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

Okay, thanks, Angel. Good morning and 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 to the Investor 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 members 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 the 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. And during this timeframe, 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…

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 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] Your first question comes from the line of John Murphy. Your line is open.

Hi John, you are on mute.

Your next question comes from the line of Colin Langan with UBS. Your line is open.

Sure. Thanks for taking my question. Any color I mean seating margins here look quite strong, I mean how – what is the trajectory here, I mean do you think that got even higher than mid-17 or what is the – or is it just an unusual...?

Well, 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 kind of has its own financial footprint, if you will. Certain of the sub-components like leather and the structures and mechanisms command a higher margin because it’s a little bit more capital and engineering intensity, if you will. So from our standpoint, it depends a little bit on the mix. But yes, the margins can continue to improve in that segment and we would expect them to improve in 2016.

But your full year comment for mid-7% margins for this year were kind of what you expect?

Yes. Right.

And can you just give a quick reminder of what your – your cash flow is extremely strong, you have a great free cash flow yield, what is your sort of position on NOLs and what is your effective cash tax rate now?

Well, the effective tax rate for 2015 ended up to be approximately 27%. I think 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 subjective to the mix of earnings. I think on the cash tax rate for the ‘15, I think we are in the high-teens, I think 19% is where we ended. And I think going forward, we would see that given our tax attributes, which are well 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 I mean the shares has been down quite a bit year-to-date, I mean, how are you thinking about buyback versus M&A, is that something you may accelerate at this point?

I think we have the ability with our balance sheet to be both. I mean right now obviously, with the pullback in our stock price I think it’s a great investment and I think it is undervalued. And I do believe we will 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 profile that we have, allows us to do both. And right now quite frankly, I think Lear is a great buy.

Okay, alright. Thank you very much.

Your next question comes from the line of Matt Stover with SIG. Your line is open.

Thanks for taking the question. I think as we look out over the course of the next 2 years Matt, how should we think about the margin structure developing on the electrical side of the business, do you see room for further scope in the margins or are we doing as well as we can right now?

I never want to say, we are doing as well as we can. I think there is always the opportunity to do better and take costs out, where we are at right now running at about approximately 14% margins. We have a great return on our invested capital in that space. And it’s that balance will allow us to continue to grow at an accelerated pace. Could we see improvements, we could. Right now, I am happy of 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 are guiding to around 14%.

If we look at that business over the course of the next 5 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 2 years to 3 years in the electrical side of the business or is it just a function of opportunism?

No, I think it’s both. There is 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 out looking actively to increase our capabilities and 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 cybersecurity and being able to translate the different data domains, if you will. So, it’s about capabilities. It’s about intellectual property as well as growth. And so I don’t think we are just sitting back waiting for something to come available. I think we are 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. Appreciate it.

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

Hey, guys. Can you hear me now?

Yes, we can hear you, Murph.

Sorry about that. It seems to be confusion with the operator. Just first question for you, Jeff. You definitely are in a blackout period and you came, buyback shares right now sort of from the end of the year to where we are right now to when you file, is that correct? And if that is correct, could you consider putting sort of 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 of days after we file the K, which we anticipate doing obviously in conjunction with the SEC timing for that. But it’s 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 are getting from a lot of people right now and obviously, there is 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 kind of explain maybe your readiness to deal with that and what kind of variability you have in your cost structure? And what you would do to react to that?

Well, we are not seeing it either, John. Right now, we have seen steady growth in the releases and the releases, although be it early are very consistent to the guidance. I would say a couple of 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 had strength in other markets. Europe is making a nice recovery. And in North America itself, we have had a nice steady growth rate. So, we haven’t had the spike or the bubble that we have seen in other kind of 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. And we are in a never-ending even when sales are increasing, a never-ending search for cost reductions and efficiencies 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, we are depending upon which car line and which market is down, we think the 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 are not seeing it. The macros tell us it’s not there. Jobs, wages, inflation, interest rates, oil being down actually helps this industry. So from our standpoint, the macros tell us we are still in the middle of a good run.

Yes, I agree. Just lastly on the Seating side, I mean, obviously there has been a lot of upward pressure, which is great on margins there. I mean, 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 margin side because of mix?

Well, I would say about a third of it was Eagle Ottawa and the ability to kind of use their business to up-sell and get synergies from the combined design staffs and also having them help us in our leather business that we had. So, there has been an improvement with the combination, no doubt and it’s been an outstanding acquisition for us, not just because of the financial contributions that it’s making, but because it allows us to uniquely position ourselves to provide a craftsmanship – our level of craftsmanship that is not possible by our competitors, because we are in the design studios earlier. And when you combine that with our ability to manufacture the seat covers through cutting and sewing operations, combining it with lamination and film and the structures, we are able to provide a unique feat at the highest possible level of quality and craftsmanship at the lowest cost. So, I think we are just scratching the surface of what that segment can be. More and more, you are going to be hearing about the Lear’s craftsmanship initiative, we call it crafted by Lear. And I think it uniquely positions us in the right segment of the seat business.

