Ed Lowenfeld - Vice President IR Matt Simoncini - President and CEO Jeff Vanneste - Chief Financial Officer.

Rod Lache - Deutsche Bank John Murphy - Bank of America Merrill Lynch Ryan Brinkman - JP Morgan Itay Michaeli - Citigroup Pat Archambault - Goldman Sachs Brett Hoselton - KeyBanc Joe Spak - RBC Capital Markets Ravi Shanker - Morgan Stanley Colin Langan - UBS Brian Johnson - Barclays.

Good morning ladies and gentlemen. My name is Ryan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute, in order to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

(Operator Instructions). I would now like to turn our call over to Vice President, Investor Relations Ed Lowenfeld. Please go ahead, sir..

Thank you, Ryan. Good morning, everyone. Thank you for joining us for our second quarter 2014 earnings call. Our earnings press release was filed this morning with the Securities and Exchange Commission, and materials for our earnings call are 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 we begin, I'd like to remind you that during the call, we will be making forward-looking statements that are subject to risks and uncertainties.

Some of the factors that could impact our future results are described in the slide titled Investor Information at the beginning of the presentation materials and also, in our SEC filings. In addition, we will be referring to certain non-GAAP financial measures.

Additional information regarding these measures can be found in the slides labeled non-GAAP financial information at the end of the presentation materials. Slide three shows the agenda for today's review. First Matt will provide a company update then Jeff will cover our financial results and outlook and Matt will return with some wrap up comments.

Following the formal presentation we'll be pleased to take your questions. Now please turn to slide four and I'll hand it over to Matt..

Great, thanks Ed. In the second quarter we continued our positive momentum with very strong operating results. Sales in the second quarter were $4.6 billion, up 11% from a year ago and more than tripled the global production increase of 3%.

Core operating earnings were up 23% to a record $275 million and earnings per share increased 31% also a new record. Both of our business segments reported record sales and grew significantly faster than the industry in the second quarter. In CD operating earnings increased from a year ago.

In our logical business we again achieved record sales and earnings. We also continue to return cash to shareholders. During the quarter we returned $172 million to shareholders through share repurchases and dividends.

Based on our strong performance we are increasing our 2014 outlook which Jeff will discuss in more detail little later in the presentation. Slide five lists several key elements of our strategy. We are filing a balanced approach of investing into the business, making a strong and flexible balance sheet and returning cash to shareholders.

We have the product expertise, global reach, competitive footprint and financial flexibility to profitably grow our business. We're also well positioned for significant industry trends towards global platforms, direct performance sourcing and increased electrical content.

We plan to continue to invest in the emerging markets and increase our component capabilities in both business segments to improve our market position and returns. We also continue to pursue our acquisitions that will complement our present product offering. So we'll take further diversification of our sales and increase our component capabilities.

We’re focused on following the strategy and believe doing so will continue to drive value for our shareholders. On the next few slides, I’ll provide some perspective on performance on several of these key elements over the past few years. Slide six, highlights our financial performance since 2010.

Our sales and adjusted EPS have increased for four consecutive years and we’re on track for fifth consecutive year of higher sales and earnings per share in 2014. Our sales have grown in the average rate of 1% per year since 2010, which is more than double the rate of the global industry.

Both our business segments are up outpacing industry growth rates and gaining market share reflecting Lear’s capability, global reach and cost structure. And we continue to win new business and further diversify our sales.

From 2010 through 2013, we generated almost $1.6 billion in cumulative free cash flow and since we began our share repurchase and dividend programs in 2011, we have returned $1.9 billion to our shareholders. Slide seven highlights the expansion of our component capabilities in emerging markets and low cost countries.

We believe this strategy has improved our competitiveness enabled us to better support our customers and provided platform for future growth. We also believe these actions are aligned with increasing customer trends towards global platforms, localized content and increased direct-to-component sourcing.

Since 2010, we have invested approximately $450 million to open 24 new component facilities in low cost countries. More than 80% of our component facilities and more than 90% of related workforce are now located in low cost countries.

Our sales in new component plants are forecasted to be over $1.5 billion this year and we believe they will be future drivers of sales and earnings growth. Slide eight, highlights our acquisition strategy.

We’re focusing our efforts on craftsmanships and innovation to differentiate Lear in the marketplace, improve our quality and continue to provide value for our customers and our shareholders. We followed a disciplined approach to acquisition taking into account the strategic fit and valuation.

We are pursuing acquisitions that will accelerate growth and improve returns. We're targeting acquisitions that will enhance our present product offerings, facilitate further diversification of our customer mix, increase our component capabilities and increased our exposure with customers in emerging market.

