Good Morning. My name is Luann and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Lear Corporation's Third Quarter 2007 Earnings Conference Call. All lines have been placed on mute to prevent any background. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. Thank you. I would now like to turn the call over to Mel Stephens, Vice President Investor Relations.

Thank you, and good morning everybody, and thanks for joining us for our third quarter earnings call. By now, you should have received our press release and our financial review package. These materials have also been filed with the Securities and Exchange Commission and they have been posted on our website at lear.com under the Investor Relations link. Today's presenters today are Bob Rossiter, Chairman, and CEO, and President, he is joining us from Asia; and here is Southfield, Jim Vandenberghe, our Vice Chairman; and Matt Simoncini, Chief Financial Officer are other presenters. Also participating here in Southfield in the call are Dan Ninivaggi, Executive Vice President; Ray Scott, Senior Vice President and President of our North American Seating Group; Shari Burgess, Treasurer; Jim Murawski, Controller; Bill McLaughlin, Vice President of Tax; and John Trifall [ph], our Vice President of Finance. Before we begin, I would like to remind you that during the call we will be making forward-looking statements that are subject to certain risks and uncertainties. And some of the factors that could impact our future results are described in the last slide of this deck 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 slides labeled "Non-GAAP Financial Information," also located at the end of the presentation. If you turn to slide 2, here we outline the agenda for today's review. Mr. Rossiter will provide an overview of the company. Then Jim Vandenberghe will provide an update on business conditions and next Matt Simoncini will review our financial results and the outlook for our business. And following the formal presentation, we will all be happy to take your questions. Now if you will turn the slide number 4. I will turn it over to Bob Rossiter.

Well thank you very much Mel. I would like to start off by talking about the industry trends and our response to those trends. Since mid 2005, we have been restructuring our operations. We implemented a number of actions to increase shareholder value and improve our overall competitive position for now and the future. We still face many challenges, but we continue to improve our operating and financial results. Our Seating business is performing well globally. Our electronics and electrical business needs further improvement. The business is in transition as we relocate to lower cross countries, and the lower cost operating structure. Today, there is a... the market itself is a fiercely competitive environment in this segment. And I will tell you right now it's extremely tough to play out there. We are undergoing consolidation and restructuring, and we know there is opportunity both organically in growth and through acquisition to strengthen these businesses. In terms of diversification of our sales, Asia offers us the best opportunity. And the theme there is doing an outstanding job, and we had significant success in Asia in the first nine months and recently in this last quarter both in Asia and globally. We have made many changes in the company over the last year, but the one thing that remains the same is the force that drives the company and that's our customers. Quality, service, and our relationship are key to our growth. If you turn now to slide 5. On slide 5, we have implemented a number of actions to improve shareholder value. Number 1, the implementation of our global restructuring initiative. That will improve our long-term competitive position. We have accelerated our global footprint actions and have reduced manpower to match and we've actually went deeper than that. Number 2, we…

Thanks Bob and good morning. We are going to start off moving to slide 12 and go over the present business conditions. Starting out with the macroeconomic factors of the US, the outlook is mixed. Positive factors include lower interest rates and moderating commodity prices. The risks include consumer credit, a weak housing market, and high oil prices. And capital markets remain volatile. Sorting through all the data, we still see fairly steady overall demand in the auto sector, and that is exactly what we have been experiencing this year. Certain important segments of the market, such as full-size pickups and large SUVs continue to be under pressure. In Europe, overall demand is also relatively stable at a healthy level, and in Asia industry growth in major markets continues. As for specific industry developments, supplier consolidation and industry restructuring are continuing. Also importantly the UAW has reached a new pattern labor agreement with the domestic automakers. We will comment on these trends and developments over the next few slides. Moving to slide 13. About two-thirds of Lear's revenue in North America comes from light trucks and this is concentrated among full-size pickups and full-size SUVs. These large utility vehicles steadily increased in popularity from 2000 until 2004. The growth in these vehicles was driven by moderate fuel prices and increased functionality. However, since early 2005, the North American vehicle market has become increasingly more challenging and higher fuel prices have led to a shift in consumer preference away from full-size pickups and SUVs. At the same time, there has been a rapid growth in cross-over vehicles that are more fuel efficient and offer similar attributes as their full-size counterparts. As a result, North American production for high interior content full size pickups and SUVs has been on a slightly downward…

