Aptiv PLC (APTV) 2012 Q4 法說會逐字稿

Good morning. My name is Brandy and I will be your conference facilitator. At this time, I would like to welcome everyone to Delphi's fourth-quarter 2012 earnings 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). I would now like to turn the call over to Jack Monti, Delphi's Director of Investor Relations. Sir, you may now begin your conference.

Thank you, Brandy and thanks so much, everyone, for joining Delphi's fourth-quarter earnings call. Please see slide 2 for disclosure on forward-looking statements, which we will be making on today's call and only reflect Delphi's current view of future financial performance, which may be materially different from our actual performance.

Joining today's call will be Rod O'Neal, Delphi's CEO and President and Kevin Clark, our CFO. As seen on slide 3, Rod O'Neal will begin the call with an overview of 2012 and our 2013 priorities, followed by Kevin Clark, who will review our financial performance in greater detail and provide 2013 and first-quarter guidance. After Rod's closing remarks, we will open the line for Q&A. With that, I will turn it over to Rod.

Thanks, Jack and good morning, everyone and appreciate you joining us as we close out our 2012 year and talk about our priorities for this year. Even with the challenging environment in Europe, we had a very solid quarter in Q4. That was consistent with our previous guidance, reflects our cost structure and we implemented several restructuring initiatives, primarily in Europe and we continue to rotate our footprint to lower-cost countries.

Our performance is a testament to a management team that is laser-focused on operational execution and increasing shareholder value. Delphi has a lot to be excited about and we are going to continue to stay focused on providing solutions to our customers' challenges.

So let's move into the presentation and go to slide 5. Overall, 2012 was a great year for Delphi. While our revenue was relatively flat as a result of a soft market in Europe, and the effect of foreign exchange, EBITDA margins increased to 13.8% and earnings per share grew a robust 38%.

Our credit ratings were increased to just under investment-grade and we were added to the S&P 500, which is a real nod to the confidence we have generated in the marketplace. And throughout 2012, we continued to reduce our industry-leading cost structure, which positions us well to meet the challenges of 2013. And as I have already mentioned, we've implemented several restructuring initiatives as we continue to rotate our footprint, optimize our cost structure and proactively address a softer market.

Now, at the same time, we have continued to invest in strategic growth initiatives. As an example, we completed the acquisition of MVL last quarter. This significantly enhances our position in the automotive connector market. We are excited about the progress we have made in integrating this company into Delphi.

We also expanded our footprint into China, and I will discuss that in a minute. We also continue to invest in our safe, green and connected product portfolio. All of these things have us well-positioned for top and bottom-line expansion in 2013 and beyond.

Let's go to slide 6. In April, I am going to be in China at the Shanghai Auto Show to meet with customers, our partners and my management team. I can tell you that we are more excited than ever about the opportunities within the world's largest automotive market. In 2012, we opened three new plants in China in order to keep up with increased demand. We have additional expansions planned for 2013, including an opening of a diesel fuel injection plant in Yantai in the fourth quarter to serve the commercial vehicle market.

In this past quarter, we completed the expansion of our Beijing operations to handle increased demand for gas fuel injection systems and we will continue to significantly outgrow the underlying market in this high-growth region and we are on track to double the size of our China business over the next four to five years.

So let's move into technology and let's go to slide 7. I said it before about what our mission is and we are focused on solving our customers' problems. That is our value prop. We invested $1.5 billion in gross engineering last year to focus on the megatrends of safe, green and connected. That is really starting to pay off. Our Gasoline Direct Injection technology has really taken hold in the marketplace as a solution for better fuel economy. Our diesel products are getting a great reception as our customers begin to award business that helps them comply with the more stricter Euro 7 standards. We are investing in China because we know that the region will soon be the largest medium and heavy-duty diesel market in the world.

In the area of active safety and our MyFi products, we booked $1.5 billion in new business last year in this arena and with the acquisition of MVL, we now have all the connectors to optimize the entire architecture.

So let's move to slide 8. We will be expanding our Silicon Valley technology center in Q1 to better position us to collaborate with our technology partners as more electronic content enters into the vehicle. Our presence there will help us remain at the forefront of this area.

Let's go to slide 9 to get an example of how we are leading the way. Technology. At last month's Consumer Electronics Show, we unveiled our capability in the connected vehicle space through a collaboration with Verizon. This unique device allows drivers to use their smartphones to lock or unlock the car, protect the car's location and how it is being driven. And even to tell you if there are vehicle system problems and that they are working properly. Our innovation received an Editor's Choice Award from Popular Mechanics at CES and we have already heard from other mobile phone carriers in Europe and in the US who are very interested in the concept.

