博格華納 (BWA) 2003 Q4 法說會逐字稿

Good day, everyone, and welcome to this BorgWarner first-quarter results conference call. This conference is being recorded.

At this time, for opening remarks and introductions, I would like to turn the conference over to the Vice President of Investor Relations and Communications, Ms. Mary Brevard. Please go ahead, ma'am.

Thank you very much, and thank all of you for joining us today. You should have received copies of the release which went out today before the market opened. They also available on our Website, along with financial talking points are posted out there at bwauto.com. These notes will be helpful to you as we review the financials and the operations. The talking points also include a reconciliation of any non-GAAP financial measures. I also want to remind you that we'll be appearing -- the next conference we'll be presenting at is the Morgan Stanley conference in April.

Before I begin, I need to inform you that during this call, we may make forward-looking statements which involve risks and uncertainties, as detailed in our 10-K. Our actual results may differ significantly from the matters we discuss today.

Moving onto our results, Tim Manganello, Chairman and CEO, will be providing comments on 2003, the planned stock split, and reiterate our outlook for 2004. Skip Cline, Controller and acting CFO, will discuss our operating results.

With that, I'll turn it over to Tim.

Thank you, Mary. We're very pleased to report record results for 2003, and plans for a two-for-one stock split?. Our earnings per share for 2003 were $6.40 per share, on sales of almost 3.1 billion. We delivered these results in spite of the decline in worldwide car and truck production. Increased demand for our fuel-efficient engine technology and new business volumes continued to drive our growth.

We also announced that our Board of Directors has approved a two-for-one stock split. The split is subject to shareholder approval of an increase in the number of shares of authorized common stock. This proposal will be detailed in our 2004 proxy statement, which is expected to be filed on February 17th. Shareholders will vote on the recommendation at our annual meeting on April 21st, 2004, and if approved, the stock split will be effective May 17th to shareholders of record on May 3rd, 2004.

Looking back at 2003, it was a great year. Once again, we delivered growth that significantly outpaced the industry, because our technology was targeted at the fastest-growing parts of the market. Our sales were up 12 percent, while worldwide industry production was down 2 percent. We clearly demonstrated the viability of our technology-driven growth strategy, and the benefits of building one of the most diverse customer bases in the industry.

2003 was also our first year under our new engine and drivetrain group structure. We have new technologies and balanced growth opportunities in each group going forward. We're developing collaborative projects, and identifying synergies that can help us achieve our ambitious growth targets.

During the year, our innovative DualTronic transmission models launched with Volkswagen and Audi to the rave reviews of the European press and the delight of our customers. During 2004, we will see applications on the Audi A3 and the Volkswagen Touran MPV, in addition to those already on the Volkswagen Golf and Audi TT.

Because of tremendous growth with customers like Honda, Hyundai, Volkswagen and Audi, our sales to the non-big-three automakers hit almost 50 percent of our sales in 2003. This strategic focus proves beneficial, as market shares amongst the global automakers shift in favor of our fastest-growing customers. We also renewed our focus on operating efficiencies as a key enabler for our product leadership vision. True product leadership is product technology married to manufacturing excellence. This combination is our real competitive advantage, and the reason we can survive and thrive in a price-conscious environment. We finished the year with fourth-quarter earnings per share of $1.80 on a 14 percent sales increase.

So, before I pass the meeting along to Skip, I want to reiterate that we expect 2004 earnings per share in a range of $7.10 to $7.30 pre-split, or $3.55 to $3.65 on a post-split basis. We believe the strategies we have in place will allow us to produce sustainable growth, and continue to outpaced the global auto industry. These include strong demand in Europe for our more fuel-efficient engine and transmission systems, the popularity of our four-wheel-drive vehicles in North America and the ongoing shift to timing-change systems worldwide.

Now, I'd like to turn the meeting over to Skip Cline.