The Guilford acquisition is a great example of the type of acquisition we are pursuing. Guilford strengthened our industry leading cut-and-sew operations, provides access to customers, and adds design as well as manufacturing efficiencies that otherwise would not have been available.

This acquisition has provided incremental growth opportunities and enhanced the margin profile in seating. Slide nine highlights improvements we made to our capital strategy while at the same time returning significant cash to shareholders.

Over the past two years, we have access the capital market several times to reduce our borrowing costs, extend our debt maturities and improve our liquidity profile. During this time, the rating agencies have recognized our efforts with rating upgrades.

Our strong capital structure provides Lear with significant financial resources and flexibility which allows us to invest in our business and drive profitable growth. In 2011, we were one of the first automotive suppliers following the industry downturn to initiate a share repurchase program.

Since the beginning of 2011, we have repurchased 28.2 million shares or approximately 25% of our outstanding shares. We’ve also increased our dividend for each of the last three years. Now I would like to turn over to Jeff who will take you through our financial results and outlook..

Thanks Matt. Slide 11 shows vehicle production in our key markets for the second quarter. In the quarter, 21.4 million vehicles were produced globally up 3% from 2013. Our major markets showed increases with China, North America and Europe up 12%, 4% and 2% respectively. Industry production in Brazil declined 23%.

Slide 12 shows our financial results for the second quarter of 2014. As Matt mentioned our sales which were up 11% continued to grow faster than the overall market. The increase in sales in the quarter primarily reflects the addition of new business and increased production and key Lear platforms.

In the second quarter, pre-tax income before equity income, interest and other expense was 233 million, up 32 million from a year ago. Interest expense was 15 million in the second quarter, down 3 million primarily reflecting interest savings related to the refinancing of our 2018 and 2020 notes.

Other expense was 17 million in the second quarter, up 7 million primarily reflecting losses associated with foreign currency fluctuations and net income attributable to Lear was 149 million in the quarter, up 11 million. Slide 13 shows the impact of non-operating items on our second quarter results.

During the second quarter we incurred $43 million of restructuring cost primarily related to capacity reductions in Europe and various census related actions. Excluding the impact of restructuring cost and other special items, we had record core operating earnings of $275 million, up $51 million from 2013.

Adjusted for restructuring and other special items, net income attributable to Lear in the second quarter was $174 million and diluted earnings per share was up 31% to $2.12 per share. Slide 14 shows our second quarter adjusted margins for the total company as well as for both business segments.

Total company adjusted margins were 6% in the quarter, up 60 basis points from a year ago, reflecting improved performance in our electrical business.

In seating, sales of $3.4 billion were up 12% from last year, with adjusted earnings up $19 million or 10% Adjusted margins were 5.7%, down slightly from a year ago, but up from the 5.5% margin in the first quarter of 2014.

The increase in earnings from a year ago primarily reflects strong sales growth, favorable operating performance and the benefit of operational restructuring, partially offset by the impact of key program changeovers. Our full year margin outlook for seating remains in the 5.5% to 6% range.

In electrical, our positive momentum continued into the second quarter, with record sales and earnings. Adjusted margins were 12.5%, up 280 basis points from a year ago reflecting favorable operating performance and strong sales growth.

Given the strong performance in the first half of 2014, we expect full year margins in our electrical segment to be approximately 11.5% to 12%. Slide 15 provides a summary of free-cash flow which as 137 million in the second quarter.

Slide 16 highlights the key assumptions in our 2014 outlook which reflects the latest production assumptions in our major markets. Global production of 85.7 million units is up 1% from our prior guidance with Europe up 2% and North America up 1%.

Our 2014 financial outlook is based on an average euro assumption of $1.37 per euro which is down 1% from our prior outlook. Slide 17 summarizes our 2014 outlook. Based in our strong performance in the first half of the year we are increasing full year guidance.

For 2014 Lear expects net sales in the range of 17.6 billion to 17.9 billion, up from the prior guidance of 17.2 billion to 17.7 billion reflecting higher production on our key platforms.

Core operating earnings are forecasted to be in the range of 975 million to 1.025 billion, up 40 million from the prior outlook reflecting increase in sales in first half performance. Tax expenses estimated to be in the range of 270 million to 285 million.

Adjusted net income attributable to Lear is forecasted in the range of 610 million to 645 million. Pre-tax operational restructuring costs are expected to be approximately 90 million, up 25 million from the prior outlook reflecting planned consolidations in Europe and other senses related actions.

Free-cash flow for 2014 is forecasted in the range of 400 million to 450 million which is up 25 million from our prior outlook. Now I'll turn it back to Matt for some closing comments..

