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 Second Quarter Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Ed Lowenfeld, Vice President of Investor Relations. Please go ahead.

Thank you, Steve. Good morning, and thank you for joining us for our second quarter 2011 earnings call. The materials for our earnings call were filed this morning with the Securities and Exchange Commission and posted on our website, lear.com, through the Investor Relations link. Today's presenters are Bob Rossiter, CEO and President; and Matt Simoncini, Senior Vice President and 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 in the slide labeled Non-GAAP Financial Information, also at the end of the presentation materials. Slide #2 shows the agenda for today's review. First, Bob Rossiter will review highlights from the second quarter. Next, Matt Simoncini will review our second quarter financial results and provide an update of our 2011 outlook and sales backlog, then Bob Rossiter will have some wrap-up comments. Following the formal presentation, we will be happy to take your questions. Now please turn to Slide #3, and I'll hand it over to Bob.

Thank you, Ed, and good morning, everybody. Lear's positive momentum continued in the second quarter. Sales and core operating earnings were both up about 20%. We achieved our eighth consecutive quarter of year-over-year improvement of core operating earnings. Our Electrical business continues to benefit from increasing scale, and our margins improved significantly. We continue to report positive free cash flow with $121 million in the second quarter and over $200 million in the first half of 2011, and we're winning new business globally in both our business segments. The balance sheet continues to remain strong as we increase our revolving credit facility to $500 million in June. We also continue to return cash to our shareholders through share repurchase and dividends. As a result of our improved operating performance and industry outlook, we are increasing our full year guidance, and Matt will provide details later. Now go to Slide 4. This Slide shows vehicle production in key automotive markets for the second quarter. Global vehicle production was 17.9 million units, down 1% from a year ago, reflecting a significant reduction in Japan due to the earthquake and tsunami, offset in part by growth in the emerging markets. Now I'd like to turn it over to Matt for the second quarter financial results.

Thanks, Bob. Please turn to Slide #6. This slide provides financial highlights for the second quarter. Lear sales were $3.7 billion up 21% from a year ago, reflecting the strong sales backlog, the positive impact of foreign exchange and increased production on Lear platforms. Core operating earnings were $228 million, up 20% from a year ago. The increase in earnings reflects the increase in sales and operating performance improvements partially offset by customer pricing and higher costs for product development, launches and commodities. This represents our eighth conservative quarter of year-over-year earnings improvement. We generated $121 million of free cash flow during the quarter and finished the quarter with $1.8 billion of cash. Our reported earnings per share was $1.65. On the next few slides, I'll cover our second quarter results in more detail and update our full year outlook. Slide 7 provides a summary of our financial results for the second quarter of 2011. As previously mentioned, sales were up 21% to $3.7 billion. Pretax income before interest and other was $220 million, up $47 million from a year ago, and net income was $178 million up $18 million. SG&A as a percentage of sales was 3.2% compared with 3.7% a year ago. The lower SG&A rate reflects the increase in sales. Interest expense was $11 million, down $3 million primarily reflecting higher interest income. Other expense was $4 million compared with an income of $23 million a year ago, primarily reflecting a year-over-year reduction of profitability of our international automotive components joint venture and unfavorable foreign exchange. Our non-consolidated joint venture in Asia remained profitable, however. Depreciation and amortization was $64 million, up $7 million from a year ago, reflecting higher capital spending over the last several quarters. Slide #8 shows the impact of nonoperating items on our…

Okay, on Slide 19. Thank you, Matt. In the second quarter, we sustained our positive momentum. Sales and earnings grew faster than industry production. We achieved strong financial results in both business segments, and we put in place a new credit agreement that provides additional liquidity and financial flexibility. And we've continued to win new business and increase our sales backlog. Based on our strong results in the quarter and improving production environment, we are increasing our 2011 full year outlook for sales, earnings and free cash flow. I'm extremely proud of the performance of the Lear team, and I'm proud to be a part of this team. Your hard work and dedication in serving our customers have enabled us to continue to report improving results and grow our business. I'll be happy to open it up for questions.