Let's go to slide 10. We continue to receive accolades for our customers across the globe for exceeding their expectations of quality, delivery [at launch]. So if you look at the chart, you see several customers who have given us awards in the last year. It is continued validation of both our advanced technologies and our operational excellence, which is key to our top-line expansion that I am going to cover now.

Let's go to slide 11. In 2012, we set a new record with $26 billion of new business booking and over the last 12 quarters, we have generated almost $70 billion of bookings and in Q4, we booked nearly $6 billion in new business, including from rising Chinese OEMs like JAC, who awarded us a diesel fuel injection system contract, and from our second-largest customer, VW, an award for electrical services. And you can see from the slide that we continue to increase the geographical diversification of our business. In 2012, Asia represented 34% of our new business bookings. These numbers validate why I am so optimistic about Delphi's future.

Let's go to slide 12. Now although my management team and I are proud of the accomplishments in 2012, we understand that our stakeholders want to know what is next. Even with the expected challenges in Europe in 2013, we know our continued focus on outstanding operating execution will keep us on track with strong results and allow us to increase shareholder value. We will accelerate the continued rotation of our footprint to lower-cost countries. We will continue to integrate MVL and deliver on the promised synergies and we will achieve disciplined revenue growth and further expand margins and earnings per share and we will increase cash flow. And we will continue to deploy capital in a very disciplined manner on our organic growth, our acquisitions, return cash to shareholders.

So to sum it up, we will continue to be laser-focused on creating value for our shareholders. We did it in our first year as a public company. We will continue to work hard to do so in 2013. With that, I will turn it over to Kevin who will cover the numbers.

Thanks, Rod. Good morning, everyone. I will begin by covering our fourth-quarter and full-year 2012 results; then provide 2013 guidance; and lastly, wrap up with our net new business outlook for the 2013 through 2015 period.

In the third quarter, we announced we were implementing proactive restructuring initiatives, principally related to the streamlining of our European cost structure, as well as the integration of the MVL acquisition. In order to provide a clearer view to the underlying fundamentals of the business, today's discussion will exclude all restructuring and other nonrecurring costs. The reconciliation between GAAP and non-GAAP results are included at the back of both the press release and this presentation for your reference.

So let me start on slide 14 with a snapshot of our fourth-quarter results, which, as Rod already mentioned, were in line with our expectations. In a challenging environment, we delivered solid EBITDA margins, earnings per share and free cash flow. Revenue totaled $3.8 billion and that's down 4% after adjusting for FX, commodities, acquisitions and divestitures. Continued weakness in Western European production, which was down roughly 15% during the quarter, proved to be a significant headwind across each of our segments, resulting in an 18% decline in total European revenues.

As a result of our lean cost structure and strong operating execution, we maintained double-digit EBITDA margins in Europe and delivered consolidated margins of just under 13%. Net income totaled $287 million and earnings per share was $0.90. Lastly, we generated free cash flow of $185 million. That was net of a $200 million payment related to the 2010 long-term incentive plan, which was made at the end of the quarter.

So with that as a backdrop, let's move to slide 15 and I will review fourth-quarter revenue in more detail. Reported revenue declined 3.4% to just under $3.8 billion. Volume declined $110 million or 3%. Foreign exchange and commodity prices created a 2-point headwind to growth. Pricedowns were 1.6% at the low end of our expected range of 1.5% to 2%. And acquisitions net of divestitures added $127 million to revenue providing a 3-point tailwind to growth.

On a regional basis, as I mentioned, European revenues were down 18%, the result of continued weak production volumes in both the light vehicle and commercial vehicle segments. Asia continued to be our fastest-growing region. Revenues increased 11%, significantly over market. Within that region, China revenues increased 10%, 6 points above market. Revenues in North America increased 6%, reflecting our specific customer mix, our limited exposure to the Japanese transplants and continued weakness in the automotive aftermarket. In our smallest region, South America, revenues increased 4%, an improvement versus prior quarters, but below market due to customer and platform mix.

Slide 16 reconciles the year-over-year change in EBITDA. Before I get into the numbers, you may recall that, in the fourth quarter of 2011, favorable mix and exceptional operating performance, principally in our Powertrain business, which actually had over 18% margins in that quarter, translated into very strong consolidated results, making year-over-year comparisons pretty challenging.