Great. Thanks, Jeff. I thought we had a great quarter. I thought the Lear team did an outstanding job. We remained focus on driving continued improvement in the business, improve quality and cost for our customers and returns for our shareholders. We continue to invest in the business and return cash to shareholders while improving our competitiveness.

And with that I’d like to open it up for questions, Ryan..

(Operator Instructions). Your first question comes from the line of Rod Lache from Deutsche Bank. Your line is open..

Good morning everybody.

Can you hear me?.

Yes, good morning Rod..

Couple of things, first on the electrical business in 2012 and in ‘13 your margins were actually higher in the back half than they were in the first half is I guess a pretty steep trajectory over that timeframe.

I am wondering why are they [15] something specific in the second half of this year that would cause the electrical margins to moderate meaningfully from what you were seeing in the first half or is there some conservatism that’s parted in there?.

No it’s a pretty clean first half Rod. The business obviously is performing quite well. I think it’s benefiting from a lot of restructuring efforts that we’ve made there and it also benefited to the first half of pretty strong and volume we see sales decreasing slightly in this segment in the second half versus the first half of the year.

And so really that’s more than anything..

Just seasonality of the sales level and some….

I mean this business had a big exposure to Europe or bigger percentage exposure to Europe as seating and with the third quarter being down for the normal season shutdown season in Europe which extents a little bit longer than it does in North America and it impacted a little bit disproportionally it also benefited to the first half of a pretty strong mix on a product that we apply content, high content..

Okay. And secondly, could you give us a little bit more color on what you're saying in terms of the drivers of the seating business.

You've said obviously a very focused on the turnaround in South America, is that business still loss making, do you still think you can get breakeven there even with the headwinds in terms of production at the end of this year and what do you think the exact rate could be maybe on the North American structures business?.

Let me start with the first. North American structure business had a very strong quarter, still not where it need to be but it return to profitability. We are still working through some structural issues as well some commercial issues with our customers in a collaborative way. So made a nice job, the team did a really nice job in that segment.

South America is a little bit more of the challenge, which we are trying to make corrections in a very dynamic environment which includes inflation as well as volume cuts specifically in Brazil.

So we did make improvements sequentially from the first quarter, it’s still not profitable on the seat side, but we would expect that to continue through the end of the year, we expect to get closure to breakeven by the time that we exit. Our guidance is based on improving to the second half of the year in that segment..

You think, you can get pretty close to breakeven by year-end there even with the weak, you do?.

I do. We are working with our customers, it is going to take some help from our customers to help us work through some commercial issues and consolidation that needs to get done there to address some of the over capacity and volume shortfalls but yes, I think we can improve..

On the structures business, is there some kind of targeted exit rate that you might be able to share with us, what kind of margin range do you think that business can get to?.

We made a nice improvement; it’s not at the target rate that we needed at to justify the investment yet. The segment overall though meaning structures business when you take into consideration Europe and Asia is doing quite well and is approaching the margins we needed to be at to justify the investment in which we think is in the approximately 10%.

[Electrical], the upside in North American structured business isn’t there yet Rod, nor will we expect it to exit there but we will continue to make sequential improvements every quarter in that segment..

Okay, thank you..

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

Good morning guys..

Hey, John..

Just a first question on slide seven. You are talking about sort of more components and models in emerging markets.

And I am just curious as we think about the receptivity of your customers to larger parts of the car where modules that you would provide, is there the potential for some real margin expansion as you are providing a sort of a larger chunk of the car in the seating and electrical components? And then also as we look at this, you kind of on the last bullet talk about reaching full capacity sometime in the future, meaning you are not at full capacity right now.

So it seems like there could be some more margin potential as you fill up that capacity, just curious where you are in that capacity utilization as well..

Well, it really depends on the component, the market and the program. I think a lot of our facilities in Europe if you will still have open capacity, especially just in time facilities because they have not reached the level of volume that was planned.

I mean while they’ve made a nice recovery, they are still significantly below peak volumes; I think that's an opportunity. Our component facilities in the low cost in Europe are getting fairly full, the same thing in North America. I do think we have opportunities in certain facilities in Asia to increase capacity as well.

As far as the margin expansion and acquisitions John, it really comes down to what the component is and what the return on investment is required to justify the investment.

I do think overall however that acquisitions provide the once we're looking at, the valuations we're looking at would provide an opportunity to not only expand sales and improved quality, but also expand margins..

Okay.

And just a follow up, I mean as you are seeing some of this capacity fill up, do you envision maybe in a year or two an accelerated level of investment spend that might depress your margins or do you think that given your current base of business that as you invest for growth maybe in the next year or two above and beyond what you are doing right now, that you wouldn't see that kind of compression or leveling out in margins..