Really great results. Thank you very much.

Okay. Thanks, John.

Your next question comes from the line of Richard Hilgert with Morningstar. Your line is open.

Thanks. Good morning. Thanks for taking my questions.

Good morning, Richard. You are welcome.

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

I think we are pretty balanced. I mean, we have the large GM platform from the large full-size pickup truck, but I think that’s about it. We have some electrical content on the F150, but we don’t have the seats on that program and we don’t have the Chrysler ramp. So, we have got about a third of the pickup truck market in North America. The rest is larger pass cars.

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

We are making and I think GM is making as many as they can, I think all three automakers are doing well in that sub-segments. So no, we haven’t seen it, because a lot of times with the pickup trucks, they become almost like a lifestyle choice. But before they were work vehicles tied to housing starts and maybe oil, what we are 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 vehicles and the pickup truck type brand and large SUVs, which are built off the same platforms, especially now that I think I don’t know what the breakdown is, but a lot of these vehicles have double rows of seats, two rows of seats even on 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 are 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 have got a nice boost from the tax incentives that the government put out for the 1.6-liter equipped vehicles in smaller. And it looks like you had a nice pickup 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 is probably more balance 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 is a true SUV over there per se. To me, they all look like crossovers because we are on car platforms, minivans, and pass cars. Now, it’s pretty well-balanced. So whatever segment wins, product segment wins over there, I think we will be the beneficiary of.

Okay, great. Thanks.

You’re welcome.

Your next question comes from the line of Adam Jonas. Your line is open.

Hi, good morning everybody. Matt, just had a question about pricing with the OEMs. We are looking at your margin performance every quarter, is pricing cyclical?

Pricing has been difficult and it will remain difficult.

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

Yes. There is and I would tell you, it goes like this, in good times the demands are greater. Probably the only relief we saw Adam in pricing is was in the ‘08, ‘09 timeframe as volumes came down. Now the good news about it is that the customers are and as you know and you pointed out in a very price sensitive product. And with us and Lear controlling so much of the design and the sub-tier components, we are 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. And more and more that’s the solution that car companies are going to. But yes, it is cyclical. In good times, they ask for more. And when there is a pullback, I think they stand down a little bit.

So it’s not pro-cyclical then, you are kind of describing where it’s...?

Yes. As times gets worst, they ask for more. It’s the opposite.

Okay, alright. Because – I just wanted to know if there was some kind of – if there was a point in the shoulder period when say, some of your big, big customers are doing – would historically do zero percent margins or doing margins closer to Porsche. And if that starts to move the other way whether there is that temporary period at the shoulder where you kind of get a bit of intensity before you get the relief towards the bottom, I don’t want to over analyze it.

I have seen it. I mean there is – there has been and there is, this year a huge cost reduction targets. But I think everybody is looking towards more of an engineered solution, if you will than just off the top, 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 costs out. I think we can provide some unique solutions that can get the customer there in a way that others can’t.

Okay. Thanks very much.

Your next question comes from the line of Joe Spak with RBC Capital Management. Your line is open.

Hi, good morning everyone.

Good morning Joe.

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 is any more to do as we think about ‘16?

Yes. We came in a little bit hot. We were able to I think execute a little bit faster than we originally anticipated. And it was a different type of synergies than we would normally see. And that normally, we would kind of consolidate the administration centers. In this particular case or the management teams, that was an outstanding and is an outstanding management team. We kept them in whole. And what they were able to execute was really helping us run our leather business and which we turned over to them. There has been some of back office savings as you would expect as we consolidate shared service centers and whatnot in some locations. So I think we were talking about a number of 15 to 20. Where we were more than halfway through, I would say probably three quarters of those synergies were achieved through the first 12 months.

Okay. And then – that’s helpful. And then just sticking with leather, I mean one of the other I guess fears that we are hearing out there is just on the luxury side and maybe a little bit of potential slowdown or rollover. Are you seeing anything as it relates to leather seats, which I would assume are more prevalent on 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 in market. And it’s coming to a point where, at certain cases, it’s almost hard to keep up with the folks that want premium leather in their vehicles. And 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 haven’t seen anything like that. We are having – we are 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.

Your next question comes from the line of Chris McNally of Evercore ISI. Your line is open.

Good morning guys.

Good morning Chris.

