# CHAIRMAN'S LETTER

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_LEA_2017/NYSE_LEA_2017.mmd` · pages 2-8_

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CHAIRMAN'S LETTER

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Ray

Last year was an exceptional one for Lear. The Company celebrated its 100-year anniversary, management delivered the best financial results in the Company's history, and we continued to strengthen our global capabilities with organic investments and strategic acquisitions.

We also announced a change in the leadership of the Company. Ray Scott, former Executive Vice President and President of Seating, was appointed President, Chief Executive Officer and a member of the Board of Directors, effective March 1, 2018. Ray replaced Matt Simoncini, who served as CEO for the last six of his twenty-one years of service to Lear. Matt was an exceptional leader and a driving force in improving the culture and building a high-performing team. During his tenure as CEO, Lear delivered industry-leading financial results and superior shareholder returns. On behalf of the Board of Directors and all of our stakeholders, I want to sincerely thank Matt for his dedicated service and wish him and his family the very best in the future.

Going forward, you can expect Ray to continue with the Company's balanced strategy of investing in the business to improve competitiveness and drive profitable growth, maintaining a strong and flexible financial position, and returning excess cash to shareholders as we strive to take Lear to the next level.

Since 2011, Lear has invested \(5.5 billion in strengthening the Company through capital expenditures, strategic acquisitions and footprint actions. With these investments, we have established an industry-leading product portfolio and cost structure. This strategy, combined with continued strong execution, delivered a total return to shareholders of 35% last year. Over the last five years, Lear's total return to shareholders was approximately 300%, almost three times better than our peer group and the S&P 500. Today, the Company is in the strongest competitive position ever and is extremely well positioned for future success.

We also have an outstanding record of returning cash to our shareholders. Since we initiated dividend and share repurchase programs in 2011, we have returned more than $4 billion to our shareholders, which includes buying back 42% of our shares outstanding and steadily increasing our quarterly cash dividend.

Lear's Board of Directors remains committed to transparency and good corporate governance and I am very proud of the Company's industry-leading financial results and corporate governance ratings. Working together with the management team, we are focused on exceeding customer expectations, delivering superior shareholder value and sustaining our success.

Sincerely,

Henry D. G. Wallace
Non-Executive Chairman
March 15, 2018

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# LEAR
CORPORATION

$20.5B

total sales

$3.2B

consolidated backlog

#151

on the Fortune 500

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[NYSE: LEA]

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165,000

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Employees with 5,500 engineers globally

257 20 engineering centers

39 22 countries including low-cost countries

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IMPROVING
COMPANY
ADJUSTED
OPERATING
MARGIN*

# >>>>>>>>>>>>>>>>>>>>>>

*Adjusted Operating Margin and Free Cash Flow are non-GAAP financial measures. Information regarding our use of non-GAAP financial measures, as well as reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States, can be found in our fourth quarter 2017 earnings presentation through the investor relations link at lear.com.

2 Lear Corporation 2017 Annual Report

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## CEO'S LETTER

In 2017, we continued to deliver superior results, as the investments that we have made in our business are paying off. We achieved record performance in all key financial metrics and we further strengthened our product capabilities in both business segments.

Today, we are in the strongest overall competitive position in our 100-year history. Going forward, our unique product capabilities and industry-leading cost structure will allow Lear to continue to deliver profitable sales growth and superior value to our customers and shareholders.

## Record Financial Performance

Last year, we set records in all key financial metrics, including record sales of \(20.5 billion, record core operating earnings of \)1.7 billion and a record Company adjusted operating margin of 8.4%. This was our 8th consecutive year of improving financial results. Both of our business segments performed exceptionally well, delivering record sales and operating earnings.

Results like this don't just happen. They are the result of having the right strategy, financial discipline, strong execution and the significant investments that we have made in our business over the last decade. We continued to provide superior value to our shareholders. Our free cash flow yield was 11%, the best in our peer group and among the top 10% of all companies in the S&P 500. We also increased our annual dividend from \(1.20 to \)2.00 per share and repurchased 3 million shares or 4% of our shares outstanding at the beginning of the year. This brings our total share repurchases since 2011 to 44 million shares or 42% of our shares outstanding at the time the program was initiated.