I really John, I don't see a real need to step up capital expenditures from the way that we have been doing over the last couple of years. It would be great, if we could, because I think that provides a nice return in the organic investment piece of the thing. And we've been able to have nice returns on the capital investments that we’ve made.

I think the rate that we're at currently is pretty good and should allow us to support the backlog that we have into the business that we're winning. I don't really see a negative headwind in that area.

Jeff?.

I would agree, I think there is some structuring that still needs to take place in some instances which may require some capital but other than that just on the book of business..

Okay. Then if we think about that sort of in the context the capital allocation, obviously you guys are being pretty acquisitive on your own stock and with it up 50% in the last year and three times in last two years, obviously it's gotten a little bit more expensive but still looks like a good deal.

I mean as you look at that versus what the stock has done and sort of the acquisition environment that out there, I mean how are you looking at capital allocation because you do have the high class problem of generating a tremendous amount for free-cash flow and not being levered at this point? And it seems like you've been aggressive but you might need to get more aggressive in allocating capital to generate adequate returns on that incremental capital.

I mean how are you assessing the stock versus acquisitions right now and could you get more aggressive on either side?.

Well, I think we're still at discounted space. I think the beauty of our balance sheet and the cash generation that we expect this year, doesn't make one or the other exclusive, I think we can do both.

I like the pace that we're on from share repurchase, the same token I believe if we could buy an asset that would either provide benefit to the craftsmanship and seating or provide innovation and some help in electrical to expand that business a little bit faster.

We do it but it has to be the right strategic fit and it has to be at the right valuation. But I don't think there are either/or questions John at both..

Okay, great. Thank you very much..

Your next question comes from the line of Ryan Brinkman from JP Morgan. Your line is open..

Hi, good morning. Congrats on the quarter..

Thank you..

So it looks like you are raising most or all of the guidance items for the full year in excess of -- relative to the street in 2Q. so I am curious is that your indication that your outlook for the back half of the year is now stronger than before or can’t really say that because I don’t know exactly what you’re assuming for 2Q.

If it is you’re taking it to back half what would you say are the biggest changes to your forecast in terms of geographies or customers there?.

What Jeff said in the call and what I said a little bit earlier is we had a nice first half with a strong mix the fundamentals in the industry from the SAAR to European recovery to the rate of growth in Asia are all really strong, the one kind of blemish would be South American production environment and exchange environment internally I like where we’re at I like the performance.

We’re six months in and we’re a little bit ahead of pace and that’s why we decided from what we see to increase guidance. So, overall it’s a lot of different factors that going to build into projections but those were positive the main drivers Ryan. .

Okay, thanks. And then with this talk of your effort -- I think a lot of people are surprised but it’s been confirmed that those companies there has been some increased speculation that there could be other large industrial combinations in auto parts and sort of that we haven’t seen since the downturn.

So I am curious where do you think the seatings of subset that fits into this if this is some sort of emerging trend?.

I really don’t know, I know we’re not in talks with anybody, you’re a little bit ahead and to speculated somebody else’s it’s really probably a better question for somebody in the investment banking side than for us. We’re happy where we’re in proceeding and we’re in no talks with anybody. .

Got it. Great thanks. And then just last question you’ve given some electrical margin guidance for the full year obviously strong margin result this quarter and in the last quarter (inaudible) and there was talk on the call then that it been some lumpiness of commercial settlements, is that kind of kind of continue to into 2Q or..

No, it was a pretty clean quarter, the team did an outstanding job performing and executing and we benefited from a nice volume on our key platforms and then we expected to be a little bit weaker in the back half, but overall, the team is doing outstanding job..

Okay, congrats on that. Thanks all the color..

Thank you..

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

Great, thanks. Good morning, guys and congrats..

Thanks Itay..

Just wanted to gage, just get to your latest thoughts on the mid-term outlook for electrical both of course margins and then also where you think revenue growth can get to, I mean we have seen this with the mix in the first half growth might be running ahead of expectations.

And kind of how your balancing booking activity I presume there is a lot of opportunity out there for you to grow with the margin objective in mind?.

I think first and foremost on electrical, besides looking at Lear before we look at Lear specifically that segment is benefiting from a real shift with content growth even the traditional architectures, internal combustion architectures has seen a content growth that in excess of 3% a year just not a base business.

More and more content in electrical distribution requirements are going into these vehicles as it has become more complicated have more features and use more computer management to extend mileage of you will. If you couple that with the penetration of alternate energy vehicles I think there is a huge opportunity increase content.

When you look at Lear specifically, I think the restructuring efforts and the product capabilities that we've invested in prior years is really starting to pay dividends now with the win and new business things like connectors facility facilities in China and electronics facility in Northern Africa are now starting to facilitate growth and we would expect that trend to continue.