[Operator Instructions] And your first question comes from the line of Rod Lache from Deutsche Bank.

Can you pass along the impact of FX raw materials and launch cost year-over-year in the quarter and what your expectations are now for the full year?

Yes. Launch cost in ER&D together, combined, Rod, are close to $70 million. From a foreign exchange impact, we did pick up some revenues on foreign exchange, mainly the euro was roughly $200 million in revenue, and that converts at the average kind of operating earnings in Europe of around 4% or 5%.

And is that -- do you happen to have a launch cost estimate increase for the full year? And is that something that comes down next year?

It's a little bit early to talk about next year at this point, Rod, but I would tell you that year-over-year launches are about $30 million higher than last year, and last year was about $60 million. So our launch cost -- I would put -- peg our launch cost around $90 million for the year. The cadence of the launches are slightly front-half loaded. Engineering for the full year increases about $50 million. And again from -- that would put that number at about $200 million in total. And that is a little bit different. That's a little bit more back half loaded. So net-net, between the 2 of them, we're a little bit heavier than in back half of the year as we launch the backlog. Now from a backlog cadence standpoint, I would expect that there would not be a significant change next year in launch cost, but still it's a little bit premature to get into the detail for 2012.

Okay. And do you happen to have the DNA forecast for the year broken down between the Seating business and Electronics? And then lastly, just a question on cash. You continue to generate cash faster than you're deploying it, even if you were to kind of run that at the current rate of repurchases. It doesn't really look like it would dent your overall cash position all that materially. Do you have any kind of updated thoughts on what your plans are for deploying that cash and getting a more efficient capital structure?

Let me work backwards on that question, starting with the cash deployment. One of the hallmarks of Lear is the ability to generate free cash flow, and this year is no different. From a deployment of cash standpoint, Rod, our first focus is always to make sure that we invest in the business in a manner that allow us to serve our customers and still be the supplier of choice in both segments, and we're doing that. And that's going to require mainly organic investment in some of the emerging markets as we span our footprint there and our capabilities there and lower our cost in components. Two, we're going to look to do niche acquisitions to round out the product offering, to facilitate diversity in sales and also to add scale in Electrical distribution and as we've mentioned before, we're evaluating opportunities to do that. Finally, we've announced, as you know, the share repurchase, and I think we had a nice pace this quarter on the share buyback. And we would do that because were very cognizant of our relative valuation to others in the space, and we think that's the right thing to do with the cash. From a capital structure standpoint, we had a nice step this quarter where the amended revolver will be upsized to $500 million. And I think that gives us a lot of flexibility not only to run our business on a day-to-day basis, but also to continue to invest in the business. From a depreciation and amortization standpoint by segment, it's roughly -- the breakdown is typically about 2/3 Seating, 1/3 Electrical.

Your next question comes from the line of John Murphy with Bank of America Merrill Lynch.

Just curious, I mean, recently you've been beating expectations and then running ahead of what your guidance has been for the past few quarters. As we look at that, is the bulk of that in your mind driven by higher volumes or is there better execution going on internally than you've been expecting, so even if volumes don't continue to recover, you can still keep posting good numbers? Just trying to understand the volume versus the internal execution side of it?

John, there's literally thousands of inputs that go into making a projection. First and foremost is the volume and the volume on the car lines that you're on. Each car line has its own financial DNA, so to speak, depending upon how much product we have on it and how much of the product that we make, where it's made and whatnot. So I would tell you that we did get a nice mix of product when we were presenting guidance. Earlier this year, we were at 12.5 million units in North America and 17.4 million in Europe. And the mix has benefited us in the second quarter. So it always starts on selling your product. Both businesses are performing well. Electrical made a really nice step in their margins, even with the headwinds on some of the components shortfalls that drove the premium cost. Seating continues to perform well within their target margins on higher sales. So I would tell you that it starts with sales, but both businesses are performing very well.

