Good morning. My name is Angel, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full-Year 2016 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Joel Elsesser, Director of Investor Relations, you may begin your conference.

All right. Thanks, Angel. Good morning and thank you for joining us for our fourth quarter 2016 earnings call. Our press release was filed this morning with the Securities and Exchange Commission, and the presentation for our call is posted on our website, lear.com, through the Investor Relations link. Today's presenters are Matt Simoncini, President and CEO; and Jeff Vanneste, Chief Financial Officer. Also participating on the call are several other members of Lear’s leadership team. Before I 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 slide titled Investor Information at the beginning of the presentation and also in our SEC filings. 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 pleased to take your questions. Now, please turn to Slide 5, and I'll turn it over to Jeff.

Thanks, Joel. Lear had another great quarter and year. As a result of our strong sales backlog and industry leading cost structure, we achieved record full-year sales, core operating earnings, margins, and free cash flow. During 2016, we continued to invest in our business by entering into a strategic partnership with Tempronics for seat heating and cooling, and acquiring AccuMED, a specialty fabric business. Additionally over the last five years, we have invested nearly [$750 million] in our footprint, significantly expanding our component capabilities in low cost countries. We also continued to provide superior value to our shareholders by delivering a free cash flow yield 11%, achieving an investment grade credit rating for Moody's, increasing our dividend by 20% and repurchasing nearly 6 million shares or 8% of our shares outstanding at the beginning of the year. Our total shareholder return was 250% over the last five years, which exceeded both the market and all of our peers. Slide 6 shows vehicle production in our key markets for the fourth quarter and full-year 2016. In the quarter 24.5 million vehicles were produced globally, up 7% from 2015 with increased production in all major regions of the world led by a 15% increase in China. For the full-year, global vehicle production was 91.2 million units, up 5% from 2015 with increases in all major regions, again led by a 14% increase in China. In 2016, the U.S. dollar strengthened against most other currencies and overall had the effect of reducing sales by approximately $330 million for the year. Slide 7 shows our reported financial results for the fourth quarter and full-year 2016. Our fourth quarter sales in 2016 were slightly lower than the prior year, as a result of the impact of our fiscal reporting period, which had three fewer working…

Thanks to Jeff, great job. We are extremely well-positioned to take advantage of major industry trends and deliver continued profitable growth in both our business segments. In Seating, Lear is the most profitable seating supplier with the most complete component capabilities of any of our competitors. In these systems, we are a leader of power and data management. We have strong capabilities in both hardware and software and we recently added a team of industry experts and cyber security. The acquisitions of Autonet and Arada provided us with the ability to move data from rigid vehicle and vehicle-to-vehicle enhancing our existing capabilities and allowing us to pull to capitalize on the connectivity mega-trend. We are also well-positioned to take advantage of the increasing penetration of 48-volt architectures as well as hybrid electric vehicles. We have multiple programs of these technologies either in development or in production. Slide 19 shows Lear’s performance and key financial metrics over the last five years. We have been growing our sales of a rate of two times industry production and our earnings have been growing even faster. Our growth rate of core operating earnings is approximately doubled the peer group. We also have a long history of strong cash generation. Our cash flow yield is among the best in the S&P 500 and is the highest of our peer group. Our earnings per share is growing even faster than our core operating earnings, reflecting our efficient capital and tax structures as well as our aggressive share repurchases. Despite this outstanding performance, we remain at a discount to the peer group. In summary, we continued our positive momentum in 2016 with the best year in our history. The investments we have made in our business are paying off. With our record sales backlog and industry-leading cost structure, we expect to continue the strong performance in 2016. We have delivered superior shareholder returns are performing a peer group in the overall market. As I mentioned on a previous slide, I continue believe that Lear shares are undervalued. We have the best team in the industry, a track record of outstanding execution and the most complete component capabilities of all our segments. Consequently, I believe we're well-positioned to continue deliver outstanding financial results and shareholder returns. With that, I'd be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Itay Michaeli with Citi. Your line is open.

Great, thanks. Good morning, everybody.

Good morning, Itay.

Good morning. Could you just help me to start with going through some of the big kind of margin drivers in 2017, I think the guidance for 2017 implies by 8.2% maybe if you could talk a little bit by segment as well that would be helpful?