From backlog standpoint, I think this when you look at your backlog in this segment I think it could easily be in addition $1 billion on the next four or five years..

That’s very helpful and detail.

Then with maybe increased discussion today on M&A Matt hoping you can just review for us your latest thoughts on leverage target maybe gross and net and also just liquidity requirement just given that that you are growing revenue whether any of those has changed at all?.

I think as we have said in the past our leverage target on a gross basis is 1.5 times or less we feel that’s important to maintain the investment grade and credit metrics now that gives us some room obviously from where we are at to get that probably $800 million or so of debt could be added and still stay within that range.

And then we would like to maintain minimum liquidity of roughly 1.5 billion that takes into accounts the peaks and trough of working capital in the business cash that’s not necessarily available for daily use .And then an amount related to set aside for taking advantage of opportunities that maybe out there short term market disruptions et cetera.

So that’s how we view kind of what we need from a leverage and from a liquidity standpoint..

Very helpful.

And then just a quick last housekeeping, it look like other expense you mentioned some of the impacts there it was above the equity income it looks like for the guidance for the full year those two might still be assumed at zero as a thought that other expense trails off in the second half or the equity income rises or maybe a combination of two maybe just help us out there a little bit?.

I think the equity side was the issue with the equity side if there is an issue in the quarter where there is some launch cost incurred in some of the Chinese non-consolidated joint ventures that are supporting new business growth going forward. So, we would see that improving as we go down the line.

And the other expense is really related to the FX volatility that's out there and the revaluation of the balance sheets is associated with that. And some of the currencies have been seemingly over the last several quarters working against this. So, we would see that hopefully overtime bouncing in out and hopefully at some point benefiting us..

Right. That's very helpful. Thanks so much guys and congrats again..

Thanks..

Thanks..

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

Hey, good morning guys..

Good morning Pat..

Just, I guess a couple of follow ups based on the discussion so far. As you think about the margins on the electrical side, obviously you keep on hearing sort of new peaks here.

Can you just give us a little bit of perspective as to how close we are to what you assume kind of to be sort of the sustainable margin? And also maybe just kind of layering on, just what the potential that changed that is, if you kind of shift the mix of business over to connectors, what kind of opportunity there is to sort of bring the margin up relative to the current run rate?.

Well, as everything in the margin is really more of an outcome on the upfront investment whether it's engineering or capital. With us right now we are probably a little bit heavier in wire harnesses than we are in electronics, in connectors, compared to our major competitors in this segment.

With the current capital configuration, of front capital investment, capital intensity. We started returning nicely in excess of our cost of capital in the low 6%. I think the margin profile that Jeff talked about in this business is sustainable and will allow us to continue to penetrate engage here.

If we went into more capital in terms of electronics in a greater way or a heavier percentage whether it's the junction boxes or the connectors then that would be a reason why we could expand margins.

Right now steady state we don't see a major shift in those products as a ratio to wire harnesses, so we believe that we can grow the business at the margins that its currently at and maintain that 1.5% to 2% margin profile..

Okay. That's helpful. And then on the other business segment, since I guess it was the end of last year, a major competitor of your is kind of highlighted that it sounds seating growth would be relatively stable, flat because it was kind of pruning its portfolio.

Just wanted to see has that had any kind of impact on your coating activity in terms of the margin opportunity or things? Is there any evidence that as far as the new backlog is concerned things are getting a little bit more disciplined?.

I think what's important to customers when your quoting is known as who is going to do the business three to five years out. With us there is no question of where we're going to be and what we're going to be doing three to five years from now. We're going to be making the best seats in the world.

And I think that is important to our customer that provides an opportunity, the stability of the ownership, the stability of the organization is incredibly important as you would expect to our customers they would be producing global platforms all around the world.

From a margin standpoint again, margins are reflection more of the upfront, investment everything we do whether it’s capital; acquisitions; restructuring, we look at as a return on investment and coding is different than that.

And the seating segment and its current capital intensity, we’re returning in excess of our cost of capital once we break through the 5% margin. We expect those margins where they’re at right now, they continue to improve but there is a limitation on how far you can push them just because of even with potential consolidation.

There is still competition in the space. But overall from an opportunity standpoint, one or two that can do a global platform and all the related components in automotive producing region in the world.

And if there is uncertainty, one of those suppliers where they’re going to be in three to five years, then absolutely that’s the opportunity for the other one..

Got it. And just kind of tying everything together just on the seating side; it sounds like just to make sure I have this correctly.

