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Lear Reports Fourth-Quarter and Full-Year 2009 Financial Results


News provided by

Lear Corporation

Feb 05, 2010, 07:00 ET

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SOUTHFIELD, Mich., Feb. 5 /PRNewswire-FirstCall/ -- Lear Corporation (NYSE: LEA), a leading global supplier of automotive Seating and Electrical Power Management systems, today reported financial results for the fourth quarter and full year of 2009, as follows:

  • Fourth Quarter core operating earnings of $116 million
  • Year-end 2009 cash balance of $1.6 billion; total debt of less than $1 billion
  • Operational restructuring has significantly reduced structural costs and improved Lear's global production footprint
  • Financial restructuring has reduced total debt obligations, increased financial flexibility and strengthened Lear's balance sheet

Business Conditions

In the fourth quarter, the production environment improved from year-ago levels, with mature markets moving higher from distressed levels and growth in emerging markets accelerating.  In North America, industry production was up 3% year-over-year, and in Europe, industry production was up 20%.  In major emerging markets, production increased 50% or more.

For the full year, production in mature markets declined sharply, with North America down 32% from the year earlier and down 50% from its peak in 2000.  In Europe, production was down 17% from the prior year and down 22% from its peak in 2007.  While production continued to increase in emerging markets, global automotive production was down 13% from the prior year.  This represented the second consecutive year of decline in global production following six years of steady increases.

"Business conditions in 2009 were extremely challenging in the automotive sector.  In this environment, we continued to reduce our structural costs and realign our global production footprint.  In addition, we completed a major financial restructuring.  These very difficult actions were necessary to restore our Company to financial health and position our business for longer-term success," said Bob Rossiter, Lear's chairman, chief executive officer and president.

Fourth-Quarter 2009 Financial Results

For the fourth quarter of 2009, Lear reported net sales of $2.7 billion and pretax income of $1,194 million, including a gain related to reorganization items and fresh start accounting adjustments of $1,513 million, a goodwill impairment charge of $319.0 million and restructuring costs of $59.3 million.  Income before interest, other expense, income taxes, restructuring costs and other special items (core operating earnings) was $115.5 million in the fourth quarter of 2009.  This compares with net sales of $2.6 billion, a pretax loss of $682.9 million, including a goodwill impairment charge of $530.0 million, and core operating earnings of $22.0 million in the fourth quarter of 2008.  A reconciliation of core operating earnings to pretax income (loss) as determined by generally accepted accounting principles ("GAAP") is provided in the attached supplemental data pages.

In the Seating segment, net sales were up 5% to $2.2 billion, primarily driven by favorable foreign exchange.  Operating margins improved significantly, reflecting favorable cost performance and the benefit of operational restructuring savings.  In the Electrical Power Management segment, net sales were up 8% to $569 million, primarily as a result of the improved production environment and favorable foreign exchange.  Operating margins improved significantly, reflecting the increase in sales, favorable cost performance and the benefit of operational restructuring savings.

In the fourth quarter of 2009, free cash flow was $11.2 million, as compared with free cash flow of negative $35.4 million in the fourth quarter of 2008.  Net cash provided by (used in) operating activities was $67.3 million and ($88.0) million in the fourth quarters of 2009 and 2008, respectively.  A reconciliation of free cash flow to net cash provided by (used in) operating activities as determined by GAAP is provided in the attached supplemental data pages.

Full-Year 2009 Financial Results

For the full year 2009, Lear reported net sales of $9.7 billion and pretax income of $832 million, including a gain related to reorganization items and fresh start accounting adjustments of $1,475 million, a goodwill impairment charge of $319.0 million and restructuring costs of $160.0 million.  Core operating earnings were $106.8 million in 2009.  This compares with net sales of $13.6 billion, a pretax loss of $578.6 million, including a goodwill impairment charge of $530.0 million, and core operating earnings of $418.4 million in 2008.  A reconciliation of core operating earnings to pretax income (loss) as determined by GAAP is provided in the attached supplemental data pages.

The decline in net sales for the full year primarily reflects a significant reduction in production in North America and Europe and unfavorable foreign exchange.  The decline in core operating earnings reflects the decline in net sales offset in part by favorable cost performance, including the benefit of operational restructuring actions.