And then just a second question. I mean, if we look at the key programs that you highlighted in the second quarter and even in the first quarter, can you remind us if there are any programs that are really big standouts as a positive in that mix that you just kind of talked about? And how should we think about those key programs in the second half and how you're thinking about them?

I think the premier German manufacturers had a really nice quarter. I think the domestic automakers, GM, Ford both did extremely well. We've got a lot of content on the 3-series, and it still does strong in the marketplace to our expectations, as does the large trucks and SUVs from GM. The Explorer had a nice start, and that's a good platform for us as well. So those are probably the key drivers.

And then just lastly on the capital allocation and what you're doing to return value to shareholders, just to kind of follow up on that. Now with the new amended revolver in place, your cash balance, your forecasted free cash flow, I mean what -- it looks like you're in a good spot. What would it take to get you to release more value to shareholders through share buybacks? I mean, the stock is below where it was the entire first quarter, so I'd imagine you might want to get more aggressive on the share buybacks. Just trying to really understand if there's something that you need on a macro basis that would be a trigger or is there just this massive macro uncertainty that's keeping you from potentially getting more aggressive?

No, I wouldn't say there's a macro uncertainty. I think if you look at our priorities from an investment standpoint, we believe we're still a growth company in a growth industry. And our focus, first and foremost, is to continue to invest in the business in a manner that allow us to serve our customers, continue to grow profitably and provide the type of returns to our shareholders that they expect. So our first priority is always to continue to invest in the business. And we're doing that, and we'll continue to do that. I don't believe it's mutually exclusive. I think we can continue to provide cash back to our shareholders, especially when we're trading at the levels that we're trading.

You have net cash of $1.1 billion. It's almost 4x your annual CapEx. I mean, does that mean there's a large acquisition on the horizon that you're looking at or any of the strategic, big strategic actions?

No. There's not. We don't believe that we need a large acquisition. We think both businesses are well placed. We would look to do something that would provide either access to customer diversification, access to geographic diversification to facilitate our growth in the emerging markets or something that would add some scale to Electrical Power Management Systems or some component capabilities. But all in all, I don't see a major acquisition in our future. I will tell you this, Murph, that from our standpoint, we continue to run the business. We need to continue to invest in ourself. It's a growth industry. We see a nice quiet path on the industry recoveries globally over the next several years, and we're going to participate in it.

Your next question comes from the line of Itay Michaeli from Citi.

Matt, I think you've raised CapEx guidance for the year twice now. Just how should we think about that going forward into next year? And how does that impact the long-term margin target to both Seating and Electrical?

I would say that if you use -- just from an outlook standpoint directionally, if you use a rule of thumb of about 2.5% of sales from a capital investment standpoint, you won't be that far off. As we continue to invest in the business, we -- obviously, that creates a higher capital intensity. We think that we capture that in our target margins of 7.5% to 8.5% in Electrical distribution and Seating in the 7.5% to 8% range. And I think at those levels, we can provide a nice return on an investment.

Great. And can you just remind us what the GMT900 production assumption now is in your new guidance?

We've got it at 930.

930? Okay. And just lastly with cash restructuring, where restructuring is just coming down this year, any change to your thinking around 2012 and beyond?

No. At this point, I would say no. These things are somewhat fluid because we're not in complete control of when we're able to take certain key actions that comes with negotiations with our customers, production plans, discussions with our unions and labor unions and whatnot. So we're not always completely in control of the timing of it but at this point, I would tell you that it does not change our thinking in 2012.

Your next question comes from the line of Peter Nesvold from Jefferies. H. Nesvold - Jefferies & Company, Inc.: Question on the guidance. So if I take the full year guidance and I strip out 1Q and 2Q actual results, the implied second half guide at the EPS line is about 30% below the first half. Now undoubtedly, you guys are always putting out much bigger numbers relative to your guidance. We think of it as being conservative, which seems appropriate. We've seen a number of other auto companies talk about second half being lower than first half; Ford and GM come to mind. But is there anything that might be, kind of, outsized in how you're looking at the world for the second half versus first half? I'm just trying to frame frankly how conservative is the second half guide versus what we're seeing at other companies?