For the quarter, EBITDA totaled $486 million, reflecting the negative effect of pricedowns, flow-through on lower revenue, combined with unfavorable mix, foreign exchange and the mark-to-market accounting associated with a prior long-term incentive plan. Our operating performance net of all economics, and excluding the benefit of the MVL acquisition, more than offset the effect of pricedowns. EBITDA margins declined to 12.9%. Adjusting for accounting associated with prior long-term incentive plans, EBITDA margins actually totaled 13.2%.

Now, slide 17 includes our segment results. Electrical Architecture's revenue increased just under 3%, excluding the impact of the MVL acquisition, driven by very strong growth in North America -- it is up actually 20% -- the result of a number of new program launches and strong growth in South America and Asia, partially offset by a 17% decline in European revenues. Segment EBITDA totaled $231 million, representing a 13.1% EBITDA margin, which was up 200 basis points from the prior year.

Revenue in our Powertrain segment was down almost 13%, reflecting a 20% decline in European revenues and lower revenues in North America, primarily the result of continued weakness in the automotive aftermarket, as well as lower revenues in South America due to platform mix, partially offset by strong revenue growth in Asia. Segment EBITDA margins declined 400 basis points to 14% as the result of a difficult comparison to the prior period that I mentioned previously, lower volumes and a lower mix of diesel fuel injection systems in Europe.

In our of Electronics and Safety segment, revenue declined 5%, primarily the result of just over a 13% decline in European revenues and a 3% decline in North America, partially offset by very strong revenue growth in Asia. Segment EBITDA margins improved 50 basis points to 14%, the result of the rotation of our lower margin business in our Mechatronic and receiver productlines.

Thermal segment revenues declined almost 6%, primarily the result of a 20% decline in European revenues and flat revenue growth in North America, partially offset by single-digit growth in Asia and South America. EBITDA declined to $16 million.

Turning to slide 18, earnings per share totaled $0.90, reflecting lower volume and the accounting associated with the prior long-term incentive plan, partially offset by the benefit of the MVL acquisition, a $0.05 benefit from a lower tax rate and share buybacks and an $0.11 benefit from a reduction in other expenses, primarily related to the 2011 IPO.

Moving to slide 19 to highlight our full-year results, we delivered solid EBITDA margin expansion and earnings growth. Revenue totaled $15.5 billion, a reduction of 2.3%. EBITDA totaled $2.142 billion and EBITDA margins increased to 13.8%. Net income increased 6.1% to $1.24 billion and earnings per share totaled $3.84, an increase of 38% over the prior year. Free cash flow totaled $827 million and with that as background, let's move to slide 20 to review full-year revenue growth in more detail.

As I mentioned, reported revenue decline 3.3% to a little over $15.5 billion. FX and commodity prices had about a $700 million negative impact on revenue, resulting in a 4-point headwind to our growth rate. Pricedowns totaled 1.7%, in line with our expectations. Acquisitions net of divestitures totaled $110 million, or 1 point of growth and sales volumes totaled $339 million, adding 2 points to our growth rate. Excluding FX and commodity prices, as well as acquisitions net of divestitures, revenues were up slightly to 0.4%.

On a regional basis, revenues were weakest in Europe and South America. Both were down roughly 6%. Revenues in North America and Asia increased 6% and 11% respectively. In China, revenue growth totaled 11%, 7 points over the underlying market.

Slide 21 underscores our ability to leverage our cost structure. EBITDA totaled $2.142 billion for the year, negatively impacted by pricedowns, foreign exchange, mix and the accounting associated with a prior long-term incentive program. These headwinds were partially offset by record operating performance, flow-through on volume growth and the impact of the MVL acquisition. EBITDA margins expanded 40 basis points to 13.8% and excluding the impact of the long-term incentive plan, EBITDA margins actually increased 80 basis points to 14.2%.

Slide 22 includes our segment financial results. Electrical Architecture's revenues increased over 5%, driven by continued strong growth in North America and Asia, partially offset by declines in both Europe and South America. Segment EBITDA increased to $945 million. EBITDA margins expanded to 13.9%.

Powertrain segment revenue was down just over 2%, the result of a reduction in revenues in North America, South America and Europe, partially offset by very strong growth in Asia. Despite the lower revenues, EBITDA margins increased by 100 basis points to 15.5%, partially the result of lower warranty costs during the period.

Revenue in our Electronics and Safety segment declined just over 3%, primarily the result of a decline in European revenues, partially offset by moderate growth in North America and Asia. Overall, improved business mix and operating performance increased EBITDA margins by 50 basis points to 13.3%.

Thermal segment revenues declined a little under 5%, primarily the result of significant revenue declines in Europe and South America. EBITDA declined to $111 million and EBITDA margins contracted 7.2%.

