically around, can you just give some more detail around how much of the mix benefit may be from truck, how much may be from premium, which you just really discussed about, because obviously, people are looking at some of the December figures, and 60% of sales now are light truck. It is almost up 20% year-over-year. So it just seems like it could be a great medium-term trend for Lear and I'm just trying to put some numbers around that?

If you combine the two -- luxury and the trucks -- it's probably around 30% of the uptick in the volume. We are much more balanced now, Chris, than we had been historically because our sales largely represent the industry overall. While we are the leader in luxury and performance seating, the reality is we sell, as well, seating to C platforms and also A and B around the globe, and including North America.

So from our standpoint, yes, it's been a bit of a tailwind on the trucks. You can look at the K2XX platform, if you will, from IHS, and see the growth there, but it's been more than that. Luxury has done well in this market and it's done well in Europe, as well, but our portfolio is very well-balanced now.

So is it fair to say that when we just look at your backlog, which you gave, which is obviously strong going out for the next couple years, there is something that we should continue to think about, which is this 200 to 300 basis points of mix, whatever that number is. Maybe it's not as great in 2017 or 2018, but there is a component of luxury and truck mix which will benefit you?

Absolutely. Absolutely. It can't be anything but that. Like I said, we are the leader in luxury and performance, and so when those cars sell, we're going to get the tailwind with them. So whether that's the 3 Series, Jag Land Rover, which we have a significant share of that business, the C-Class Mercedes, the Audis 4 and 6 and 7 platforms, 5, just countless platforms. Even Maserati Ferrari, although niche vehicles, we have their seats, and so when they sell more, we sell more.

Perfect. Thanks so much, guys.

Brian Johnson, Barlcays Capital.

I want to talk a little bit about the cash flow characteristics of the two segments. We'll get some insight with the K coming out, but looks like you're holding CapEx spending around 2.7%, 2.8% of sales despite bringing in Eagle Ottawa and vertically integrating further upstream into seating.

Can you give us a sense of how you think that about the cash flow returns of the two segments, how CapEx plays out, how these acquisitions either improve, or how the acquisitions could affect free cash flow generation of each segment?

Yes. They're actually -- it's a great question Brian. They are actually fairly similar. CapEx in Electrical as a percentage of sales is a little bit higher just because of the nature of the Electronics business as opposed to, let's say, the structures business or sewing and cutting and the leather business.

They are both generating high-yield cash flows, if you will, as a relation to their EBIT or operating earnings. From acquisition standpoint, I think your question was where would we deploy the cash more, towards Electrical or Seating?

Yes. Also another competitor had made some upstream acquisitions that appeared to be more capital intensive, and was that what you are thinking in terms of going more that Eagle Ottawa way than perhaps the metals end or are you still open to metals?

No, We're happy with our capabilities in the structures business and the recliners and the tracks. Our focus really is to differentiate ourselves through the craftsmanship because that something that the industry needs, that the customers need, that's being asked for. That's where were putting our money.

It wasn't really whether or not it's more capital intensive or not. Because overall, we don't see an acquisition changing the financial template or footprint of Lear Corp. From our standpoint, no, that was not a concern.

From Electrical, if we acquired an electrical, I would imagine that it would have a very similar cash yield, if you will, from the current business. I can't imagine that it would change it in a material manner work, if you will.

And related, suppliers typically run a positive working capital, which is good in a downturn. You generated working capital and other this year. Just want to understand how much of that is working capital, how much is other, and how to think about the contribution from that both going forward and then to the hypotheticals earlier in the event of a downturn?

At the end of the year, we did a nice job on the working capital side on inventory. No major collection issues. Payments are pretty much on course. We did get a bit of a tailwind in 2015 on working capital. We wouldn't see that template to dramatically change as we look outward.

Okay. Thank you.

You're welcome.

Itay Michaeli, Citi.

Congrats. Just got maybe two housekeeping questions. One just hoping at a high level, you can update us on your margins by regions. Also around how to think about the cadence of 2016, in terms of new business launches or margins relative to typical cadence?

Yes. I would say that the margins in South America are very low (laughter), if you mean, with a bracket around them. They're not at target margins, if you will. Europe and North America are at target margins and consistent with the segment overall. Asia is a tad higher, if you will, than the target margins.

So all segments are running pretty much as planned except for South America, where we continue to incur losses. Although we've been able to mitigate the losses, our guidance does not assume that we return our profitability in that region this year. The team down there has done an outstanding job of mitigating the losses, but it's still a very difficult environment.

But we're very profitable in Europe and performing consistent with the margins of both segments in that region. Same goes true for North America and maybe just a tad higher in Asia than the target margins.

That's helpful. Then just on the cadence on the year, is there anything unusual in 2016 versus the--?

No, it's normal seasonality. The backlog comes in a tad heavier in the back half than it did in the front half, but I would say it's normal, if you will, seasonality. There's nothing really peculiar about 2016 versus 2015. Normal seasonality, I would say, in the industry.

Terrific. That's very helpful. Thanks so much, guys.

You're welcome.

Pat Archambault, Goldman Sachs.

A number of my questions have been answered, but one remaining one is can we just talk a little bit about the quoting environment? It sounds like, just given everything going on with one of your large competitors, there is a little bit of a dead space for the two years, but they've spoke to maybe an acceleration of requoting activity -- or not quoting activity, but activity coming on in the 2018 time frame.

So is that -- are you seeing the mirror image of that for you guys, like a big backlog opportunity over the next two years, but more competitive as we look out? Just your view on that?

No. It's been pretty steady. I would not characterize it that way. There's a normal cadence of business awards that come up. We see this period right now as pretty consistent within the past years. I have Ray Scott, our President of Seating, because I think you're alluding to Johnson Controls, Ray, have you seen any change in the quoting activity or is it (inaudible) prior periods--?

No. It's pretty consistent with what we've seen over the past several years. There's nothing -- no major differences in our quoting patterns and what we've seen from our customers.

For us, Patrick, when we are quoting, we put a high priority on profitable growth and making sure that we only take programs on that are priced appropriately. That has more of an impact than the cadence of the quoting activity, if you will.

Got it. And can you just remind us, what's the lead time on a program that's up for bid today actually hitting your backlog and revenue?

Normally, it's 2.5 to 3 years. There's still a lot of open quoting going on in the third year of our backlog, 2018. If you look at 2017, a year ago, right? The third year of the backlog a year ago, that number has more than doubled. I would expect the same thing to happen this year in the third year.

So there's still open sourcing in 2018. I would [step up] that number to increase significantly by this time next year, if you will, but normally it's 2.5, 3 years lead time before a program goes in. Every once in a while, you get a short turnaround, a 12- month turnaround, or a running change, as they call it in the industry, but for the most part, it's that period.

Understood. Okay, thanks guys, and congrats on a good quarter.

Thank you. Angel, do we have anybody else in the queue?

There are no further questions at this time.

So at this time, probably who remains on the call are the Lear employees. I know these type of results just don't happen, that they are a result of hard work, long hours, dedication, and laser focus on efficiencies. I want to thank all of you for your dedication. We've had an outstanding year. We're not done yet. We're going to get after it and get even better in 2016. Thank you.

This concludes today's conference call. You may now disconnect.