Well, we think we're as sustainable margins Itay, where we can continue to grow the business profitably return well in excess of our cost of capital continue to penetrate and provide earnings growth. For us it's always a combination of giving cost solutions to our customers that allow them to be successful and our carline to be successful or us to be successful as a supplier and continue to grow earnings. So I think the margins are sustainable. I think we can continue to grow at these rates, and it's a combination of everything. It's our complete system design capabilities that allow us to find engineering solutions to help our customers bring their cost down and ultimately be successful. It's also running our plants more efficiently, managing a very complex supply chain in a very efficient manner. Volume and mix always helps to get a volume kick in the carlines that we are on that will provide some drive, not a backlog, as you know comes in typically at about 10%. Incremental volume and mix will be pretty consistent with the margin profiles by region in carline. Pricing, typically Jeff, 1.5% here about approximately net, so those are major drivers year-over-year.

That’s very helpful. And then just a second question on the backlog. Is there anything on the cadence of when the backlog comes in that we should be aware of throughout 2017? Any particular quarter when you have higher launch cost and things of that nature?

The launch cost will be pretty consistent. There's a little bit of a kick in the backlog. It’s a little bit higher in Q4 of 2017 than any other quarter, but it's fairly consistent first half to second half. It’s going to average couple hundred million through the first half and then probably higher in the back half, but a couple hundred million a quarter. So maybe slightly higher in the fourth quarter Itay, but not noticeably the launch cost should be fairly consistent.

Great. And then I think one last one, just on the revenue walk, the volume mix of about $0.5 billion, just wondering what your assumptions are in terms of your Lear platforms relative to the industry production assumption you have, as well as just a mix component in there for your light trucks and content and trims and things of that nature?

Well, I think with respect to North America K2XX, I think they're down 4% next year and similar to what we saw in the back half, really the most part of 2016 the Ford Pass cars continue to be down. We've got a strong backlog in North America for next year to somewhat offset, some of the volume mix, but those are the main drivers.

Got it, that's very helpful. Thanks so much everyone.

You’re welcome.

Your next question comes from the line Rod Lache with Deutsche Bank. Your line is open.

Hey. Good morning, guys. It's Rob on for Rod. Could you talk a little bit more about the AccuMED acquisition that you just completed in December?

Yes, it was a great acquisition. It adds to capabilities that you currently have in non-automotive fabric. The sales are a little bit less than $100 million, but what's exciting about the acquisition is that it brings additional technologies into our existing fab business with the acquisition that we made several years ago of Guilford. It also has a great manufacturing footprint with production capabilities in the Dominican Republic. So good management team, I think a platform for further growth both in automotive and non-automotive. So it was a nice acquisition for us.

And how should we think about the AccuMED margins?

Yes. They’re consistent with the seat margins overall. The multiple on that was slightly higher than Lear’s multiple, but I think with the synergies and some growth opportunities will get it consistent with our multiple probably in 2018 if you will. So we need about a year to get the growth synergies and cost synergies together, but I think it's a really nice tuck-in acquisition.

That's helpful. As we’re looking out to next year, the question kind of been, you reached a little bit earlier with regard to the mix benefit obviously content per vehicles, a little bit of a headwind in the seating business in 2016. Should we think about that starting to kind of shift to more of a tailwind as we look out to next year?

They’re going to be kind of consistent year-over-year, quite frankly. There's a lot of different inputs into that. I think the penetration of CUVs is definitely an opportunity. I think there's content growth as far as features on existing carlines offset by somewhat of the mix with emerging markets typically being a little bit lower contended vehicle, but I think it'll be – it’ll look a little bit the same, a little bit the same now. Ultimately, if we can get some I think demand growth in construction vehicles and in the U.S. North America and also the upside on the content since those vehicles are typically higher contended vehicles.

All right. That’s really helpful.

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

Hey, Matt. Just one question on electric vehicles the trend for your customers for electric vehicles. Just kind of categorically and there is a lot of puts and takes, but what an acceleration of the industry towards pure electric vehicles be positive and negative or neutral for your business?

It's hugely positive. I mean you're typically twice the contented on a traditional architecture system it does a lot of times the way they're doing now, Adam is they're putting an overlay on a traditional architecture because they don't want to ops lead if you will the systems that work on things like connecting lights and some of the more basic electrical features in a vehicle, but, yes that would be great. I think if it does penetrate faster, it could be a huge opportunity because if you take the volt for instance it's twice the content a normal midsize passenger car would be in electrical architecture, so that could be upside, yes.

Okay. What about the same question for your customers would it be positive for them and their margins?

That I can't speak to you because I really don't know their margin profile on vehicles. I imagine the more they sell the better, I don't know what the market so far…

Okay. I'm just trying to square because when the OEMs have been pretty outspoken that, they kind of need to move the electrification, but the folks like – and are bit more outspoken about it that it could be potentially…

Yes. That might be because of the diesel engine issue.