Thanks Jim and good morning. Please turn to slide 18. For a review of financial results and outlook, I would like to mention the major factors that are impacting our business. In the third quarter special items included costs related to our restructuring initiative, the merger transaction, and the settlement of transaction related items for the divestiture of our interior business. Excluding these special items, core operating earnings came in at $170 million, an increase of $70 million from a year ago. Solid improvement reflected favorable cost performance and operating efficiencies, net savings from our restructuring initiative and the benefit of new business outside of North America. For the full year, we are increasing our outlook for core operating earnings to the range of $680 million. We are also increasing our free cash flow forecast to the $350 million range reflecting the higher earnings and lower capital spending. These are the highlights. Now let me review our results in more detail. The industry environment, in the third quarter, was generally in line with our expectations. In North America industry production was $3.5 million units up 4% from a year ago. The Big Three were up 1%, and our top 15 platforms were down 1%. In Europe, industry production was about 4.3 million units up 2% from a year ago. Production for our top 5 customers in Europe was also up 2%. Compared with the prior quarter heavy steel prices were down 6%, while copper prices were flat and crude oil prices were up 16%. Compared with a year ago, the steel price were down 15%, copper was down 1%, and crude oil was up 7%. Commodity cost changes did not have a meaningful impact on our result in the third quarter on a year-over-year basis. Slide 20 provides our financial…

[Operator Instructions]. Your first question comes from Himanshu Patel with JP Morgan.

Hey guys. Couple of questions. The production volume decline that you guys have assumed for the P900 platform for 2008, could we get that?

Actually we are going along with the -- what CSM has and they are down about 10 to 11%, I believe.

Okay. And then the core operating profit guidance is flat year-over-year, what would be sort of the incremental restructuring savings that we should think about for 2008 versus '07, is it about 25 million or so?

It's exactly right. The original guidance was about $125 million, which we said was on average to 2.5 year payback. We expanded it and pulled some -- pull ahead some of the restructuring cost and that's going to provide about $25 million of incremental savings on a year-over-year basis.

Okay and then we -- just conceptually the, I know you don't break it out this way, but the margins in the North American business versus European businesses, any directional comments you could give us on how that's been trending in the latest quarter?

It's been pretty consistent with what we have seen so far in three quarters. Europe is a little bit ahead of schedule but all-in-all all regions are doing fairly well.

But fair to say, I mean is North America more profitable that Europe still.

Yeah. North America is more profitable, part of it the level of vertical integration than we have mainly in our seat business and firstly the directed content that we have in Europe all historically Europe's margins have been fairly lower than North America and that continues but improving.

Okay. And then lastly what sort of negative contribution margin should we be thinking about for the business not necessarily for the next quarter but just longer term, now that you've done through most of the restructuring?

Not sure I fully understand the question. We do see....

In the sense that you're expecting your revenues or your production volumes to come down if we were just trying to model the impact of that separately, what sort of negative contribution margin would we apply to that?

I think it's roughly the same, I mean on a short term basis it's still kind of in that low 20% range. And it depends on if our customer takes capacity action that allow us to take down, we can mitigate that some what. As they take out to ship that helps us to take a facility out that helps us as well.

All right. One last if I could speak, I know CSM has got a pretty conservative P900 forecast for next year but have you gotten any indication from GM so far directionally about what they're thinking for 2008 volumes on that and is that consistent or inconsistent with what CSM is saying.

I think what we have done is, obviously we have taken the neutral parties of perspectives and I think we will get a better view of what the customer's plans are really for all three of them probably in January.

Okay, great. Thank you.

Your next question comes from Chris Ceraso with Credit Suisse.

Thanks, good morning.