Well, we think it's balanced. It starts with the production cadence, in the production cadence on key car lines. Right now, we think that we're going to see a more typical automotive year as far as the cadence of production in sales, which normally first half to second half is something in the 52%, thereabouts in the first half versus the second half. So it starts with that. Now from a business standpoint, we talk about a step-up in engineering and some support costs in the back half of the year as we continue to grow our business and continue to increase to the backlog. And it's going to require some additional investments in engineering and in some of the emerging markets, which will also be a headwind. We are seeing some headwinds as well on commodities. We mentioned the petroleum-based chemicals largely used in our foam fuel surcharges and whatnot with the crude oil being in the 90s. So from that standpoint, there are some headwinds but again, we expect both businesses to perform well within their target margins for the full year, again, continued improvements in Electrical Distribution year-over-year. And Seating continues to perform well. H. Nesvold - Jefferies & Company, Inc.: Okay. And if I can ask a quick follow-up. As we hear more about technologies like electrical, power steering and vehicle stop-start, how does that impact your Electrical Power Management Systems business going forward?

Creates more opportunity. H. Nesvold - Jefferies & Company, Inc.: Yes. I mean, any content for vehicle that take that option package or anything else that you can help me frame the opportunity?

What I would tell you is this, and let me see if I can get you there. We're not going to frame the exact concept per vehicle on a power steering unit or something like that, but what I will tell you is the opportunity on a content per vehicle in that business is driven by many things. Even on traditional powertrains, you're seeing more and more features and more and more computer management of internal combustion engines to improve efficiencies. That's going to require more signals. That's going to require more circuits. That's going to require more content on electrical distribution systems. On a hybrid or full electric, the electrical content could be as much as double what you would see on a full-sized, full-power luxury vehicle; anything from $1,000 to $2,000 of content on the vehicle. What I would tell you is you'll see something in the content ranging from anywhere from 10% to 100%. I know that's a big range, but it really depends on the architecture.

Your next question comes from the line of Himanshu Patel with JPMorgan. Himanshu Patel - JP Morgan Chase & Co: My question was really about controllable cost. I know you don't want to give an outlook exclusively for 2012, but when you look at your backlog, you have some pretty hefty years ongoing right now, but '13 seems to step down. When does that start benefiting you guys in terms of moderation on things like engineering costs? Does that start showing kind of early '12 or more towards the end of '12?

If that backlog number remains the same, which we don't expect it to, I think what you're seeing is really the cadence of the sourcing. There was a backlog of the backlog. There was a backlog in sourcing cadence due largely to the disruption that we saw a year ago in the industry -- a little over a year ago. And I think there was a flurry of sourcing activity, and you're seeing it in a kind of a launch. Going back to 2009, many of the programs were delayed, and what that did was push the backlog into '10, '11 and '12. I still think there's opportunity to increase that number, significant opportunity to increase that number in 2013, Himanshu, and I would expect that number to grow. Now if it stays static, yeah, you would start seeing some benefit as we're able to sunset some engineering costs on new programs in 2012. But we don't expect that number to stay at that size. Himanshu Patel - JP Morgan Chase & Co: So there's still a scope to upgrade 2013 basically on the backlog?

Absolutely. Himanshu Patel - JP Morgan Chase & Co: Okay. Is there any update you can give us on the antitrust situation? I mean, you guys put out your comments, I think, in February of 2010. And it's been a year and a half now. Has there been any movement on that you can shed some color on?