Yes, okay. All right. You mentioned before, maybe this is a final one before I roll, you mentioned the volt. Can you remind us what you do on the volt?

On the volt, we provided the electrical architecture system, the complete system so basically taking the power from the battery and distributing it everywhere else and that's like for instance I think we've said it's about a $2,000 contended vehicle for Lear.

That's the bolt with the B, right?

That's the volt with the V which is kind of a hybrid solution.

Okay. What about the bolt with the B?

We're not on their platform, but I imagine that the architecture opportunity on a vehicle like that would be similar.

Okay. Thanks very much.

You're welcome.

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

Great. Thanks for taking the question. Any color on [NAFTA risk] if there are tariff proposed in Mexico. How would that impact your business and how could you certainly respond to some situation like that all over there?

Yes. We're still trying to sort that out. There's a lot of different time itself in the marketplace right now we came from the Paul Ryan, tax act to a full kind of repeal a [NAFTA], it's a modification in NAFTA. So we’re with you, we're trying to keep our head in the news if you will as well as working with industry groups whether it's OESA, the supply organization are working with our customers determine what the outcomes would be. I would tell you this Colin; we are in a net import position overall, but part of it is we're trying to understand what they determine to be an import, a net import because a lot of times these parts are coming from the U.S. down to Mexico and backup, sometimes they are coming from sub tiers that are directed if you will. So we're trying to sort through what it would mean. We aren't in that position if they for instance implemented tax act is. Paul Ryan has proposed that, it would increase our tax rate something into the 30s if you will from the effective tax rate of the high 20s as it stands today. From a NAFTA standpoint what seems to be happening now, the trend to modify NAFTA not to necessarily throw it out. So we're keeping close contact to that. Now our response would be this. The beauty of being a Company like Lear, we have the wherewithal both financially and operationally to make these components and pretty much every market we're in and that includes the U.S. In fact, in many cases we make the components like fee structures, now we have experienced making it right here in Detroit. And so we could very quickly adjust and adapt. So would need mean in the near-term modest probably step up in some capital as we would have to put some capital in place, but I don't think overall would change the Financial DNA or investment thesis in a meaningful way.

And when you say that the tax rate regard from the high 20s, the low 30s that would be the – that the combination of the tax rate coming down as proposed with from 35 to 20 and then added on the impact?

Yes, it would be probably closer to mid 30s, but yes, it would be the combination as proposed right now. Now the President has come out and said, he doesn't buy into all aspects of the [Paul Ryan Tax Act]. So we're still like everybody else want to wait and see. We are continuing to model, work with our customers to deliver the parts in the most cost efficient manner taking into consideration, indirect taxes and direct taxes. But yes, our estimates include the reduction in corporate tax as well as the increase or the denying if you will of this deduction for net imports.

And just one clarification on it, you have the imports – the mid 30s would not be with adjusting your capacity to bring some back for the U.S. eventually, that will be the main impact of that…

That is correct.

And just lastly any color on the NOL, I mean your cash taxes still remain very low. How many more years do you think that those will continue to help right now?

They go up for the foreseeable future. We've got at the end of 2016, our U.S. based NOLs are roughly $250 million and our overall NOLs and other attributes are north of $700 million and they go on for the foreseeable future. So we anticipate a cash tax where I think our cash tax rate for 2016 was roughly 16% and we anticipate for the near-term future to have it cash tax rate in the 20% range, high-teens 20%.

I'd like to add one thing Colin is, we're all sitting here laser focused add, our cost structure and what could possibly impact us as it relates to tax change in indirect tax, but the one area that we really have a hard time qualifying is we believe that the reduction in the overall tax structure both individual and corporate and a reduction in regulation, which we also think is part of this tax act will also spur demand both in trucks, in construction and in personal ability to buy vehicles. So that’s the other piece of sustain that we really haven't been able to quantify. So yes, we are laser focused and making sure that we have the right manufacturing footprint in light of potential changes in the tax environment and in the tariff environment. The flip side of that is we actually there's benefit overall for the industry with the reduced regulation and also the increase of personal income and discretionary spending abilities.

Okay. Thank you very much. It’s very helpful.

Your next question comes from the line of David Leiker with Baird. Your line is open.

Good morning, everyone.

Hi, David.

Hey, I got a numbers question here to start off on Slide 8. You got special items there $36 million. I don't think I heard you with any color behind that at all?

Hanging on just Page 8, the bulk of that is the charge that we took associated with the lump sum offer we gave to the terminated vested U.S. pension plan that we did in the fourth quarter of 2016, $34 of that $36 is related to that charge - non-cash charge.