Hi Chris.

A couple of things. Can you comment maybe just directionally on the profitability of the new business in Asia relative to the full size truck business in North America, is it less profitable, more profitable, the same?

It's -- overall the businesses in Asia are performing fairly consistent with the segment earnings overall. It depends on really what platforms over there are growing. Where we have seen growth is on some of the regional car makers, Chris and obviously its going to be less content on an entry level vehicle than it is on a three-row large North American SUV.

Okay. The three-year backlog, can you just give us a feel how that 600 million breaks down roughly '07 and... or rather '08, '09 and '10?

We will be given a complete update in January and the cadence on it, $300 million though, Chris, is in 2008 which is an increase of about $200 million from the last time we gave a formal update in January and the rest of it's spread over '09 and '10. Some of it is impacted by timing of how these programs will opt to as sometimes there are little bit grey, we're fairly comfortable with the '08 guidance now.

I think on the last call you said that '09 was maybe about $75 million of new business, was that a net number and do you have a comparable update?

Right now in 2009 I think what were getting it on the call before and was directional there was a lot of confusion on it. It was probably talking more about business wins at that point and what have you really but rather wait until January to get the complete changes on how to stop this kind of rollout. But all in all at $600 million with $300 million coming in next year and the rest of it is spread over the next two years.

Okay. And then lastly there's been clearly a significant lag up in crude prices in the last couple of months, have you factored in the potential for higher resin costs in your '08 outlook?

Now since we've had a divestiture of the interiors business, the impact on resin on our businesses really hasn't impacted us as dramatically as did when we actually had interiors which was a huge user of resin. Right now, we don't find raw resin in any real quantities whatsoever and it's really more of an impact on our supply base. We are keeping an eye on it and managing with them.

What about as it relates to the chemicals and the foam for the seats?

We are working with our form providers to help offset the increase on it. We have factored some in it and started thinking for '08. We are also looking at engineering solutions to try to mitigate the impact but all in all we have factored a level of that in.

Okay. Thank you very much.

Your next question comes from Brian Johnson with Lehman Brothers.

Hi, have you adjusted your backlog, that $300 million you set down from $400 some million a few months ago, and if so what were the drivers of that?

No, I think there was -- again there was some confusion on what we were talking about last call. The number $450 million was really talking more about what we have seen its business wins and the cadence was a little bit off and that we have actually pulled a little bit into this year on the parallel program roll-offs. The reality is backlog has increased, not decreased. I just think that was a number that got away from us a little bit and hence the conversions. So on all it has not come down at all.

Okay and second, if we were to think about a currency neutral CPB in Europe, can you give us some guidance in terms of how much your Seating in Europe is currency driven versus production driven versus content driven?

Well, this year we're seeing a currency impact in the quarter. If you take the quarter... let me put it this way. Our European sales for the year are above $7 million. So, if you run the math you take it and you extend it out, and that's probably three quarters if you want to see three quarters seating to two quarters or one quarter electrical and a rough breakdown. So if you run the math and the sensitivities on a year, you should get pretty close.

Okay, thanks.

Your next question comes from Rob Hinchliffe with UBS.

Thanks, good morning.

Okay.

Thinking of the updated guidance for the year and how that... what that implies for the fourth quarter, looks like Q4 maybe down a little bit here, surprised to see that given just seasonality, any comments there?

Yes, it's coming in kind of how we discussed back in the second quarter where we saw the second half being much softer than last year where we actually saw stronger second half. Some of the key things that are driving it, is right now on our key platforms we see about 10%... in North America 10% reduction on the volumes with the customers scheduling some plant shutdowns. In addition we have a roll-off business in the electrical business segment as well as we are starting to ramp up the program expenditures, the new business backlog wins and we are investing in some infrastructure in Asia. That will supply the key drivers on the fourth quarter.

Okay.

Well, we are taking a conservative view on production in terms of we have baked in additional downtime that we don't know about, yes.