## Investing for Profitable Growth

Since 2011, we have invested \(5.5 billion in our business through capital expenditures, acquisitions and footprint actions. With these investments, we have established an industry-leading product portfolio and low-cost footprint.
Our strategic acquisitions include Guilford Performance Textiles and Eagle Ottawa Premium Leather in Seating and Arada Systems and Autonet Mobile in E-Systems. During 2017, we completed the acquisition and integration of Grupo Antolin's automotive seating business, further strengthening our market share with key European customers and expanding our seat component capabilities. In E-Systems, we announced an agreement to acquire EXO Technologies, a leading developer of differentiated GPS technology providing high-accuracy positioning solutions to support autonomous and connected vehicle applications. The EXO acquisition closed in early January 2018.

## Unique Product Capabilities

Lear's unique product capabilities in both business segments provide a significant competitive advantage.

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"I BELIEVE THAT THIS IS A GREAT TIME TO INVEST IN LEAR. WE HAVE THE STRONGEST TEAM IN THE INDUSTRY, A FOCUSED STRATEGY THAT IS DELIVERING SUPERIOR RESULTS, A GROWING MARKET SHARE IN BOTH BUSINESS SEGMENTS, A FOOTPRINT THAT IS SECOND TO NONE, A WELL-ESTABLISHED AND GROWING POSITION IN CHINA AND A RECORD THREE-YEAR SALES BACKLOG OF $3.2 BILLION."

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# CEO'S LETTER, continued

In E-Systems, Lear has leading product capabilities to deliver electrical distribution systems for both traditional and high power vehicle architectures. In addition, our electronics product portfolio includes a broad range of capabilities to manage power, signals and data within the vehicle, as well as with other wirelessly connected vehicles and external networks. With advanced software capabilities, delivered by over 600 in-house software engineers, Lear offers advanced features like over-the-air software updates, eCall and remote vehicle commands. All of this capability is protected by a dedicated and highly capable cybersecurity team delivering industry-leading development processes and technology.

In Seating, Lear is the most vertically integrated supplier in the industry, capable of producing 85% of the content of a seat. With the most complete component offerings of any seat supplier, including unmatched capabilities in surface materials, Lear is able to offer unique seat designs and execute them with the highest level of craftsmanship, which we refer to as Crafted by Lear \( ^{TM} \) .

As the only seat supplier with a captive electrical and electronics business, we can integrate sophisticated software, electronics and sensors into our seats to offer the advanced functionality found in our INTU \( ^{™} \)  intelligent seat.

## Aligned With Industry Trends

Lear's unique product capabilities are perfectly aligned with increasing consumer demand for more comfort & convenience features, premium levels of quality & craftsmanship, vehicle safety, connectivity and energy efficiency. In addition, the rapidly growing mix of crossovers, SUVs and luxury vehicles supports increasing content for our business globally.

China, the world's largest and fastest growing automotive market, represents a major growth opportunity for Lear. The Company has established a significant presence in China with 45 manufacturing facilities, 5 major engineering & technology centers, 26,000 employees and sales of $4 billion, including our non-consolidated joint ventures. Over the next five years, we expect our total sales in China to reach $7.5 billion.

Over the next ten years, global industry penetration rates are expected to reach 40% for electrified vehicles and 75% or more for connected vehicles. These two trends, and later autonomous vehicles, represent significant incremental content opportunities for Lear.

## Unparalleled Investment Opportunity

Lear is a high-performing company that is well positioned for future success. We have made tremendous progress in strengthening our Company, delivering the highest quality products and service to our customers and earning superior returns for our shareholders.

Our total return to shareholders last year was 35%. Over the last five years, we have delivered a total return to our shareholders of approximately 300%, almost three times the return of our peer group and the S&P 500. Despite our record of out-performance, Lear shares remain at a discount to our peer group.

This will be my final CEO Letter, as I recently announced my plans to step down as president and CEO. While I will continue to serve as an advisor to the Company until the end of the year, Ray Scott will be assuming the role as president and CEO. Ray is our most experienced operating executive and he has a record of outstanding accomplishments throughout his 30-year career at Lear. I cannot think of a better leader to take the Company forward.

Sincerely,

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Matthew J. Simoncini
President and Chief Executive Officer
February 28, 2018