Turning to slide 23, earnings per share increased from a pro forma $3.57 per share to $3.84 per share, the result of share buybacks, EBITDA growth, a lower tax rate and lower other expense, partially offset by accounting associated with the prior long-term incentive plan. Excluding the effect of the accounting for the long-term incentive plan, earnings per share increased 13% over the prior year's pro forma amount.

Moving to cash flow on slide 24, we continue to do an excellent job converting earnings into cash flow. Strong EBITDA more than offset capital spending, cash interest taxes, as well as restructuring expense. We generated $827 million in cash before financing, which was used to repurchase over $400 million of stock and fund a portion of the purchase price for the MVL acquisition. Free cash flow as a percent of net income increased almost 80%, excluding the $200 million one-time payment for the long-term incentive plan at year-end.

Moving on to slide 25, we ended the year with a very solid balance sheet that reflected investment-grade credit metrics providing us with multiple leverage to drive shareholder value. Cash on hand was over $1.1 billion and net debt was just under $1.4 billion, roughly 0.6 times EBITDA. Liquidity totaled almost $2.4 billion, providing significant financial flexibility and as you can see, we have no meaningful debt maturities until 2016.

Moving to slide 26 to review some of the assumptions underlying our 2013 guidance. Based on several sources, including customer schedules and IHS, we are forecasting a 1% increase in global production, which basically represents flat year-over-year buying growth and production on a Delphi-weighted market basis. Our forecast assumes European production declines 4% for the full year with the first quarter expected to be down 15%, roughly flat on a sequential quarterly basis and then beginning to stabilize and improve slightly during the back half of the year.

Turning to slide 27 to discuss our 2013 guidance, which excludes all restructuring, integration and other one-time items, we currently expect full-year revenues to be in the range of $16.2 billion to $16.6 billion, EBITDA is expected to be in the range of $2.325 billion to $2.425 billion, reflecting tailwinds from the MVL acquisition and accounting for the long-term incentive plan, as well as the impact of flow-through on volume and the effect of mix.

EBITDA margins will be in a range of 14.4% to 14.6%. 2013 depreciation and amortization will increase to $600 million or 3.7% of revenues. That is the midpoint of our guidance range, reflecting the inclusion of MVL, which adds roughly $70 million to depreciation and amortization and the depreciation of new fixed assets, which adds an additional $60 million to depreciation to our 2012 full-year depreciation and amortization amount of $470 million.

We expect a tax rate of 16% for the year. Earnings per share is expected to be in the range of $4.12 to $4.38 and is based on a share count of 317 million, representing 11% EPS growth at the midpoint of our guidance range. Cash flow before financing will be $1 billion with capital expenditures of roughly $750 million, providing us with significant flexibility to increase shareholder value through the continued discipline deployment of capital.

Turning to the first quarter, our outlook for the first quarter of 2013 is largely consistent with the fourth quarter of 2012. We expect global industry volumes to decrease 6% with European production declining 15% on a year-over-year basis. We expect revenues to be in the range of $3.9 billion to $4 billion. EBITDA will be in the range of $515 million to $540 million, representing EBITDA margins of 13.2% to 13.5%. EPS will be in the range of $0.93 to $1 and assumes 317 million shares outstanding and a 10% effective tax rate. Cash flow generation will reflect the impact of cash spending, restructuring, as well as the normal seasonality that was reflected in our 2012 cash flows.

As Rod mentioned, we continue to have tremendous momentum in our bookings. The 2012 amount of over $26 billion represents a significant increase over last year's record amount and is reflected in the $400 million increase in net new business for the three-year period.

Slide 28 provides you with an update to our net new business, which totaled $3.2 billion for 2013 through 2015, versus the $2.8 billion for the 2012 through 2014 period that we reported previously. Net new business in 2013 is forecasted to be $0.5 billion, down from last year's estimate, reflecting lower underlying industry volumes, principally in Europe and South America, delays in select programs such as the launch of electric and hybrid vehicles, primarily in the North American market, lower high-content option take rates and the negative effect of foreign exchange and commodity prices.

Net new business in 2014 is expected to be $1.1 billion. That is up slightly from our prior estimate. The increase is the result of the previously mentioned retiming of select programs and increased volumes in North America and China, partially offset by lower high-content option take rates and the negative effect of foreign exchange and commodity prices.

We expect net new business in 2015 to total $1.6 billion, the result of the recent record level of recent new business bookings. Our mix of net new business is significantly weighted towards Asia given the region's relative growth and in North America where we have made strides to continue to diversify our customer base. So with that, I would like to turn it back over to Rod.