Some of the drivers aside from the one we just talked about are the breakeven in the Latin America and as well as increased sequential improvements in the components, is that sort of as you get to your margin target for this year, are those kind of the key levers?.

Those are two key levers, I think there is other ones as well, digesting the growth that we’re seeing on some of the new platforms and making sure that run them efficiently, it’s also seeing continued recovery in Europe.

We made a very nice step in Europe this quarter, digesting the growth that we’ve had there but also taking advantage of some of the volume uptick on our key platforms. We need to see that trend continue. And I think those are probably the major drivers..

Alright, terrific. Thanks a lot guys..

Thank you. .

Your next question comes from the line of Brett Hoselton from KeyBanc. Your line is open..

Good morning..

Good morning..

First, electrical margins, I think the last update, your longer term target rate was going to be 10.5% to 11%. I'm kind of wondering what you're thinking now? You're running at 12%, the last eight quarters your contribution margins of the 29% based on my calculations.

I don't sense that there is going to be any dramatic change in your capital expenditure and/or maybe your backlog coming on line that might drive those margins down. So it all kind of suggests or seems to indicate or point to the idea that your margins and that business likely will continue to go up.

And I don't, I know you don't handspring yourself because you've got across the capital is kind of the mid 6% range and so you might take some 10% business which you kind of pressure your margins. But I don't see doing that at this point in time.

So, how do we think about your longer term margin expectations for that business or maybe even just the next year or two?.

I think Brett, you hit a really good point which is in certain cases 10% margin business would be great business for us, just because of our -- it depends on capital intensity and quite frankly on harnesses, I think you start returning in excess of your cost of capital when you break through the high 5% because it’s not that capital intensive.

So I don't want to handspring the business. But I think on average we can maintain, continue to grow the business and be in 11% to 12% margin rate. Certain quarters will be above that like this one and other quarters might be slightly below it, but on average that’s kind of the range that I think we can manage this business at..

And I guess what I am not necessarily hearing is any particular disruption over the next year or two, step function change and expense spending, R&D spending, capital intensity or I don’t hear any of that, I just -- is this right….

I don’t see anything Brett right now that would disrupt it. I mean there is nothing, our horizon business is dynamic, things change, it’s kind of hard to say where are you going to be 24 months from now more than a narrow range of between 11% to 12% margins on this business.

But there is really -- I really don’t see anything out there if the backlog and production stays and the volume assumptions stay consistent with where we are at right now..

And then switching gears here on an M&A front, it sounds like you like to expand your expertise in your current portfolio of businesses.

Can you maybe provide a little bit more some specific examples of maybe the types of products that you might be looking for? I assume connectors might be an example but can you kind of talk through maybe the two or three or four things around the top of your wish list?.

Yes, connectors would be obviously one. I think in the past we talked about leather that would be another one because it ties into both innovation and craftsmanship; possibly heating and cooling and lumber mechanisms on seating.

I think anything that would help our ability to write software and code, intellectual could also help but really just focusing broadly our craftsmanship and seating and more innovation in electrical..

Okay. And on the capital deployment front, I think Jeff if I understood you correctly, earlier you kind of talked about -- we seem to have about $800 million of capital available. We would like to keep some dry powder for M&A and that sort of thing.

So, I guess my question is your current pace of share repurchase plus your dividend kind of burns free cash flow.

A year from now, two years from now do you kind of think that $800 million in your balance sheet is kind of where you want to be? Or do you kind of look at that go you know what we probably need half of that?.

Well, a lot depends on where the business is, obviously in a couple of years our backlogs are going to be greater and our sales are likely to be greater given the backlog. So it's hard to go that far out and pinpoint kind of what we need, but I don't know, because the direction itself will be much different, maybe the dollar amount maybe different..

Okay. Thank you very much gentlemen..

Thanks Brett..

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

Thanks, good morning everyone..

Good morning Joe..

Maybe just building off that M&A ticklers that you just mentioned.

I mean you have clearly mentioned connectors before, I'm curious would you, does it need to be, do you need to add something that you've already at least have some positioning or would you even consider something like sensors with some other connectors players do as well, that's maybe a little ancillary to the actual business..

Well, we would consider it. It really depends on the technology and the capabilities on manufacturing and tooling specific with that.

So, we want to rule it out, we think there is a convergence of sensors to connectors and lot of players that are in there are in both product lines, we wouldn’t rule it out, but it would have to be, it’d have to be compelling with the capabilities on the connector side..

Okay.

And then just bigger picture on electrical, I know you also, I believe that's almost exclusively, or at least the vast majority is all automotive I was wondering is there any opportunity to take your core competency into other end markets?.

Oh, absolutely I think there is capabilities both in connectors to extend beyond automotive it's very much the same technology.