Okay great. And then as we look at your restructuring activities across the world, are you at the point that these are incremental continuous improvement type actions or there are structural things that you still need to do?

So I think we're in the let's say the bottom of the eighth inning, David as far structural things. We're looking for opportunities obviously to deliver the components in the most cost efficient manner and just always tweaking in a footprint that would happen that you can’t do, but I don't think there's any major really structural issues. I mean we've begun spent close to $1 billion over the last five or six years to make sure that our footprints in the right spot and when I look like at a logical division, one of the key drivers are moving those margins up to where they're at, was the push to get our footprint in Northern Africa, Eastern Europe in the right locations in the Philippines and what have you. So no, I don't think there's anything real structural that's still out there to do.

Great. And then one last one here, as we look at the world of shared mobility driverless cars things like that and there's a lot of work never been done on that. And I guess I'm trying to figure out how much of the work you're doing today is kind of development work to determine what those vehicles look like from a seating perspective as opposed to the timeline where you're actually sitting down with customers in an RFQ process?

Well, I think we're doing a lot of development work at both sides of the house and there's a convergence between our E-Systems division and seating as the seats going to have to provide a lot of information. We believe it’s the first level of connectivity both in autonomous driving, semi-autonomous driving or just traditional driving, the seats becoming very connected. We are in development task there. I think we are working with the customers well and some architecture that allowed the data to flow from the vehicle to the car, car to car, which will be a key aspect of autonomous driving. None of those though are actually in what I would say development task. What is in development task are things like intelligence and gateways that allow over your update. So we're not quite in development in that future state if you will. We are working with our customers to understand what type of requirements are going to be needed. We have some concepts on the interiors and what we think an interior and seat would be in an autonomous vehicle. And we also have some ideas on how to manage the data. And part of the investments we’re making today with Autonet and Arada is for their future state as well as bringing a team of experts on cyber security. That's really benefits us down the road. So with the Lear, we're trying to balance the investments for today as well as what we see in years let's say five to 10 that's out there. And I think we're in a really good spot to benefit.

Do you have any sense of when you might be sitting down in an RFQ process for natural production vehicle?

Is it relates to an autonomous vehicle?

Yes. Yes, driverless car.

Yes. The car companies believe that will get the full autonomous. I wouldn't call it levels buys. Autonomous in like the early 2020s, usually they'll sit down with us sometimes three years in advance of actually job one. I expect their timeline to be about the same. So maybe in a couple years, we'll start seeing it. Right now everybody's kind of still in the, what if stage. The reality for the seat, whether it's spaces forwards or backwards, you're strapped to it. First and foremost, it's a safety product. So a lot of the concepts that we're having still require the ability to withstand and impact because while the car maybe autonomous unless every other car on a road is autonomous is still has a crash risk.

Yes, great. Thank you very much.

You’re welcome.

Your next question comes from the line of Steven Hempel with Barclays. Your line is open.

Hi. It’s actually Brian Johnson. Just want to talk a bit about the China margins and thanks for the additional detail on your joint ventures in the equity income. If I just double the equity income divide by revenue [I get 6%], so a couple of questions, is that roughly the margin in the China JVs? It's below your consolidated margins, and is that an area where you're looking to boost margin performance to kick some of the operating skills you've demonstrated rest of world or is it really a market where the growth is there and you're prioritizing that – you and your partners are prioritizing that over margin?

No, I don't think it's that. I mean we are slightly higher in consolidated and wholly-owned because we have complete control. The issue in many cases with that side joint ventures, you don't have complete control that’s the reason why they are consolidated. So typically I would say they run at a slightly lower margin. We want to bring in many cases our manufacturing capabilities and continuous improvement capabilities to these joint ventures, but we don't always have a full say in how they run. I don't think we're necessarily sacrificing margin for growth. I think it's just really comes down to our ability to fully get in there and leverage our capabilities and maybe take advantage of the cost. Now, that being said I actually think the margins profile is consistent albeit slightly lower.

Okay. And just one quick on margins on the consolidated non-Chinese rest of the world. They ticked up – is there anything you could comment on how much of that was that kind of operating discipline you've been talking about versus more mix in your profitable components in leather type of businesses?

Well, I think the mix always benefits us. I can't really quantify like how much is each kind of line item brand, but I would tell a strong mix benefits us, because when you have a CUV, which we start to see penetrate even at a domestic brands. When you see crossover vehicles and SUV vehicles our platforms penetrate. That's an opportunity for content which ultimately converts at a higher margin and we expect they are trying to continue, but we are also laser focused on these organizations on taking cost out and improving efficiencies and leveraging. I would say best practices from other places in the globe. So probably half and half the size if they had a factor I guess.