Thanks, Kevin. Before we move into the Q&A, I just want to remind everyone about the solid results the team achieved in 2012 despite the macroeconomic headwinds. And as always, we remain focused on outstanding execution where we will balance disciplined investment in our growth initiatives with actions to further reduce our cost structure.

So looking forward, even in a challenging European environment, we are well-positioned for solid margin expansion and earnings per share growth. We absolutely remain committed to achieving our long-term objectives for the business and increasing shareholder value. So operator, we will open it up now for questions.

(Operator Instructions). Brian Johnson, Barclays.

Good morning, team. I just wanted to explore a couple of margin outliers just to make sure we understand the underlying run rate. Just first on the positive side, Electronics and Safety, you have had what looks to me to be a two-year low -- near two-year low in revenue. You had a record margin number. What went on there? And then -- on the good side? And then can we think about that going forward?

And the second, sort of the opposite, is, a year ago, Powertrain had a very high 18%. What, in hindsight, was there that hasn't been there in subsequent quarters and how should we think about that segment going forward?

E&S, as I said in my statements, Brian, from a year-over-year standpoint, like all of our businesses, was certainly affected by revenue or a weak market in Europe. So that is the largest explanation as it relates to changing year-over-year revenue growth.

As it relates to margin expansion, our E&S business has done an exceptional job putting together performance initiatives where they have more than offset economics, one and then, two, we've talked about over the last few quarterly conference calls our initiative to rotate our business out of some lower-margin Mechatronic and receiver productlines and (inaudible) benefits.

On a go-forward basis, for the full year, we would expect our E&S business to expand margins on a year-over-year basis. I will tell you there will be some volatility when you look at it sequentially because it is a business where reimbursement for certain engineering activities where we partner with our customers, it is not evenly allocated across each quarter of a calendar year. So that would be my explanation on E&S.

As it relates to Powertrain, if you recall, in the fourth quarter last year, our Powertrain business truly operated at an optimal level. They had 18% EBITDA margins. Revenue growth was extremely strong. Product mix was significantly weighted towards diesel fuel injection systems and they had very solid operating performance. And I think we told people at that point in time that they should not assume that the business operates on a go-forward basis at that sort of a level. So I would start with the (inaudible) comp.

As it relates to this quarter, our Powertrain business obviously was significantly affected by what is going on in Europe. As you know, our diesel business is a little over half of our total Powertrain business, and as a result, it was affected by the European downturn from a volume standpoint, one. And then, two, consistent with what we talked about in the third quarter -- on the third-quarter call, we saw a slight deterioration in mix in terms of diesel fuel injection systems in Europe in the fourth quarter for our Powertrain business. So that is how I would explain the two periods.

And on E&S, is there a difference between Electronics and Safety profitability or is it just it is going to be a bit variable given, I think you discussed this earlier, the software model that is evolving and getting an upfront from the engineering?

Yes, I mean getting paid for the engineering is something that we have done consistently in the past. It is very lumpy in terms of payment. I think it is really a mix of two things. It is a mix of more software business, which is higher margin. That tends to be in the safety arena and as we have been talking about the rotation of some of that lower margin business.

Okay, thanks.

Rod Lache, Deutsche Bank.

A couple questions. First, the new business backlog declined from $900 million or so this year to $500 million and it seems like that is more than would be explained by production and I believe that your 2014 increase was only about $100 million. So it seems like that wouldn't be fully explained by the push-out as well. Can you give us a little bit more on what was behind that?

Sure. It is really a couple things at the end of the day. It is a mix of volume reduction, which is industry volume reduction primarily in South America and in Europe; a mix change, so we have seen or are assuming lower take rates on some of the higher content options, principally in the area of Electronics and Safety. It is the push-out of electrical vehicles where we had a fairly significant -- or we are assuming fairly significant growth in our prior guidance. Those are the largest changes.

Okay. And I was hoping you can maybe flesh out a little bit more on this earnings bridge to 2013. If we use the midpoint of your guidance, you are showing EBITDA increasing by about $233 million. I think you have previously said that the decline in variable comp or that stock comp expense was like $90 million. So the underlying performance would be like $143 million if you subtracted that and MVL, based on what you have said previously about EBITDA margins, I would think is maybe $110 million. So underlying that might be something like $33 million of EBITDA improvement. And is that a reasonable expectation? And then on the revenue side, I am assuming that we would subtract maybe $670 million related to MVL, so about $230 million of revenue growth?