And I think a lot of our battery charging technology and intellectual properties have applications outside of automotive and I think the electrical distribution also, whether it's heavy truck or white goods will have to have applications to be non-automotive.

And I think that's not just true for electrical I think that's true for seating in some of the precision assembly. Our fabric and (inaudible) capabilities came in with a nice with small book of non-automotive business. And I think that's a great way to spread your technology and leverage your investment and de-risk the company.

So yeah I think there is applications there..

But right now on stuff like the electrical distribution it is our light vehicle for now..

It is our light vehicle for now..

Okay.

And are there discussions with some of those other players?.

I don't want to discuss specific acquisition targets. We would be open however to if the company have both automotive and non-automotive, we would be open to discuss it..

Well I guess organically are you having those discussions with some of the other end markets?.

Always..

Okay.

And then just one quick housekeeping what was launch cost in seating was that on a year-over-year basis pretty neutral in the year or good guy or bad guy?.

It was improved on a year-over-year basis..

Okay. Thanks a lot..

Welcome..

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

Thanks. Good morning everyone..

Good morning Ravi..

There was an urgent question on JCI and Seating and the flow through to you but and EPMS as well your press release mentioned share gains that potential deal win this quarter.

Can you flex out a little bit more are you seeing any shifts in market share and as a result of maybe the fall out of the antitrust investigations or something else out there?.

I don’t want to speculate on why we’re gaining share and whether or not we have something to do with the antitrust that are in certain competitors.

We are gaining share I’d like I think it’s because of our product and our footprint and the investments that we’ve made and our capabilities is at the end of the day I really think that’s what drives sustained growth and I believe our footprint is second to none in the space and I think we’ve got outstanding products and think what’s driving the growth..

Great.

That’s a good segment of our next question which is if you look at the about 500 basis points margin improvement you had in EPMS since 2012, just very roughly how much of that do you think maybe a result of your cost and footprint actions versus growing content in the car versus mix between harnesses and connectors?.

Well it’s a tough question we don’t really play and look at that but I had a factory I guess I probably say half and half..

Half and half, okay. Got it.

And just finally it was good to see your corporate costs come back closer to a normalized level of 1.3% 1.4% versus 1.6%, 1.7% to the last three quarters is that now sustainable downrate do you think?.

Yes, I think so. I think going forward you will see something very similar that through the remainder of the year..

Great. Thank you..

You're welcome..

Your next question comes from the line of line of Colin [Lagnan] from UBS. Your line is open..

Great, thanks for taking my question. Earlier this week GM announced some recalls with seating issues.

Could you just clarify whether you were on any of those platforms and if that's a risk going forward?.

Our history with our customers is that we participate in helping them solve any warranty issues and one of the things that you give -- we as a supplier is the building stand behind our products.

We don't want to specify specific programs, but when you saw many features as we do to every customer in the world, there is going to be no doubt a time when we have a recall, we just taker it's a normalize risk at this point, no different and what it’s been in the past..

Okay.

And then could you clarify if there is any, I mean if there was a substantial recall cost coming you would have accretive for these results or?.

That is correct..

Okay, okay. Any color, if you look at seating, you substantially outperformed in both North America, Europe I would assume pick up’s that something to do with the North America outperformance.

Any color on Europe, why the 12% came well above market, what were the key drivers of that positive mix?.

Well, Europe is benefiting from a volume recovery albeit still below historical peaks, we're seeing a nice recovery there. And I think our business there is strong and that it's a nice ration of luxury and high-end vehicles as well as [AMD] entry level vehicles. So I think, we're very well diversified there.

I also think a key driver to the margin recoveries, all the efforts we have put into restructure that business over the last several years and try adjust capacity and improve our cost structure. So the team in Europe has done a really nice job we still have some work to do there but all in all I think it’s a combination of both..

So I guess I was getting out of the Europe I think was up just 2, but now it’s around 12 so what were the key sort of major platforms help drive that huge outperformance or is it all just new business?.

It’s backlog and FX, foreign exchange and backlog. Euro stronger on a year-over-year basis, we had a nice backlog there.

And I think from a platform standpoint we are on some of the best platforms that are selling over there whether it’s three series C Class, the Audis, Jag Landrover of a small base but they are doing outstanding in the marketplace and we are the basic exclusive seat provider..

Okay. And when we look at the Seating margins they were down slightly despite that very large sales gain. Can you remind us of the big factors, I mean is this really South America or is it really an issue this time last year and the components in North America were not issues, is that the reason why we didn’t….

There is really thousands of puts and takes but probably if I put it down to just one major factor, I would tell you it’s the change over our portfolio. We are going through over the last I want to say a year and half, probably change over that impacts 40%, 50% of our portfolio in seating.