Okay. The $600 million backlog, I know you are going to wait till the first quarter for more detail but does that incorporate some of the changes that Chrysler that we are seeing... I know, you are talking about moving the Durango out of Delaware back to Michigan and just talk about Ford looking at their product portfolio as well.

It incorporates everything to date that's been publicly announced. There's a lot of speculation on their car lines but everything to date has been announced and we've incorporated it into them.

Okay. And then I guess a last one on the UAW contract. Given the two tier with the non-core wages at the big three now, just how you define a competitive wage for your own business change at all or is the current wage still competitive in light of what's going on here?

I mean I think in some case it is but clearly we have to look at what kind of contracts are being awarded to other seat makers, other competitors and then also what the impact is on this two-tier wage with not only the automakers but also a couple of significant tier one suppliers: Visteon and Delphi. So, I mean our view is that we have to maintain our competitiveness and UAW has always worked with us on that.

Okay, thanks a lot guys.

Your next question comes from Jonathan Steinmetz with Morgan Stanley.

Thanks. Good morning everyone, can you here me?

Yes.

Yes.

Okay. Really quickly on the guidance for next year, you are talking about flat I guess you are talking about $25 million of restructuring. And you talked about the impact of production cuts. Should we think about those largely offsetting each other or there are some other factors like new business wins or raw mats [ph] or FX that you could care to comment at least the direction we talk about?

There's a lot of factors that are going into it. Besides the restructuring savings year-over-year, we have other vertical integration benefit as we continue to look for opportunities to invest in our components, into right margin. So, overall cost reductions, FX is also helping us on a year-over-year basis although it doesn't convert to the same amount as downward production numbers.

I want to clarify one thing, though, you mentioned $25 million in restructuring, the $25 million restructuring that Mat math referred to was basically higher restructuring expense that we will take in 2007. We have not commented on 2008 but there will be restructuring in 2008 probably comparable to 2007.

Okay. But the $25 million I was referring to was I think the benefit you were talking about from past restructurings rolling into 2008, is that a correct number or is it bigger than that?

That's correct.

Okay, all right. Switching to the backlog, when you think out over time here can you have this growing Asian business roll on and keep your CapEx at a 200 million type level or do you need to grow the CapEx meaningfully to accommodate it or will we more see a sort of shift among regions?

No, I think overall, if you look at our historical capital spend rate, it always in that 1.6% to 1.8% ever since the UTA acquisitions what we brought on the electrical business and that's specifically just seating in electrical because the numbers were so much due by interiors which was a heavy user of capital. We are comfortable that we can maintain at 1.7% to 1.8% type range of capital spending and still do the type of things that we want to do. Now, it's important to note that when we are investing in Asia, we seem to be able to do that a little bit less expensively than in the more material markets in Western Europe and North America. So, all in all we are comfortable that we can remain in the range of 1.8% of sales on a capital spending and still do the things that we have outlined in the plan.

Okay. And last question related to the backlog. Someone also I think tried to get at this but if you think about it relative to the company wide margins should we think about it flowing in at a similar type of level or do you sort of have to win business by being reasonably aggressive on price and then get the benefits as you have sort of experienced it over a couple of lifecycles?

I think it would be comparable with our overall average margins that we have in our businesses. I mean obviously in electrical that would be probably a more normalized margin.

Okay, alright. Thank you very much.

Your next question comes from Brett Hoselton with KeyBanc Capital Markets.

Good morning gentlemen and ladies.

[Indiscernible].

I don't know who to say hi to there, you've got a whole army there. But anyway the corporate expense math in the fourth quarter, what are your thoughts?

Well I think it's a little bit lower in Q3 than a normalized run rate. We see that in the $50 million to $55 million range on quarterly. We should be smack dab right about the middle of that for Q4.

And then as you may move into the fourth quarter, your expectations for seating margins, are they going to deteriorate materially or is it primarily going to take place in the electrical systems business?

We actually see seating coming back, a point back a little bit perhaps based on in North American market and we see about 100 basis point improvement from Q3 in electrical business determined largely by the normalized production in Europe where the margins are little bit higher in the net segment.