Hey, Brian just to go back to your previous question. I think just a reminder that those equity earnings are net income, which includes the impact.

Yes. So the margins are actually much closer than to the consolidated.

Yes.

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

Thanks so much. Hi guys, and congrats on a great 2016. Just had a follow-up on some of the earlier questions on mix and your comments around North America. I mean if we looked at the last two quarters on an absolute basis North America was down a little bit. You had the day's issue in Q4. How do we think about the mix sort of going forward? Can we think about North America actually as up year-over-year in 2017? You mentioned that K2XX is down, but you have a strong order backlog and I imagine some of the sedan stuff at Ford, the headwind is going away. Can you just talk about some of those things because if you look at the only – it look like a potential area that you have strengthened in 2017?

Yes. Again, I think it needs to starts with a view on some of the most recent quarters in 2016 where we saw that in particular the Ford Pass cars were down year-over-year. The backlog for 2016 in North America wasn’t as big as what we're going to see in 2017. So if you roll the roll forward to 2017, the backlog is very strong in North America and that's going to be somewhat offset by some of our top platforms being down year-over-year in terms of the production volumes, like K2XX, I think some of the BMW products are down year-over-year, some of the Chrysler Pass cars are down and also some of the Ford Pass cars are down. So we should see an overall increase in North American sales I think primarily driven by the strong backlog.

Okay. And so ironically we always talk about mix, we think about truck more rows of Seating, you would actually have a slight benefit if we got a little bit of a rebound specifically in something like Ford Passenger cars versus the inventory reductions last year in terms of mix to Lear specifically in 2017?

I mean right now we're sitting on a little bit open to pass on Ford Pass cars both the fusion and the focus and that showed us in both segments a little bit. We saw a rebound in those two platforms is to high contended Lear programs that would benefit.

Okay. Perfect. Thanks so much guys.

You’re welcome.

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

Thanks. Good morning, everyone.

Good morning, Joe.

Just going back to the question on NAFTA and the ability to change capacity, I mean that – capacity, is that also true for the wire harnesses given the high labor costs like that's something you think you'd be able to do in the U.S. or that has to stay…

No, I would tell you that harnesses themselves probably not. I mean we could make the adjustments. It's actually one of the easier products to move quite frankly. That being said, I don't think because the labor intensive…

Yes.

Intensity Joe, that it would make sense. The other one it’s probably doesn't make sense even with increased taxes would be the selling of the seat covers, which is also very labor intensive. So that one we're probably stayed down there. I think the electronic, the boxes could be made here in fact we've made them in the past year and it would be fairly easy to shift that back up here. And I think the seat structures could move here and portions of them could move here, if it went through the [Paul Ryan Tax Act] going to affect. In many cases we're making structures here in Detroit now. So I think we can move that as well. And I think foam could be another product that could hold back to the U.S. side of the border.

That's helpful. On Slide 14, so if I just look at that that sales bridge, you put pricing in commodities a 2% headwind, I think you said generally pricing is about 1.5%, I guess maybe I misunderstood how this works, but I thought copper given that’s pastor would actually be a positive factor given a direction for sales this year. Is there an offset from a positive copper in that lock somewhere?

I think if there's a bit of a trailing effect a copper. So I think what we're going to see in the early part of the year is the lower prices that were in place in the latter part of 2016 as the year goes, yes, we should see that turnaround assuming that copper prices remain where they are. I think also the hide markets are a big factor in that as well.

Okay, and then last one on M&A. I just wondering, I thought I mentioned in the acquisition you something about non-automotive materials, I was wondering if you could expand there or non-automotive business. And then just more broadly, given the commentary before about increasing electrification how does a content opportunity there, should we begin to think about tuck-ins more in E-Systems versus like the fabric type tuck-ins that you've been doing recently?

Well, we like to do both. We're always looking for ways to improve our business through acquisitions and so we're laser focused on adding capabilities in increasing our both businesses getting back to the fabric piece of it. When we bought Guilford, Guilford was approximately $400 million in sales and of that $400 million, roughly $100 million of it was non-automotive and we retain a business as a make fabric or folks like Nike and Under Armour is certain about our core application. With AccuMED, we will basically double the size of that non-automotive business. Give us a mass, but also it has technologies that have many applications on the automotive side. So we think that was the perfect sweet spot for fabric in that, not only improved on non-automotive business, but also had a read through in a carryover into the automotive made that fabric business better. Getting back to acquisitions, we are constantly looking at businesses that going to add to our component capabilities in either side of the house, we would love to grow our E-Systems division. We're out there looking to find acquisitions that fit from a product and strategy standpoint that it would either diversify our customer mix, improve our component capabilities, our geographic footprint, and do it and this is the hard part at a multiple that makes sense for our shareholders. And that's taking into consideration the fact that Lear is so grossly undervalued and also that we would get synergies for many of these acquisitions. We realize that the multiple will be higher than Lear’s discounted multiple and most of the things that we would buy for that and a cell phone stop us if we get ultimately the returns for our shareholders when you take into consideration sales growth and synergies. So we’re out there looking, we’re remaining disciplined, I think the beauty of our financial situation and liquidity profile is that we have ample opportunity to make the right investment if became available, not unlike [indiscernible] did for us.