Yes, so let me touch on -- I understand where you are trying to get to, so why don't I take a shot at it. It is really -- well, one, let me start with -- we would recommend, based on where we see industry buying and the tone of the market, as people look at earnings, they really look at earnings on a sequential basis versus a year-over-year basis, so from the fourth quarter of last year to the first quarter of this year. We think it actually is a better comp to come off of. So I would start with that sitting in your shoes.

Second, as you look at those tailwinds, there are two. There is the long-term incentive comp plan, you are right, that goes away that is a tailwind of $80 million on an EBITDA basis and there is the benefit of the MVL acquisition, which really is broken down into two pieces. One, to your point, $100 million to $110 million of base MVL and then roughly $30 million or $50 million of synergies associated with the MVL business. So call it year-over-year roughly $150 million coming from MVL. So those are the two pieces. Three, you get volume growth year-over-year and on a year-over-year basis. That volume growth is, we are assuming, partially offset by mix.

Okay. So based on that bridge, the underlying performance is pretty neutral on a year-over-year basis.

It is up slightly.

Okay. And then lastly, normally for Delphi, and I think most suppliers, the profitability is typically stronger in the first half than the second half because of production days and your guidance implies a pretty meaningful uptick. Could you just tell us broadly what you are expecting will happen sequentially like from the first half to the second half? Is there a drag that moderates maybe in Thermal or some other area?

Yes, that's a great question. You're right. In this industry, we typically see from a unit production standpoint kind of a 51%/49% mix first half versus second half. As we look at 2013, we are really -- we believe it is going to be closer to a 49%/51%, 50%/50%, somewhere in that range. Where you will see the improvement is a slight improvement in sequential volumes in Europe, but fairly slight, strong improvement on a sequential basis in China and some improvement, although not significant, on a sequential basis in North America.

That is just an unusual timing of production I guess is what you are saying?

Relative to historical trends, it would be less typical, yes.

Okay, all right. Thank you.

John Murphy, Bank of America.

Maybe just to kind of follow up on the cadence question, Kevin, would the synergies from MVL be more back-half-loaded that might skew the earnings through the course of the year?

Yes, as you look at, and I should have touched on that, as you look at revenue and earnings through the back half of the year, in addition to industry volumes, a couple of things happened. One, as it relates to new business wins, they tend to come in at the back half of the year versus the front half. Two, you get the benefit of the MVL synergies, which I mentioned are roughly $50 million. They are back-half -- they are back-end-loaded, as well as the restructuring benefits of $30 million that we've talked to you folks about previously.

Then, again, as I mentioned, you get an uptick in industry volumes. We say if you were to take the first quarter and annualize it and then compare that to the back half of the year throughout that three-month period, you should see roughly a 3% increase, 3% to 4% increase in industry volumes. Again, the biggest piece in China with some improvement, although small, in Europe. And then we have performance, which is slated to come on in the back half of the year.

Okay, that's very helpful. The other clarification on the outlook, buybacks are not included in your EPS forecast, is that correct?

Yes, that is correct. I mean we, as I stated and Rod stated, we are confident we will generate a lot of cash flow in 2013 that we can use to drive shareholder value in a number of different ways. And we certainly -- we repurchased a fair amount of stock in 2012. That could be an option in 2013, but we have talked about in the past a desire to also look at accretive acquisitions and acquisitions that expanded margins. So I thought it best to provide guidance to you folks without any assumption as it relates to share repurchases or timing of share repurchases.

Okay, that's helpful. Then if we look at slide 28, I know there is some tugging and pushing between '13 and '14 based on the stuff you have talked about. But the idea that 2015 is a much higher net new business backlog number than the two previous years is somewhat unusual and shows that you have some pretty strong growth. I am just curious, as you talk to your customers, is this really a function of you continuing to win more net new business because you have gotten further away from bankruptcy and they are including you much more in their quoting process or is this really just a function of the content that you are seeing growing? I am just trying to figure out those two factors and how much they are weighting in this number because it is unusual that your backlog would be so much higher in the third year out.

Well, it is not the bankruptcy issue, it is actually the rotation of momentum that we have in that, as you recall -- if you go back to when we started the journey in '05, we were very centric here to North America and very centric to one customer. And now obviously we are a much more diversified geographic and customer base company. And now we are into the second, maybe even the third contracts with the new customers that we did not have experience with before. And to be quite honest, they have been quite pleased with our performance. And so what you are seeing is what we said would occur was this balance issue that we were going to see as we began to not turn our backs on North America and Europe, but begin to grow Asia and you see the bookings. So it is this pace of movement, particularly in China, which I think we would all agree is probably not an emerging market anymore. It is an emerged market when you look at 20 million units going to 30 million over the next two years. So with China as the cornerstone of our Asia store, we're just getting -- we are outgrowing a market that is big, is robust and what you have just seen is the model at work as we described it. So it is a beautiful thing.