Free cash flow in 2009 was negative $155.6 million as compared with free cash flow of negative $51.3 million in 2008.  Net cash provided by (used in) operating activities was ($175.3) million and $163.6 million in 2009 and 2008, respectively.  A reconciliation of free cash flow to net cash provided by (used in) operating activities as determined by GAAP is provided in the attached supplemental data pages.

The Company continued its comprehensive efforts to restructure global operations for improved long-term competitiveness.  Since mid-2005, Lear has invested $740 million in restructuring actions, resulting in a significant reduction in structural costs and a major repositioning of its production footprint.  Noteworthy actions include the closure of 35 manufacturing and 10 administrative facilities, the reduction in global headcount by 35,000 employees and the location of over 50% of total facilities and 75% of employment in 21 low-cost countries.

In response to sharply lower industry sales and vehicle production levels in mature markets and significant distress within the automotive sector globally, Lear completed a comprehensive evaluation of its strategic and financial options during the first half of 2009.  The Company concluded that filing for Chapter 11 bankruptcy protection was necessary in order to re-align its capital structure and position the Company for long-term success.  On July 7, 2009, the Company filed for bankruptcy, and on November 9, 2009, it emerged from Chapter 11 with substantially lower total debt obligations and an improved credit profile.  

In the second half of 2009, Lear delivered strong operating results and achieved positive free cash flow.  At year end, Lear had a cash balance of $1.6 billion and total debt of less than $1 billion.  

Lear also continued to make progress on its strategic priorities, including further diversification of its global sales, business development in emerging markets and the implementation of an operating improvement plan for the Electrical Power Management segment.  Approximately 70% of Lear's 2009 net sales were generated outside of North America.  In addition, Lear continues to improve quality and win new business globally.  

Full-Year 2010 Financial Outlook

Summarized below is our 2010 full-year financial outlook.  Lear expects 2010 global net sales in the range of $10.2 billion to $10.7 billion.  Lear anticipates 2010 core operating earnings of $250 million to $350 million.  Operational restructuring costs in 2010 are estimated to be about $110 million.

Interest expense for 2010 is estimated to be approximately $85 million.  Pretax income before restructuring costs and other special items is estimated to be in the range of $145 million to $245 million.  Tax expense is expected to be in the range of $70 million to $90 million, depending on the mix of earnings by country.

Capital spending in 2010 is estimated to be approximately $170 million.  Depreciation expense is estimated at about $240 million and amortization is estimated at about $25 million.  Free cash flow is expected to be in the range of $50 million to $100 million for the year.

Key assumptions underlying Lear's 2010 financial outlook include expectations for industry vehicle production of approximately 10.5 million units in North America and 15.4 million units in Europe.  In addition, we are assuming an exchange rate of $1.40/Euro.

Lear will webcast a conference call to review the Company's fourth-quarter and full-year 2009 financial results and related matters on Friday, February 5, 2010, at 9:00 a.m. eastern time through the Investor Relations link at http://www.lear.com.  In addition, the conference call can be accessed by dialing 1-800-789-4751 (domestic) or 1-973-200-3975 (international).  The audio replay will be available two hours following the call at 1-800-642-1687 (domestic) or 1-706-645-9291 (international) and will be available until February 19, 2010, with a Conference I.D. of 50508763.

Fresh-Start Accounting

In connection with the Company's emergence from Chapter 11 bankruptcy proceedings on November 9, 2009, and the application of fresh-start reporting on November 7, 2009, in accordance with ASC Topic 852, "Reorganizations," the results for the two-month period ended December 31, 2009 (references to the Company for such period, the "Successor") and the results for the one-month and ten-month periods ended November 7, 2009 (references to the Company for such periods, the "Predecessor") are presented separately. This presentation is required by GAAP, as the Successor is considered to be a new entity for financial reporting purposes, and the results of the Successor reflect the application of fresh-start reporting.  Accordingly, the Company's financial statements after November 7, 2009, are not comparable to its financial statements for any period prior to its emergence from Chapter 11.  For illustrative purposes in this earnings release, the Company has combined the Successor and Predecessor results to derive combined results for the three- and twelve-month periods ended December 31, 2009.  However, because of various adjustments to the consolidated financial statements in connection with the application of fresh-start reporting, including asset valuation adjustments, liability adjustments and recognition of cancellation of indebtedness income, the results of operations for the Successor are not comparable to those of the Predecessor.  The financial information accompanying this earnings release provides the Successor and Predecessor GAAP results for the applicable periods, along with the combined results described above.  