Okay. Thanks a lot.

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

Good morning, guys. Can you hear me?

Good morning, Murp. How are you doing?

Good. Just another follow-up question on NAFTA, to beat a dead horse here, but I mean as we think about the delta between operating in Mexico and the U.S. for you, it really centers around labor costs as far as I understand and I would guess right now your labor costs were up 15% of your operating cost roughly on average and they're probably a third of that in Mexico? So when push comes to shove something that would be a 10% [indiscernible] whether it would be border tax adjustment, border tax or tariff would give you potentially motivation to move products back to the U.S. or something below that would kind of give you motivation to you find ways to offset it, but other ways. It is that kind of a decent way to think about this?

Yes, more or less that would also probably add in freight costs or in things are more cost to move if you will and so it depends on the freight as well that's an impact. If you look at frames for instance seat structures, they don't typically ship as well as maybe seat covers in 100 stacked up a little bit better over the road. Murp, you're got the basic equation. Correct.

Okay. And then there is a couple of housekeeping because it’s been kind of a crazy morning here. In this recent update that you lost for sales, I mean I would assume Jeff obviously they're kind of stacks up throughout the income statement and that's kind of runs through all your costs that we matched those sales that would have come otherwise in those three days. Is that a correct assumption?

Yes and I think the impact for example in the fourth quarter, if you exclude FX and commodities our sales were up 1%. If you were to would just for those three days, our sales in the fourth quarter would have been up around 5%. So it had a pretty significant impact on the quarter.

For the cost recognition matched those sales, so there is not…

Yes, [indiscernible] breakdown. It would fall right through the income statement.

Okay, and then just lastly on the backlog, I mean it sounds like you’re still biding on a lot of stuff for 2018, 2019, you’re looking at $1.25 billion or $1.3 billion rolling on in 2017. As we look at 2018 and 2019, is there enough business that you're bidding on where you can see 2018 and 2019 up eventually be in that same range is what's rolling on in 2017, or is there just really hasn't been a lot of opportunity in 2017 and you might not see a number quite that big in 2018 and 2019? I’m just trying to gauge the incremental upside in those numbers?

I think we could, I just want to point out 2017 is a record backlog year in history of Lear Corporation. We are bidding on a lot of programs, but we're also maintaining our financial disciplines to make sure that whatever comes in we can provide the proper returns on capital if you will. I think there's ample opportunity to move both those numbers up in a meaningful way. I would just caution a little bit that 2017 is a record backlog year for Lear Corporation, couldn’t happen absolutely. There is not out there were could get there. But I wouldn't necessarily model it, John.

Okay. Thank you very much, I appreciate it.

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

Thanks very much. Hey, I wanted to just ask you a question about sort of the margin cycle. You guys have done pretty amazing job with improving the margins in Seating and getting the yield on the E-Systems this cycle. And as we think about maturing cycle where we are right now, globally and some of the changes that we're seeing whether would be electrification or autonomy? I’m wondering how we should think about the contribution margins going forward. And supposing, we were to see electrification develop more quickly with the initial investment expenses related to that a result in a short-term burden to margin and you'd be able to realize a benefit or would you be able to manage through a change like that without a meaningful impact to the profitability of the business?

Yes, I don't think…

I don’t think we have a material impact. We would be able to manage through, I think we can sustain of margins with that evolution. Yes, you'd see higher development costs, but I also think you'll see some benefits on the contribution because of the content gains in that segment, which will probably wash yourself out. I think these margins are sustainable in both product segments. If we see a plateau in North America at these levels that would be actually really pretty good, if it would sustaining itself at a high level, we’re seeing growth in our markets be in China or Europe. So the content gain, I think would offset the incremental development costs.