This is Terry Larkin, the general counsel at Lear. You are correct. Just for the benefit of everybody listening in on the call, we -- our Paris offices were visited by the European Commission and the French authorities in February 2010 as part of an investigation into the anti-competitive practices allegedly occurring among automotive electrical -- electronic component suppliers. We are cooperating fully with the authorities in an investigation. We have recently received a supplemental request for information. We understand that, that request is not unusual, and so our cooperation with the authorities continues. To our knowledge, we're not involved in any of the antitrust investigations that were going on in Japan or here in the United States. Himanshu Patel - JP Morgan Chase & Co: Okay. I guess, two questions. I mean, my understanding is the agencies, they talk to each other a lot. So -- but despite that, you still think the investigations in Japan are not related at all to the European investigation?

We really are not in a position to speculate as to whether they are related or not. I think your premise that they talk with each other is correct, though. Himanshu Patel - JP Morgan Chase & Co: Okay. And then just a clarification. Are you under investigation in Europe or is it a inquiry in Europe?

The term used by the European commission is an investigation that covers the broad range of all sorts of inquiries, so there's no particular significance attached to the word investigation by the commission. Himanshu Patel - JP Morgan Chase & Co: Okay, great. And then, Matt, just maybe a final question. We talked a little bit about this before, but we're just seeing a flurry of upper derivations on CapEx across the space. I know you guys mentioned some of it for you as related to, I think, investment on emerging market component capability. But I guess just broadly, are you seeing something on the acceleration of product development schedules from OEMs or -- that's sort of triggering this? Is there any sort of common theme you're picking up on? Or you view this as pretty kind of one-off earlier?

It's really, I think it's driven more than anything by the growth in the emerging markets and the need to have some selective vertical integration is an opportunity to control your qualities, serve your customers and improve your cost footprint. In our case, we balance the ability to do that organically versus niche acquisitions and the value that it can create to our investors, our shareholders. I can't speak to others. I know from our standpoint, Himanshu, really what drives it is we think there's a real opportunity to provide value to our customers and shareholders by making this investment. Returns are good. And I think more importantly, it kind of helps us improve our quality and cost footprint for our customers. Himanshu Patel - JP Morgan Chase & Co: And when you talk about -- you've discussed better vertical integration on the Electrical business before. Is that -- just help us understand the commercial benefits of that. Does that help you win additional business, or is it more just kind of a margin play?

It's both. I think that whenever you can control quality and reduce your cost, it makes you more competitive and gives you advantages when you're winning new business. From our standpoint, I think we're uniquely positioned in the marketplace because of our ability to do a complete electrical distribution, design and manufacture of all of the components in every continent in the world, both high-powered and low-powered. So from that standpoint, if we could expand our capabilities to things like connector systems and expand our European business into other regions, that would be very, very good for us.

Your next question comes from Aditya Oberoi from Goldman Sachs.

So I just want to follow up on the question about CapEx. Is it -- the increased guidance, is it more investment that you guys are doing, or you're just pulling forward some of the investments you plan for the next year -- next 2 years?

It's more investment. I mean, from our standpoint, we're pretty excited about some of the investments that we've made. We've expanded our capabilities in Brazil in both our mechanisms facility and new facility and mechanisms in Brazil, as well as new electrical distribution facility in Brazil and in Thailand. We're expanding our mechanisms capabilities in Asia, both in China and India. We're looking to do the same with connector systems. So it's really -- it's an increased investment.

Okay, great. And other question I had was on pricing. You guys mentioned selling price reductions as one of the parameters that we had on margins in both the segments. Is it the standard 1% to 2% price reduction, that is what we're talking about or is there anything over and beyond that, that you saw this quarter?

We usually see a net price reduction of about 2%. We're able to provide much more value to our customers, though, through value engineering and being able to take costs out of the product for them in a collaborative manner. But net, it runs around 2%, plus or minus.

Your next question comes from the line of Brian Johnson with Barclays Capital.

Would like to talk maybe a bit more strategically about the margin development and kind of where you are in your strategies, both in Seating and Electrical. Maybe start with Seating, because clearly you're still running above the 7.5% -- end of the 7.5% to 8% margin. Is the kind of 7.9% we're seeing about where it's going to go? And is there sort of equilibrium at work there where you can get backlog rolling in but pressure on commodities and price bounds coming to kind of keep it in that range? Conversely, are you seeing maybe better margin enhancement as you vertically integrate some of the content increases in Electrical? And what does that imply about either the 7.5%, 8% target or the pace of you getting there?