Non-GAAP Financial Information

In addition to the results reported in accordance with GAAP included throughout this press release, the Company has provided information regarding "income before interest, other expense, income taxes, restructuring costs and other special items (core operating earnings)," "pretax income before restructuring costs and other special items" and "free cash flow" (each, a non-GAAP financial measure).  Other expense includes, among other things, non-income related taxes, foreign exchange gains and losses, discounts and expenses associated with the Company's factoring facilities, gains and losses related to certain derivative instruments and hedging activities, equity in net income of affiliates and gains and losses on the sales of assets.  Free cash flow represents net cash provided by (used in) operating activities before the net change in sold accounts receivable, less capital expenditures.  The Company believes it is appropriate to exclude the net change in sold accounts receivable in the calculation of free cash flow since the sale of receivables may be viewed as a substitute for borrowing activity.

Management believes the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company's financial position and results of operations.  In particular, management believes that core operating earnings and pretax income before restructuring costs and other special items are useful measures in assessing the Company's financial performance by excluding certain items (including those items that are included in other expense) that are not indicative of the Company's core operating earnings or that may obscure trends useful in evaluating the Company's continuing operating activities.  Management also believes that these measures are useful to both management and investors in their analysis of the Company's results of operations and provides improved comparability between fiscal periods.  Management believes that free cash flow is useful to both management and investors in their analysis of the Company's ability to service and repay its debt.  Further, management uses these non-GAAP financial measures for planning and forecasting in future periods.

Core operating earnings, pretax income before restructuring costs and other special items and free cash flow should not be considered in isolation or as a substitute for pretax income (loss), net income (loss), cash provided by (used in) operating activities or other statement of operations or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity.  In addition, the calculation of free cash flow does not reflect cash used to service debt and, therefore, does not reflect funds available for investment or other discretionary uses.  Also, these non-GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies.

For reconciliations of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, see the attached supplemental data pages which, together with this press release, have been posted on the Company's website through the Investor Relations link at http://www.lear.com.

Given the inherent uncertainty regarding special items, other expense and the net change in sold accounts receivable in any future period, a reconciliation of forward-looking financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP is not feasible.  The magnitude of these items, however, may be significant.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated financial results and liquidity.  Actual results may differ materially from anticipated results as a result of certain risks and uncertainties, including but not limited to, general economic conditions in the markets in which the Company operates, including changes in interest rates or currency exchange rates, the financial condition and restructuring actions of the Company's customers or suppliers, changes in actual industry vehicle production levels from the Company's current estimates, fluctuations in the production of vehicles for which the Company is a supplier, the loss of business with respect to, or the lack of commercial success of, a vehicle model for which the Company is a significant supplier, including further declines in sales of full-size pickup trucks and large sport utility vehicles, disruptions in the relationships with the Company's suppliers, labor disputes involving the Company or its significant customers or suppliers or that otherwise affect the Company, the Company's ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions, the outcome of customer negotiations, the impact and timing of program launch costs, the costs, timing and success of restructuring actions, increases in the Company's warranty or product liability costs, risks associated with conducting business in foreign countries, competitive conditions impacting the Company's key customers and suppliers, the cost and availability of raw materials and energy, the Company's ability to mitigate increases in raw material, energy and commodity costs, the outcome of legal or regulatory proceedings to which the Company is or may become a party, unanticipated changes in cash flow, including the Company's ability to align its vendor payment terms with those of its customers, the Company's ability to access capital markets on commercially reasonable terms, further impairment charges initiated by adverse industry or market developments, the potential adverse impacts of the Company's Chapter 11 bankruptcy proceedings on its business, financial condition or results of operations that could continue or arise since its emergence from such proceedings, the anticipated future performance of the reorganized Company, including, without limitation, the Company's ability to maintain or increase revenue and gross margins, control future operating expenses and make necessary capital expenditures, and other risks described from time to time in the Company's Securities and Exchange Commission filings.  Future operating results will be based on various factors, including actual industry production volumes, commodity prices and the Company's success in implementing its operating strategy.