You wouldn’t have to see a big burden in incremental engineering beforehand that, I mean just program expenses related to that sort of thing. I mean typically when you see a big expansion of a new product profile like that you do see front end burden of engineering…

We've been engineering these types of programs for a while, so we have a base capability so it wouldn't be so much development as much as it would be application kind of engineering. You could see – Matt you could see a attempt here and there our margins, but I don't think it's meaningful I mean in any given quarter, you could see a modest erosion, but I wouldn't think that it would dramatically change the margin profile of the segments, because we’ve core capabilities already in 48-volt hybrid and electric. So really more it's about application as opposed to pure development.

Okay. Thank you, guys. Appreciate it.

You're welcome.

Your next question comes from the line of David Tamberrino with Goldman Sachs. Your line is open.

Great. Thank you for squeezing me in here. A couple of questions from some of your comments earlier just on the backlog that you're just discussing in 2018 and 2019 kind of said you're bidding on a lot of programs, but you want to maintain financial discipline, curious what the reads are is that what you're seeing in the marketplace from a pricing perspective with some of your competitors?

Well, I think the pricing environment is pretty consistent in E-Systems. I think it's a fairly disciplined approach where folks are more aligned to their cost of capital in relation to development costs and what the market to bear, really where we are seeing some chop in the pricing environment has been on the seat side largely driven by competitors trying to build a backlog, so they can start the business. That's nothing new. That’s we've seen irrational or unsustainable pricing in the past in that segment while somebody trying to add business that's not Toyota or someone trying to penetrate North America. Through all of this, we've maintained our pricing discipline and been able to grow the business at profitable margins and expect that to continue. We will not subsidize customer or chase programs and grow for the sake of growing. What we will do is provide a value equation for our customers that recognizes our industry leading footprint and capabilities in that business and for that we would expect a fair return and that's what's been happening. We expect to continue to grow the business in both segments and maintain a margin profile.

That’s helpful. And have you seen any change in a way that your customers are quoting someone of that business either in the elongation platforms giving you more volume over a multiple years or any additional upfront savings to get longer volume or winning programs?

No, it's consistent. I mean the upfront savings is a practice that’s been going on for many years. We haven't seen a change in that nor have we seen really a change in the lead times or it's fairly consistent. I do believe this though when we're engaged early on a total solution, we can provide the best solution to the customers at the lowest possible cost and certain customers are seeing that and embrace it and I think in the end they get the best product that highest craftsmanship at the lowest possible cost. And so that's what we're encouraging our customers to do. Now the flipside is if they want to buy a direct component or a build the print seat, we can make a nice return doing that as well and provide a world-class component at lowest possible cost. However, we believe when we're engaged early with a total system solution and specifically in Seating that's the best way to go, because you will get a [high craft] to seat when we balance in our capabilities on sewing, fabric, leather, foam and [indiscernible] access to structuring all by the way and how it's assembled, because that's part of the equation as well. So we encourage our customers to buy early and buy often.

Understood. And just kind of coming back in on – if you were forced to footprint based on the new administration and different tax policies what they could do either an import tariff either renegotiating NAFTA or the border adjustment coming through the house. How quickly and what type of cost could we be looking at from an investment and CapEx point of view moving some of those different component north of the border from Mexico into the U.S.?

It probably 12 months we can move pretty quickly and pretty much every component. I would say on prior looking at about a 12-month, possibly 18-month as a tougher components capital that could probably increase by 10% to 7% in a near-term capital spending, so nothing really to incredibly dramatic on the investment side.

Got it, and then just last one for me. On the commodity price headwinds I think when I'm breaking out that the price versus commodity it's maybe a couple hundred million? What's a paster mechanism there and how much of a lag do we typically see?

It's different little different by commodity I think would steal a good portion of our by there 90% or so is either directed by the customer or provided to us in a fabricated foam. On copper it's a more near-term index agreement where about 90% of our copper buy is indexed with the customer. And then on hide, it's a more of a longer lead time index agreement and I think about 60% of our hide market purchases are indexed and the other 40% is really handled through commercial discussions.

Understood. Thank you very much for the time.

You’re welcome.

Your next question comes from the line of Ryan Brinkman with JPMorgan. Your line is open.

Hi, good morning. This is Samik on behalf of Ryan Brinkman. I just want to sort of the first question, I'm sorry to go back to the backlog and ask about what I'm trying to do is trying to get a sense of the margins that you will be converting the backlog in 2017, because when I look at full-year, you are guiding throughout the $65 million of incremental COI on $900 million of incremental revenues. So I'm just trying to get a sense, what are the nature of the magnitude of the launch costs or what sort of mark incremental margins we should be assuming on the backlog?