And when you change over it’s not just the launch cost it’s also new programs typically come on at a lower margins than the programs that replaced for several reasons. One, you don’t have years of experience and the efficiencies and the design improvements that you need to kind of get it at low as possible cost.

The second side of it is a lot of these programs went through a competitive bid process which puts pressure on the margins as well. So that's probably one of the key drivers on the margins..

Okay. And just one last question, I noticed when you raised your guidance, the restructuring was also raised.

And so what are the big restructuring actions coming on, I mean is that all focused on South America and the North America component?.

No, it’s those two, but it's as much as anything, Europe as we continue to look for ways to improve our cost structure in Europe. So Europe drives as well..

Okay, alright. Thank you very much..

You’re welcome..

Our final question comes from the line of Brian Johnson from Barclays. Your line is open..

Yes, good morning. I want to as usual from a talk about the electrical business, kind of few more strategic questions. In 2010, electrical was 15% of your core operating earnings, this quarter it was 42%.

Has there been an evolution similarly in the way you spend time on it at the corporate level, where it is in terms of allocating R&D capital, expenditure budget, acquisition targets.

So you have really kind of a two pillar business as opposed to your seating with an electrical side, kind of how is that evolved?.

Even when it was smaller several years ago, I think we spent quite frankly as much time on that business and maybe even a little bit more on it to try to get it to this level. If you look at all investments whether it's seating or electrical on a same type of gating which is again is return on investment.

Even when we were struggling in this business back in ‘08, ‘09, we continued to invest in product development and a lot of those products today are paying dividends, whether it's connectors or junction boxes or the high power.

So, I would tell you that we don't necessarily spend our time based on revenue; in certain cases smaller revenue and smaller profit require more intensity. As far as more capital investment, we'll invest where we get the greatest returns and where we think we can provide most value for our shareholders as opposed to percentage of revenue..

Okay.

And sort of if you think about some of those investments and then I guess couple of questions, very roughly what your split of businesses between those categories of harnesses, connectors and then high power inverters, converters? Secondly, how do you see that evolving sort of over a five year period, especially as OEMs begin, especially in Europe to add 48 volt systems, plug in hybrids, advanced start-stop; do you think that will change? And three, back to the M&A question, are there tuck-ins that would be helpful to get you to that kind of end of decade where there is greater electrification of power trains?.

Well, it’s a big question. Let me break it down a little bit. On the breakdown, it's roughly 60% of wire harnesses; the rest is split fairly evenly between boxes and [Ts and Cs]. In many cases [Ts and Cs] and boxes are converging in that. Some could argue that a box is nothing more than an educated connector. But that's kind of converging there.

The car is becoming a rolling platform. There is no doubt our smart device, our rolling smart device. And it also is using a lot of the features that you mentioned like start-stop to improve the fuel economy and cafe standards. And from that standpoint that’s improving the signals.

That is what’s driving, I think the overall content increase of three plus percent because it’s being balanced also with that, the growth in the industry is coming many times from AMV platforms that don’t have really high electrical content.

So when you balance that all up, we’re really comparable at this point with a type of 3% content growth per year on the overall industry. In certain segments that content growth is much higher and much more mature platforms or sophisticated vehicles or luxury segments, you’re going to see a content growth that’s even higher than that.

As far as hybrid and alternative energy vehicles, there is some estimates that put that penetration as high as 10%. We’re not planning on that. We think it will be much lower than that.

However, it’s still a bit of a wildcard when you look at the Asian market and specifically China on whether or not they demand some level of alternative energy vehicles. And we’re working with some of our Chinese customers to get position in that market in the event that does happen and end up being higher than what we’re planning..

Okay.

And is there any sort of where are you on the 48 volt issue, would that be, some of the European suppliers, we’re talking to OEMs, see a future for that sort of mid decade, later in the decade for Europe?.

It’s a possibility and we have capabilities there. We actually think that that won’t be as greater penetration as others; we think that the basic architecture over the next five years will stay relatively the same. I think the real gains will be coming into wire gauge and the type of material the wire is made out of, aluminum clad or what have you.

So, we don’t really see a major change in the architecture quite frankly..

Okay. Thanks..

You're welcome..

We have no further questions on the line. I would now like to turn call back over to the presenters..

Great. I guess only people left on the line are Lear employees and I want to sincerely thank them for all their hard work, because results like this just don't happen by luck, it come from very hard work and team work. We still have a lot of work to do, it was a great quarter or we have to continue to get better.

So from the senior leadership team, I want to thank all of you and tell you enjoy the rest of the afternoon but let's get busy. Thank you..

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