The forward-looking statements in this press release are made as of the date hereof, and the Company does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof.

The financial results in this press release are preliminary in nature and subject to change until the Company files its Annual Report on Form 10-K for year ended December 31, 2009, with the Securities and Exchange Commission.  The Company is in the process of completing its year-end internal review and external audit procedures.  

Lear Corporation is one of the world's leading suppliers of automotive Seating and Electrical Power Management systems.  The Company's world-class products are designed, engineered and manufactured by a diverse team of 75,000 employees at 205 facilities in 36 countries.  Lear's headquarters are in Southfield, Michigan, and Lear is traded on the New York Stock Exchange under the symbol [LEA].  Further information about Lear is available on the Internet at http://www.lear.com.

    
    
                          Lear Corporation and Subsidiaries
                   Condensed Consolidated Statements of Operations
    
                        (In millions, except per share amounts)
    
                        Two Month     One Month           Three Month
                       Period Ended  Period Ended         Period Ended
                       ------------  ------------    ------------------------
                         Successor    Predecessor    Combined     Predecessor
                        December 31,  November 7,   December 31,  December 31,
                            2009        2009           2009          2008
                            ----        ----           ----          ----
    
    Net sales             $1,580.9    $1,161.5       $2,742.4        $2,600.4
    
    Cost of sales          1,508.1     1,069.9        2,578.0         2,541.5
    Selling, general 
     and administrative 
     expenses                 71.2        45.5          116.7            96.2
    Amortization of
     intangible assets         4.5         0.6            5.1             1.2
    Goodwill impairment
     charges                     -       319.0          319.0           530.0
    Interest expense          11.1        11.2           22.3            50.8
    Other expense, net        17.9         2.9           20.8            63.6
    Reorganization items and
     fresh start accounting
     adjustments, net            -    (1,513.4)      (1,513.4)              -
                               ---    --------       --------             ---
    
    Consolidated income
     (loss) before income
     taxes                   (31.9)    1,225.8        1,193.9          (682.9)
    Income taxes             (24.2)       (9.6)         (33.8)           (3.9)
                             -----        ----          -----            ----
    
    Consolidated net income
     (loss)                   (7.7)    1,235.4        1,227.7          (679.0)
    Net income (loss)
     attributable to
     noncontrolling 
     interests                (3.9)        3.3           (0.6)            9.2
                              ----        ----
    Net income (loss)
     attributable to Lear    $(3.8)   $1,232.1       $1,228.3         $(688.2)
                             =====    ========       ========         =======
    
    Basic net income (loss)
     per share              $(0.11)     $15.89                         $(8.91)
                            ======      ======                         ======
    
    Diluted net income
     (loss) per share       $(0.11)     $15.89                         $(8.91)
                            ======      ======                         ======
    
    Weighted average number
     of shares outstanding
       Basic                  34.5        77.5                           77.3
    
       Diluted                34.5        77.5                           77.3
    
    
    
                         Lear Corporation and Subsidiaries
                   Condensed Consolidated Statements of Operations
    
                       (In millions, except per share amounts) 
    
                        Two Month     Ten Month            Twelve Month
                       Period Ended  Period Ended          Period Ended
                       ------------  ------------    ------------------------
                         Successor   Predecessor     Combined     Predecessor
                        December 31,  November 7,  December 31,   December 31,
                           2009        2009            2009          2008
                           ----        ----            ----          ----
    
    Net sales             $1,580.9    $8,158.7       $9,739.6       $13,570.5
    
    Cost of sales          1,508.1     7,871.3        9,379.4        12,822.9
    Selling, general
     and administrative       71.2       376.7          447.9           511.5
     expenses
    Amortization of
     intangible assets         4.5         4.1            8.6             5.3
    Goodwill impairment
     charges                     -       319.0          319.0           530.0
    Interest expense          11.1       151.4          162.5           190.3
    Other expense, net        17.9        47.3           65.2            89.1
    Reorganization items and
     fresh start accounting
     adjustments, net            -    (1,474.8)      (1,474.8)              -
                               ---    --------       --------             ---
    