Yes, the backlog typically comes in at 7% to 10% incrementals and what offset is the slight step-up in launch costs. Our launch costs will be slightly higher in 2017 as opposed to 2016 if you will. And the incrementals it depends on the program, the location, the content each program has a slight it's own Financial DNA if you will, but I would say if you model 10% that's probably right number.

Okay, got it. But secondly, I did want to ask on your E-Systems portfolio and I know you have V2X communication capabilities with the proposal out there to mandate V2X communication on vehicles. I know it’s out for us sort of common period right now, but are you seeing any change in autumn vehicle is common to you part of the V2X communication that we put on the vehicles? Is there more attachment that you're probably looking at?

Yes, it's a great question. I'm going to turn it over to my President of E-Systems, who is here in a room with us, Frank Orsini. Frank, can you give some guidance on this?

Yes, absolutely. So from a V2X standpoint and the proposed ruling that's out there right now with the government. We see it as a tremendous opportunity for Lear Corporation. Matt mentioned earlier, we acquired Arada Systems in 2015, that acquisition brought 15 years of experience in V2X to Lear with 20 global deployments all over the world with V2X technology on the infrastructure side. It also brought 50,000 of our units in production in various infrastructure deployments and again that's all over the world. So we're working and leveraging that unique position with our customers because Lear Corporation now brings both in vehicle solutions as well as the infrastructure side of the business as part of that, so very excited about the opportunity. We are an industry leader on the infrastructure side. We have numerous programs in development where we're adapting and developing models that allow us to move power and signal related to V2X in particular, autonomous data capitation modules. We're working on cyber security firewall modules right now. As Matt mentioned earlier, there is a lot going on. So for us, the whole concept of the V2X becoming a reality plays right into our core strengths and we're very excited about it.

Got it. And just one last question if I may and this is probably for Matt. There were a lot of questions today and a lot of discussion about seating solutions for semi-autonomous and autonomous vehicles and how those are low and when did you start working on those? So when I was listening to those, I sort of wondering in terms of your M&A console doing more of interior solution like moving outside of seating and do interior, luxury interiors.I know you’ve sold your interior [accessing the past], but when you look at fully autonomous vehicles, is that a complete solution that were something strategically interesting?

No, I don't think it interest us, you’re right, it did sell our interiors business. For us, we think there's ample opportunity to grow the business without extending into third way. We think the two products segments are converging, both our E-Systems with software and intelligence Seating. And so I don't think an extension into the interiors business is required in order to be successful of the seat maker in an autonomous environment. So I don't anticipate that happening.

Got it. Very helpful. Thank you.

You’re welcome.

We have one more question from the line of William Keller with Northcoast Research. Your line is open.

Good morning. Thanks for taking the question.

You’re welcome.

Earlier on the call you mentioned the cyber security and team of experts perhaps that you would brought on, I’m wondering if that’s one of the acquisitions you’ve mentioned or if that's a separate hiring effort and if you could maybe elaborate a little bit on what exactly they're working on if there's a new products that might be coming to market based on that expertise? Thank you.

Their group reports to Frank our senior gets of these systems. Frank?

So the two acquisitions that we made both Autonet and Arada brought cyber stack capabilities for us and software. Both companies had very strong product offerings that were already in place. From the time of the acquisition, we’ve continued to elaborate on those solutions and continue to build and develop it. And what Matt was referring to earlier on the calls. We've been bringing in a lot of talent to lead our cyber security activities and we hired a gentleman by the name of Dr. André Weimerskirch, very well known in the industry and in fact he's extremely well known in the auto industry and other industries for cyber security and capability and he's a tremendous leader, so we're very excited to have him leading this activity for us. And in terms of products and development in this area, the connected gateway models that we're developing right now with some of our European customers have cyber security capabilities that we're building into those. We've been awarded a firewall module in Europe as well that will have full-blown cyber security capabilities. And so it's proliferating into our product offerings and these are business awards that we have on the firewall module already that we will be putting in a production in the 2018, 2019 timeframe. And André is leading that activity force and we are building a team around André, we had some great hires. So we're very excited about it because it is core to what we're trying to accomplish in connected car activity.

Excellent. Thanks again. End of Q&A

You’re welcome. With that, I think it pretty much concludes the question side of the call and for those that are remaining I think a large majority must be Lear employees and I want to take this opportunity first and foremost to thank the finance organization for all the work and getting those closed and preparing all the analysis that makes a call like this so successful. To the broader team these results just don't happen. We realized that as a leadership team, these results are an outcome of teamwork, hard work, laser focused and dedication. And for that you have to thank the senior leadership team and my personal gratitude for all your hard work. We still have a lot of work to do with it, but I know if we pull together we'll kick some series [indiscernible] in 2017.

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