Rod, when we usually look at that third year though we usually hear from a lot of companies that there is a lot of opportunity left three years out in that 2015 number. Are you bidding on a lot of business in addition to what you're showing us here?

Yes, we are, but it depends on the business because the Powertrain takes a little longer than a couple years to bring to market, but some of the electronics and those kind of things are faster. So it depends on the portfolio. The Powertrain would be a little bit more extended beyond that.

Okay, and then just lastly, on the China plants that you are building this year, I mean all of that stuff is still wholly-owned facilities. There is no JVs or anything like that; it is all encompassed in the Delphi umbrella, is that correct?

It is wholly-owned or majority-controlled, yes. Our model is consistent.

Great, thank you very much.

David Leiker, Baird.

This is Joe on the line for David.

How are you?

Good. Just staying with the net new business number, is there a way to segment that between the four businesses or just say maybe directionally if a particular segment is growing faster than the others?

I would say directionally you see stronger growth in the E&S and Powertrain segments over the period. But we are not going to break it out specifically by business.

And then when you look at your Powertrain business, it seems like the fuel injection business has fairly strong growth rates. I am assuming a lot of that is the contribution from commercial vehicle? I am just wondering what is the opportunity in China as you look at it because that is obviously a million unit market that looks like it is about to inflect. So what is maybe the dollar opportunity or how much of the overall four to five-year plan to double your business in China is commercial vehicle-related?

I don't think we are going to break that out on this phone call, but the mere fact that I am going to sink capital in the ground, and you know how judicial we are with capital, and put up a new facility aimed at that market tells you what we think of it. But we are not going to signal to the competitors exactly what it is we are about to go do. But it is money well spent in a space that we think we add significant opportunity here. We can talk more about it later on, but we won't today.

Okay. And my last one, the suppliers that are giving three-year backlog numbers are kind of in a difficult position right now because we are basically a quarter or two into seeing kind of the high content take rate turning down where, so far this cycle before the last quarter or two, that dynamic had been pretty favorable. So I am just wondering when you look at this three-year backlog, what sort of magnitude is around kind of the take rate assumption weighing down the overall growth numbers and how does that flip around if we maybe get back to earlier cycle take rate options?

I guess the way I would answer that question, our assumptions as it relates to high content take rates in the guidance for net new business that we are providing today are more conservative than our assumptions in the prior period, reflecting what we see more recently in terms of product mix. I am not going to give out specific numbers.

Okay, I will leave it there. Thanks, guys.

Chris Ceraso, Credit Suisse.

Good morning. So the bridge on EBITDA was helpful. I was hoping to come back to that briefly and just think about maybe some of the tailwinds that you have to overcome in addition to the -- I'm sorry -- the headwinds you have to overcome in addition to the tailwinds you talked about, two of them in particular. One, are you anticipating any headwind associated with the launch of the full-size GM truck? That is a pretty big program for you, back of the envelope, probably something north of $1 billion in revenue if our math is close and you would expect that, at least initially, that would come on at lower margin than the current program that you are on. So is that right and have you taken that into account and can you kind of ballpark what that is for us in terms of a headwind? And then, secondly, what are you expecting in terms of an increase in pension and healthcare expense from '12 to '13?

Well, in terms of launches, though, Chris, I mean we always -- they are in our numbers. Delphi is in perpetual launch and so the numbers we give you have all that embedded in it, all right? So it's in the sauce.

Yes, Chris, I agree with what Rod has just said. It is in our assumptions, so that is something that we watch. We watch very carefully obviously in our all over.

As it relates to pension expense -- will pension expense on a year-over-year basis go up about $20 million? As you know, we really don't have a US pension program here, a defined benefit program. It really relates to a couple small programs in Europe, so the increase in expense won't be significant.

I guess the other potential headwind quite frankly, and it is on everybody's mind, is what happens with Europe. Is it down 4% or potentially more? As you know, Europe is a meaningful market for us. Roughly every 1% reduction in industry volume in Europe for us is worth about $60 million in revenue. So that is something that we are watching very carefully.

We have implemented restructuring plans, are in the process of implementing restructuring plans to reduce our footprint there and further optimize our cost structure. We are going to continue to evaluate quite frankly whether we can do more and we will keep you guys posted about that. But that is the other potential headwind out there that we are trying to stay in front of.