    Consolidated income
     (loss) before income 
     taxes                   (31.9)      863.7          831.8          (578.6)
    Income taxes             (24.2)       29.2            5.0            85.8
                             -----        ----            ---            ----
    
    Consolidated
     net income (loss)        (7.7)      834.5          826.8          (664.4)
    Net income (loss)
     attributable to
     noncontrolling
     interests                (3.9)       16.2           12.3            25.5
                              ----       ----            ----            ----
    
    Net income (loss)
     attributable to Lear    $(3.8)     $818.3         $814.5         $(689.9)
                             =====      ======         ======         =======
    
    Basic net income
     (loss) per share       $(0.11)     $10.56                         $(8.93)
                            ======      ======                         ======
    
    Diluted net income
     (loss) per share       $(0.11)     $10.55                         $(8.93)
                            ======      ======                         ======
    
    Weighted average number
     of shares outstanding
       Basic                  34.5        77.5                           77.2
    
       Diluted                34.5        77.6                           77.2
    
    
    
                         Lear Corporation and Subsidiaries
                       Condensed Consolidated Balance Sheets
    
                                  (In millions)
    
                                          Successor           Predecessor
                                         December 31,         December 31,
                                             2009                 2008
                                             ----                 ----
    ASSETS
    ------
    Current:
      Cash and cash equivalents             $1,554.0             $1,592.1
      Accounts receivable                    1,479.9              1,210.7
      Inventories                              447.4                532.2
      Other                                    305.7                339.2
    
                                             3,787.0              3,674.2
    Long-Term:
      PP&E, net                              1,050.9              1,213.5
      Goodwill, net                            621.4              1,480.6
      Other                                    614.0                504.6
                                             2,286.3              3,198.7
    
       Total Assets                         $6,073.3             $6,872.9
                                            ========             ========
    
    LIABILITIES AND EQUITY
    ----------------------
    Current:
      Short-term borrowings                    $37.1                $42.5
      Primary credit facility                      -              2,177.0
      Accounts payable and drafts            1,547.5              1,453.9
      Accrued liabilities                      808.1                932.1
      Current portion of long-term debt          8.1                  4.3
                                                 ---                  ---
                                             2,400.8              4,609.8
    
    Long-Term:
      Long-term debt                           927.1              1,303.0
      Other                                    563.6                712.4
                                             1,490.7              2,015.4
    
    Equity                                   2,181.8                247.7
    
       Total Liabilities and Equity         $6,073.3             $6,872.9
                                            ========             ========
    
    
    
                        Lear Corporation and Subsidiaries
                                Supplemental Data
    
                  (Unaudited; in millions, except content per vehicle)
    
                                                 Three Months Ended
                                                 ------------------
                                            Combined           Predecessor
                                           December 31,        December 31,
                                              2009                2008
                                              ----                ----
    Net Sales
    ---------
    North America                             $866.3            $1,036.5
    Europe                                   1,208.2             1,121.2
    Rest of World                              667.9               442.7
                                               -----               -----
    Total                                   $2,742.4            $2,600.4
                                            ========            ========
    
    Content Per Vehicle *
    ---------------------
    North America                               $319                $372
    Europe                                      $286                $298
    
    Free Cash Flow **
    -----------------
    Net cash provided by (used in) operating
     activities                                $67.3              $(88.0)
    Net change in sold accounts receivable         -                86.5
    --------------------                         ---                ----
    Net cash provided by (used in) operating
     activities before net change in sold
     accounts receivable                        67.3                (1.5)
    Capital expenditures                       (56.1)              (33.9)
                                               -----               -----
    Free cash flow                             $11.2              $(35.4)
                                               =====              ======
    
    Depreciation and Amortization              $64.4               $71.8
    ----------------
    