Matt, if I just step back and look at seatings growth, you are talking about a $700 million of backlog and ex-price downs that sort of implies that you should grow 3% above production. And if we look over the last 2 years, you have been growing at a number much more than that. So it’s just this mix that you discussed in your revenue walk. My question is really specifically around, can you just give some more detail around how much of the mix benefit maybe from truck, how much maybe from premium, which you just really discussed about because obviously I think that people are looking at some of the December figures and 60% of sales now are light truck, it’s almost up 20% year-over-year. So it just seems like it could be a great medium-term trend for Lear. And I am just trying to put some numbers around that?

I think if you combine the two, luxury and the trucks, it’s probably around 30% of the uptake in the volume. We are much more balanced now Chris, than we had been historically because I think our sales largely represent the industry overall. Why we are the leader in luxury and performance seating, the reality is we sell as well seating to seat platforms and also AMV around the globe and including North America. So from our standpoint, yes it’s a bit of a tailwind on the trucks. And you can look at the K2XX platform from 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 pretty 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 of years, there is a something that we should continue to think about which is this 200 basis points to 300 basis points of mix, whatever that number is maybe it’s not as great in ‘17 or ’18, but there is a component of luxury and truck mix which will benefit you guys…?

Absolutely, it can’t be because – it can’t be anything but that. We - like I said, we are the leader in luxury and performance and so when those cars sell, we are 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, I mean we have their seats. And so when they sell more, we sell more.

Perfect. Thanks so much guys.

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

Yes. Good morning and thanks for taking the call. I wanted to talk a little bit about the cash flow characteristics of the two segments, we will get some insight with the K coming out, but it looks like your holding CapEx spending around 2.7%, 2.8% of sales despite bringing in Eagle Ottawa and vertically integrating further upstream into seating, can give us the sense of how you kind of think about cash flow returns of the two segments, how CapEx plays out, how these acquisitions either improve or how the acquisitions could affect the free cash flow generation of each segment?

Yes. They are 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 and/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 an acquisition standpoint, I think your question was where would we deploy the cash more towards electrical or seating?

Yes. And also I think another competitor had made some upstream acquisitions that appeared to be more capital-intensive. And was that kind of what you were thinking in terms of going more the Eagle Ottawa way than perhaps the metals end or are you still you open to metals?

No. I mean, we are happy with our capabilities in the structures business and the recliners and the tracks. Our focus really is to differentiate ourselves through craftsmanship, because I think that’s something that the industry needs, that the customers need that’s being asked for. And that’s where we are 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 Corporation. So from our standpoint, no, that was not a concern. And from electrical, if we acquire an electrical, I would imagine that would have a very similar cash yield, if you will, from the current business. I can’t imagine that it would change it, that it would change it in a material manner, if you will.

And related, suppliers typically run a positive working capital, which is good in a downturn. You generated working capital in 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 kind of a downturn?

I think, 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 core. So, we did get a bit of a tailwind in ‘15 on working capital. We wouldn’t see that template to dramatically change as we look outward.

Okay, thank you.

You are welcome.

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

Great, thanks. Good morning, everyone and congrats.

Thanks, Itay.

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

Yes. I would say that the margins in South America are very low if you mean with the bracket around them. So, they are not as the target margins if you will. Europe and North America are 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 have been able to mitigate the losses. Our guidance does not assume that we return to 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 are 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 than in Asia than the target margins.

That’s helpful. And just on the cadence of the year is there anything unusual in 2016 versus....

No, it’s normal seasonally. 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 is nothing really peculiar about 2016 versus ‘15 normal seasonality, I would say, in the industry.

Perfect. That’s very helpful. Thanks so much, guys.

You are welcome.

Your next question comes from the line of Pat Archambault with Goldman Sachs. Your line is open.

Hi, good morning.

Hey, Pat.

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 I guess for 2 years, but they have spoken to maybe an acceleration of re-quoting activity or not quoting activity, but activity coming on I guess in the 2018 timeframe. So, is that – are you seeing kind of the mirror image of that for you guys like a big backlog opportunity over the next 2 years, but more competitive as we look out just your view on that?

No, it’s been pretty steady. I wouldn’t characterize it that way. There is the normal cadence of business awards that come up. We see this period right now. It’s pretty consistent within past year as I have Ray Scott, our President of Seating because I think you are alluding to Johnson Controls. Ray, have you seen any change in the quoting activity or is this [indiscernible] periods?

No, it’s pretty consistent with what we have seen over the past several years. There is nothing – no major differences in our quoting patterns and what we have seen from our customers.

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

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

Yes. Normally, it’s 2.5 to 3 years. There is still a lot of open quoting going on in the third year of our backlog, 2018. If you look at ‘17 a year ago, right, the third year of the backlog a year ago, that number has I think more than doubled. And I would expect the same thing to happen this year in the third year. So, there is still open sourcing in 2018. I would set 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 running change as they call 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 focused on efficiencies. I want to thank all of you for your dedication. We have had an outstanding year. We are not done yet. We are going to get after and get even better in 2016. Thank you.