Let's break it down. Let's work in reverse. Electrical distribution. One of the drags on that business recently have been the fact that it was under-scaled. And the amount of investment we need to make in infrastructure cost we needed to maintain in order to be able to provide both high-powered, low-power solutions in every continent in the word fully integrated. Couple of years ago, our fixed cost was running at about 25% of sales when the business was at $2 billion. We need to scale that business up, and we need to get in the $4 billion plus range to get it into their target margin of 7.5% to 8.5%. Now again, there's no magic to that number. What makes that number work for us is at that rate, we can return in excess of our cost of capital on the asset intensity of that business. We believe that through backlog in the industry recovery that we can achieve those types of sales and margin expectations over the next several years. We're well on our path. The business has made a nice step this year, and we should expect that business to run in the 5.5% to 6% range for the remainder of the year. On Seating. Seating, we believe in the 7.5% to 8% range is kind of where it's at. In any given quarter, we could break through the upper end or the lower end, but it will average out at that rate. Sometimes it's hard to call a margin number specific in a quarter because of the mix and product and expenses are not always linear, nor are commercial remedies or commercial solutions. So sometimes we have some chop in the quarter that would put you above or below. But on average, we're comfortable with that range. That range is important as well because with the capital intensity in Seating, that again allows us to return on our investment in excess of our cost of capital. So I think Seating is pretty much running at the rate, and there's a natural commercial pothole in this business where I think it always comes back to the type of return on investment. And as long as we can return in excess of our cost of capital, then we can continue to serve our customers in a cost-efficient manner, continue to grow and still provide returns to our shareholders.

So really it's electrical where we ought to be looking for incremental profitability lifting the margins up. In Seating, it's kind of running at its, roughly, its average margin rate. And so it's not something where volume will drop to the line, in line with the average margin.

Let me try to answer in a Bob Rossiter manner. Seating is at target, and Electrical will continue to improve.

Okay. And the pace of Electrical isn't any faster or slower than you anticipated earlier?

It's pretty much as we expected. They had a nice quarter. That was a very nice performance from that segment. Ray Scott and his team did an outstanding job.

Your next question comes from the line of Chris Ceraso with Credit Suisse. Christopher Ceraso - Crédit Suisse AG: Just a couple of items here. Can you give us the FX contribution to revenue by segment?

We don't have that by segment per se. Why don't I hand it over to Jason Cardew, our Vice President of Global Finance? Do you have that handy, Jason?

Foreign exchange for the quarter by segment?

Yes.

It was about $170 million in Seating and $60 million in Electrical. Christopher Ceraso - Crédit Suisse AG: And any difference in the contribution on that? You said before, Matt, that it was about the -- corporate average around 4%, 5%, something like that?

Yes. And slightly -- I would say probably slightly higher in Seating, but pretty consistent between the 2 of them. Christopher Ceraso - Crédit Suisse AG: Okay. And then were there any costs in the quarter associated with supply-chain disruptions, workarounds, premium freight? Can you give us a ballpark number for Q2 and if you expect that to diminish completely in Q3 and beyond?

There were costs associated with supply-chain disruptions. And where we're seeing it is in the -- mainly in the Electrical Distribution business, although Seating did get impacted by it in a modest way. The costs in the quarter were roughly $6 million. We would expect some level of that to continue through the remainder of the year. Christopher Ceraso - Crédit Suisse AG: Really? Continue through the rest of the year at a lower pace than that?

Slightly lower.

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

I guess on the backlog, it looked like there was a bit of a shift towards the Seating business. And if I'm doing my math right, it looks like almost all if not more of the incremental backlog came in Seating. Can you explain what's going on there?

I think both businesses continue to win new programs. From a backlog standpoint, if you look at it overall, we're still somewhat disproportionately Electrical that could penetrate the market. The net wins, the way the math worked in this update of $200 million, the net wins were Seating, but both businesses are winning new programs.