    Core Operating Earnings **
    --------------------------
    Pretax income (loss)                    $1,193.9             $(682.9)
    Interest expense                            22.3                50.8
    Other expense, net                          19.2  ***           57.9  ***
    Restructuring costs and other special
     items -
      Goodwill impairment charges              319.0               530.0
      Reorganization items and
       fresh start accounting
       adjustments, net                     (1,513.3)  ****            -
      Costs related to restructuring 
       actions                                  59.3                66.2
      Other                                     15.1                   -
                                                ----                 ---
    Core Operating Earnings                   $115.5               $22.0
                                              ======               =====
    
    
    *     Content Per Vehicle for 2008 has been updated to reflect actual 
          production levels.
    
    **    See "Non-GAAP Financial Information" included in this press release.
    
    ***   Reported 2009 and 2008 other expense, net of $20.8 million and $63.6
          million, respectively, includes costs related to restructuring 
          actions of $1.6 million and $5.7 million, respectively, listed 
          below.
    
    ****  Reported 2009 reorganization items and fresh start accounting 
          adjustments, net of $(1,513.4) million includes costs related to 
          restructuring actions of ($0.1) million listed below.
    
    
    
                        Lear Corporation and Subsidiaries
                                Supplemental Data
    
         (Unaudited; in millions, except content per vehicle and share data)
    
                                           Twelve Months Ended
                                  -----------------------------------
                                     Combined             Predecessor
                                   December 31,           December 31,
                                      2009                    2008
                                      ----                    ----
    Net Sales
    ---------
    North America                   $2,944.7                $4,924.6
    Europe                           4,585.8                 6,593.2
    Rest of World                    2,209.1                 2,052.7
                                     -------                 -------
    Total                           $9,739.6               $13,570.5
                                    ========               =========
    Content Per Vehicle *
    ---------------------
    North America                       $345                    $391
    Europe                              $293                    $350
    
    Free Cash Flow **
    -----------------
    Net cash provided by
     (used in) operating activities   (175.3)                 $163.6
    Net change in sold accounts 
     receivable                        138.5                   (47.2)
                                       -----                   -----
    Net cash provided by (used in) 
     operating activities before
     net change in sold accounts 
     receivable                        (36.8)                  116.4
    Capital expenditures              (118.8)                 (167.7)
                                      ------                  ------
    Free cash flow                   $(155.6)                 $(51.3)
                                     =======                  ======
    
    Depreciation and Amortization     $263.7                  $299.3
    ----------------
    
    Basic Shares
     Outstanding at end of
      quarter                     36,954,733              77,403,859
    ----------------------
    
    Diluted Shares
     Outstanding at end of
     quarter ***                  36,954,733              77,403,859
    ----------------------
    
    Core Operating Earnings **
    -----------------------
    Pretax income (loss)              $831.8                 $(578.6)
    Interest expense                   162.5                   190.3
    Other expense, net                  65.4  ****              82.8  ****
    Restructuring costs and
     other special items -
      Goodwill impairment charges      319.0                   530.0
      Reorganization items
       and fresh start accounting
       adjustments, net             (1,470.9)  *****               -
      Costs related to
       restructuring actions           160.0                   193.9
      Fees and expenses related 
       to capital restructuring         23.9                       -
      Other                             15.1                       -
                                        ----                     ---
    Core Operating Earnings           $106.8                  $418.4
                                      ======                  ======
    
    
    *      Content Per Vehicle for 2008 has been updated to reflect actual 
           production levels.
    
    **     See "Non-GAAP Financial Information" included in this press 
           release.
    
    ***    Calculated using stock price at end of quarter.  Excludes certain 
           shares related to outstanding convertible debt, as well as certain 
           options, restricted stock units, performance units and stock 
           appreciation rights, all of which were antidilutive.
    
    ****   Reported 2009 and 2008 other expense, net of $65.2 million and 
           $89.1 million, respectively, includes costs related to 
           restructuring actions of $(0.2) million and $6.3 million, 
           respectively.
    
    *****  Reported 2009 reorganization items and fresh start accounting 
           adjustments, net of $(1,474.8) million includes costs related to 
           restructuring actions of $(3.9) million listed below.
    

SOURCE Lear Corporation

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