Okay. And then with the backlog if I understood you correctly, the... you were talking about $600 million over the next three years on a consolidated basis.

Yes.

Now, does that include the 245 million of new business that you talked about here today?

Adding the $245 million that we talked about today Brett, includes both consolidated and non-consolidated. So, portion of that would have been included in and -- but it's important to know that on the backlog when we define it, we define it net of any businesses roll-offs for a three-year period only and it's just awarded business that's consolidated. So, when you look at it, I mean $245 million, that would include non-consolidated as well and it maybe outside of the... unfortunately it's going to be outside of the three-year window.

I think the point we are trying to stress on the backlog is that when we started the year, we had some business rolling off in this time frame and we actually had, our backlog was unfavorable by $300 million at the beginning of the year, and we basically have won $900 million dollars worth of business that we will have revenue on over the three-year period. So, it shows that we have been able to pull some business into this period, and we think we can still do more.

And I assume I have got a tax expert there in the room and so I am wondering the $135 million of taxes this year, if you look into '08 and '09 what are your thoughts in terms of your tax expense and then cash tax as we move through '08 and '09?

I think what we see on a preliminary basis for 2008 is we should be in the low 30% range on an effective tax rate basis and we probably will be in the $100 million to $120 million cash tax range next year.

Okay. And then finally as far as the IAC, can you talk a little bit about what are your expectations in terms of profitability of IAC in Europe, IAC in North America as you look at 2008 and 2009, is there an expectation for material improvement in profitability in those operations?

Well they still have a lot of consolidation in restructuring to go through 2008. They are on track but we wouldn't expect to see a meaningful improvement in profitability until beyond that... 2009 or beyond.

Okay, great. Thank you so much.

Welcome Brett.

Your next question comes from Rod Lache with Deutsche Bank.

Good morning everyone.

Good morning.

Your core earnings in the quarter up $70 million on this $259 million in sales. I'm just trying to get at the drivers of that 27% incremental margin. Did you give us what the raw material did overall in the quarter on year-year basis?

We did have some good luck... good news on the supplier-material cost Rod, we did not give that number specifically. We also saw a timing issue but timing difference on our engineering spending, where some of it is going to be pushed into Q4 and our headquarter's cost was a little bit lower than the normalized run rate. The other thing about the production, is the environment through Q3 was very stable, there was no shifts in... late minute ships in production other than the GM strike which actually in duration was a little bit shorter than we were anticipating. So all in all we had a pretty stable environment from a production standpoint not only in North America, we had a pretty good mix in Europe and in Asia. The last thing is we continue to see benefits from our pull ahead benefits on restructuring savings and our vertical integration strategy.

Okay. If you... the chart that you'd given on the cost savings from the restructuring showed like $55 million incremental benefit for the year to reach a sort of level load that over the cost of the year or was that more back-half weighted?

No, it's coming to its conclusion. There's a slight benefit in Q4 but for the most parts it's level loaded, it's pretty close [ph].

Okay. And I imagine that you were able to offset pricing. It looks like price deflation with VAV or other initiatives internally?

In Seating that would be true. Electrical we didn't quite cover the pricing environment.

Okay. And the $15 billion sales guidance for the year, that excludes the interiors business?

Yes it does.

Okay. So then you are implying $3.5 billion in sales roughly for the fourth quarter, kind of similar to the third quarter. I am just not understanding, I guess, the four year EBIT guidance of $680 million implies a pretty sharp drop-off, since you are close to $570 million through the nine months?

Again a lot of it, Rod, comes down to what we see in North America between the customer downside and the volumes on our key platforms along with the risk for further production cuts as why these guys are starting to align their production needs with their sales numbers. We've also had infrastructure improvements that we are making in Asia to support our growth there and also support our move to low cost structuring as well as program expenditures.

So it seems like an unusually high cost quarter?

No, I think, we have some one-timers in there related to new business development that Matt had mentioned in his earlier comments.

Okay. And then just lastly can you just give us a little bit more color on the plan for turning around the electronics business?