So that is a helpful rule of thumb, Kevin. So for each point, it's $60 million in revenues. What would we expect for the contribution on that or the decremental margin? Is it 25%? It is that a good number at the EBIT level?

At the EBITDA level, I would say about 30%.

30% at the EBITDA line?

30% to 35% depending on what fuel injection mix looks like.

Okay. And then just to follow-up on the tax situation, have you assessed the risk that maybe a tax reform here in the US might jeopardize your very low corporate effective tax rate understanding that cash taxes would not be affected? But can you take us through what is happening there and what you think might happen with the low tax rate on a go-forward basis?

Yes, listen, we are still highly confident in our position and the fact that we are not a US entity; we are a UK entity. It is just slow going with the federal government. It just takes time. I wish I had more to tell you.

Okay, thank you.

Itay Michaeli, Citigroup.

Good morning. I just wanted to go back to slide 28, the backlog. North America and Asia seem like they are up significantly versus the prior backlog. Can you remind us what the margin contribution of those two regions -- how that looks versus the corporate average and whether the shift to North America and Asia could continue to drive positive margins in the next couple of years?

We don't disclose that. We will tell you it is higher than our average, but we don't provide margin by region.

Okay, for both those regions?

Both of those regions, the margins are higher than our average corporate margin, but, again, we don't disclose specific margin rates by region.

That's helpful. And then just, and I apologize if I missed this, but did you share what you are assuming for European light vehicle production in the first quarter and just how you're looking at your individual mix relative to perhaps the fourth quarter?

Sure. We are forecasting European industry production will be down roughly 15% and from a mix standpoint, we are presuming mix is pretty consistent with what we had in the fourth quarter of last year.

Last year. Great, terrific. Thanks so much, guys.

Aditya Oberoi, Goldman Sachs.

Great, thanks a lot. One more housekeeping on the European production side. I think you guys just told about your assumption for the first quarter. What are you assuming for European production for the full year, if you don't mind sharing?

Down 4%

Got it. And the other question is on pricing and the European cost. Do you think you guys are, from a cost footprint standpoint, you guys are sufficiently positioned to manage the down 4% or do you guys need more flexing? And the related question, any aggressive pricing you are seeing from competitors or OEMs requesting more pricedowns in Europe?

In terms of our flexibility, we have always talked about the model being able to flex. It has proven to be true and what we are doing is we are making it better as we identify some of the restructuring initiatives that we talked about last quarter. The bulk of that was aimed at Europe just to increase flexibility as we move forward. So we feel very comfortable in our ability to handle the 4% downturn.

In terms of pricing, our pricing is 1.5% to 2%. You saw it in the numbers in Q4, right in line and that is the way we see it going forward. So I can't speak for other suppliers, but we are maintaining that our pricing is going to be in that range, 1.5% to 2%.

Operator, we only have time for one more question.

Matt Stover, Guggenheim.

Most of my questions have been asked. On the restructuring front, can you give us a sense of the headcount impact of the $300 million, the cash/noncash piece of that and the timing of what you would expect for the cash piece of that to flow through?

Sure. Why don't I start with just the ground and what we have talked about previously and where we are now? So previously, we talked about $250 million of restructuring, $175 million in 2012, $75 million in 2013 with cash outlays that were basically $50 million, $150 million -- $50 million in '12, $150 million in '13 and the balance in '14. Now, we are estimating $300 million in restructuring charges, $170 million booked in 2012, the balance in 2013.

From a cash standpoint, $50 million that was spent in '12, we'd expect roughly $200 million to be spent in '13 with the balance in 2014. As we mentioned, 2013 benefits, we are estimating roughly $70 million to $80 million. That includes the MVL synergy savings in that number of $50 million. And then we would say it ramps up significantly in 2014 and beyond. 2 to 2.5 times what that 2013 savings number is.

That's very helpful. One other follow-on question. As we look at the growth in your Chinese business, can you give us a sense as to sort of the trends in the underlying profitability? Because if we look at some of the publicly-listed Chinese companies, we have seen, as the market has grown, a deterioration in margin. I am just trying to think about, as we look for a big 9% growth in the volume next year, how you folks are incorporating the margin assumptions on your underlying guidance.

Well, we don't break it out that way, but the business that is growing on is equal to or better than the margins we have today.

Thanks.

This will conclude our conference. I will turn it back to the operator.

Thanks for joining us. We will see you in the next quarter. Stay safe.

That concludes Delphi's fourth-quarter 2012 earnings release conference call. Thank you for joining. You may now disconnect.