But there's been no change in how and where you're quoting business and for which segment?

No, not at all.

And can you just broadly comment on the macro environment? There's been a lot of talk of potentially going to a double-dip recession. How do you think the supply base is equipped to do something at that? And specifically, how are you guys thinking of that as well?

One, I can't speak to the supply base overall. I can speak to the Lear Corporation and our suppliers. From our standpoint, I think one of the benefits of Lear is, obviously, the strength of our balance sheet and our ability to take advantage of opportunities both to consolidate and invest the business. This is still a global growth industry. Whether there's a near term blip or pullback, we're still running significantly below sustainable demand or long-term demand levels in North America, and I think that provides an opportunity as in Europe and in the mature markets. From an emerging markets standpoint, I still think there's huge upside and continued growth over the foreseeable future. So while there may be a pullback, or if there was a pullback in mature markets, I think Lear is in a great position to take advantage of a market crashing like that and the ability maybe to consolidate. We don't personally see it. The releases are strong. The product is great. We're in a great shape, and we're pretty bullish on the future.

Got it. And finally, can you just quantify the impact of Japan disruptions in the quarter? And also you spoke about some premium cost on the Electrical side, if you can give us some more color there?

The impact in Japan on our direct sales into Japan really impacted Electrical Distribution mainly. And it was about $65 million in revenue and about $20 million in earnings. From that standpoint, the premium cost that we incurred, there were shortages. And one that everybody pretty much incurred across-the-board in the industry was on the circuit boards. And there was a shortage of system, majority of the world's boards come out of Japan and those facilities were offline. And what that resulted in was premium freight and inefficient operations and some bloated inventory on other components as we managed a rationed supply of the boards. It also saw an increase in some of the other electrical components like fuses and relays. From a premium standpoint, we talked about a number of $6 million, and that's really what drove it.

Your final question comes from the line of Brett Hoselton with Keybanc.

Matt, on the Electrical margin side, can you talk about the differences, in your view, of contribution margins on production or changes in production versus your backlog?

Well, backlog will typically come out a little bit lower than changes on production. And again, we're just making broad general statements as a rule of thumb. Typically, if you do just get incremental volume and you're able to run up to your facility, you obviously, get certain efficiencies on your fixed cost structures, fixed cost structure and you convert between 15% to 20% on average. Again, this is just a very broad rule of thumb. Backlog on the other hand is going to come in a little bit lower as you improve your efficiencies and designs to run it a little bit better in time, so you'll see something around 10%.

And then can you quantify for me -- I think you might have done this for Rod and I just missed it, but can you quantify the difference in your ER&D spending, second half versus first half?

Yes. It's going to be -- there's going to be a step-up in the ER&D spending. For the full year, we expect that number to be around $200 million. And we would expect the second half to be roughly 55% of that number.

And then, your European production forecast somewhat below what the industry is looking for. I believe part of that is because you exclude maybe Russia or something along those lines. But even on a percentage change basis, it is a little bit more conservative. I'm wondering is that merely just conservatism on your part or is it -- there's is something that you're seeing in the releases or something else along those lines or commentary from your customers that is kind of leading you towards maybe a little bit more conservative bend?

Well, we moved the number up from $17.4 million from our previous guidance to $18 million. It does exclude Russia, Brett. Right now, we're not hearing anything one way or the other from our customers. The releases continue to hold firm. We just believe that this is a balanced production number to use for the sake of setting guidance at this point.

Thank you very much, everybody, for being on the call. Matt, as usual, you did an absolutely outstanding job. Finance team, couldn't do it without you. Corporation, corporate headquarters, everybody's doing an outstanding job. Ray Scott, you and your team are doing an outstanding job. And Lou Salvatore and your team are, again, continuing to be very special. You're a great team of people. Good to get out there. Let's keep this thing going. We're moving on the right direction, and I'm proud of you. Thank you.

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