Yes, I think there's few things on this. One of the issues that we are facing this year, Rod, is that they have got kind of a trough in sales that they rolled off some significant North American programs and were chewing up the ramp-up starting in Q1 on the new business backlog. In the meanwhile you have got somewhat inefficient operations in North America. In Europe what we see is of some of the programs that we restructured and moved into lower cost locations experienced volume reductions simultaneous with the move. And it's taken us a little bit time to work out the inefficiencies and realign our footprint in combination with some of our outside service providers there in our temporary cost structure. Finally, we have established a center in China which allows to take advantage of some lower cost program expenses, and right now we are incurring a little level of redundancy in order to improve the footprint going forward. For next year we see probably in the range of about 100 basis point improvement getting it closer to the '06 or in the range with the '06 margins in that segment.

Great. Okay, thank you.

Your next question comes from Rich Kwas with Wachovia Capital Markets.

Hi, this is David Lim for Rich. Most of my questions have been answered but I just wanted one clarification. On the prepared remarks you mentioned something about being awarded significant business in the 2011 to 2012 time period. If so, can you provide a little more color on that?

Yes. I really don't want to get into providing full detail on the backlog right now, but if we took it out through the 5-year period as we see it right now we would probably be in about $1 billion range for backlog.

Got you. That's it. Thank you very much.

And your final question comes from Robert Barry with Goldman Sachs.

Hi guys, good morning.

Hi.

And just a couple of quick ones. You mentioned, of the $245 million of wins in Asia, how much of that was in the electronics businesses?

Overall for the year, if you look at the business that we mentioned in Asia and Asian-related awards, it would be slightly over $500 million. And of that is probably in the ballpark of two third seats of incurred Electrical.

Great. So that's $500 million of the $900 million you mentioned earlier has been electronics?

Look. I want to be really clear on this point. Every quarter we have been updating our Asian business awards and that includes consolidated and non-consolidated. And it's Asia related which could be production in Asia and Asian manufacturers in North America. And when you tally it all up it's about $500 million; if you tally the three-quarters... three-quarters... the first three quarters of this year. And of that amount about I would say two-thirds of it is Seating, and about a third of it is Electrical.

Okay. And then just a follow up on the question earlier about CapEx from the depreciation perspective. Clearly cash flow's getting a real boost here from this sub-one times ratio of CapEx to D&A. Just as we look out how long do you think that will continue?

Well, I think it will continue in a near term. I think the GAAP will become less. Part of the benefit of this year's capital spending is drifting and just reducing cost reduction. A part of it is timing of the capital recognition, some of that will push into next year. We are still comfortable of that ballpark, the 1.8% give or take a touch here and there. And so if you compare that to our run rate on depreciation and amortization of $300 million, you should get pretty close.

So as we look over say the next 3 to 5 years just we would see it... the ratio drip to CapEx to D&A back towards one and then maybe over one slightly given the growth?

No, it's hard to give guidance beyond a three-year window for that. But right now it's kind of hard to see going above 1%, that's for sure.

But directionally just getting back up towards 1%.

Right.

Okay, thanks a lot.

If that is the last question, so I just want to stop the... and finish here and thank the entire Lear team for the great quarter. Remember, we have got a year to finish out here. We have got restructuring to complete. We have got 2008 to look forward to. Things aren't going to get any easier, but I think really we are in the right direction. I am really pleased with Matt's performance on his first role as CFO of the company.

Thanks Bob.

And Jim this wasn't your last one. You will be having much more of it. A great job. I guess [indiscernible]. I want to thank everybody and around this company, everywhere you go things... really good are happening. In effect those we have is recently [indiscernible]. New businesses coming out of Asia, the team is out here; what's happening in South America, and good things are happening in Europe. I just want to thank everybody for a good job, and I want to thank everybody also for the attitude; the attitude is fantastic. Let's just keep it that way, and keep the company moving forward. Thank you all very much.

Thank you for participating in today's conference call. You may now disconnect.