Thanks, Tim, and good morning, everyone. This past year was another very good year for BorgWarner. We achieved record results in both sales and income, and were able to do so in a soft market, as Tim noted. Our sales increased 12.4 percent, in a year when worldwide production decreased. Our numbers indicate light vehicle production was down 3 percent in North America from last year, Europe was down 1 percent, and our preliminary data shows Japan down 0.7 percent. Additionally, the big three, which still comprise around 50 percent of our sales, continued to lose market share. Our North American business volume was up slightly from last year, but the bulk of our sales increase was due to increased levels of business in Europe and Asia. This increased business also benefited from favorable changes in currency rates, and the overall currency impact on our sales growth was about 162 million.

Full-year earnings of 174.9 million translated into $6.40 per share, which is 82 cents better than last year's income, before we factor in the effect of the accounting adjustments for goodwill. Although full-year gross margin of 19.1 percent was 1.2 percent below last year, our operating margin declined only 0.4 percent year over year. The shift in our mix is a major cause for the decline. We're selling more systems, such as four-wheel drive and turbochargers units, that have a higher content of purchased materials, and consequently a lower sales margin.

Other issues affecting earnings were favorable currency rates, particularly the euro; new product launches and the costs attached to them; and startup in new geographic areas.

Selling and administrative expenses were actually down in dollar terms from last year, an improvement to 10.3 percent of sales from 11.1 percent last year, due to control efforts throughout the Company. For the year, we spent research and development at 3.9 percent of sales, which is very close to our 4 percent target level. The dollar level of spending was 118.2 million, compared to 109.4 million last year. Affiliate earnings were up slightly for the year, and interest continued to decline, principally from lower rates.

Our tax rate was 28.5 percent in 2003, compared to 33 percent last year. This change reflected the continuing profitability improvement in our international operations, particularly in Europe. The strength of the euro versus the dollar continued throughout the fourth quarter, giving a positive impact of currency year over year of about $14.5 million.

Turning to our segments, drivetrain had 11 percent sales growth, but earnings before interest and taxes were down 1.5 million, or 1.5 percent. The sales increased was the result of new four-wheel-drive programs with GM that started in the second quarter of 2002 and continued to ramp up in 2003, and increased sales of the interactive torque management systems for Honda and Hyundai.

Tim mentioned the launch of our DualTronic programs, but this was only in small volumes in 2003, and will continue to ramp up through 2004. The increases from Honda, Hyundai and GM offset declines in North American and European automotive production. The other impact for drivetrain was a charge to profitability for startup and launch costs related to the Company's new DualTronic product, including the opening of a new facility in Germany.

As Tim noted, the initial press response for the Volkswagen vehicles using this product has been very positive, and the DualTronic will begin to sell in more significant volumes in 2004. This group also suffered from higher pension and other retirement costs from the previous year.

For the fourth quarter, sales and EBIT increased by 9.1 percent and 13.1 percent, respectively. Sales trends in the fourth quarter are consistent with the full year, and profitability was higher in the fourth quarter, due to the timing of some of our startup costs.

Engine sales increased 13.4 percent, and earnings before interest and taxes were up 23.7 million or 11 percent. Engine sales growth came principally from turbocharger gains in Europe. And while currency contributed a portion of the sales increase, turbocharger volumes were up were up substantially from last year. Sales of engine cooling systems, especially for light vehicles, also improved slightly. And the chain and the emission portions of the group experienced some softness, as a result of weaker auto production, particularly in North America. The increase in group profitability was due to increased productivity in all our businesses, particularly turbo. The turbo productivity increase was combined with higher volumes and increased profitability. This was partially offset by startup costs for our new variable cam timing systems, where the product will launch in 2004, as well as for new Korean operations for both our chain and turbochargers businesses.

For the fourth quarter, sales were up 17.8 percent and EBIT up 7 percent. Currency played a role in the increase in sales, as well as the other factors discussed previously. However, earnings were somewhat affected by the startup costs related to future business.

Turning to our balance sheet, from a return-of-investment perspective, we continue to stay focused on asset utilization, and improved our return on capital on a trailing 12-month basis to 12.3 percent, based on debt net of cash at the end of the year. Our target continues to be 14 percent by the end of 2004. Our debt leverage continues to decline, as our debt-to-capital ratio improved from 39.7 percent at the end of last year to 33.8 percent at the end of this year. Our actual debt level of 644 million is 2.7 million lower than last year, despite a $20 million foreign exchange impact from yen and euro borrowings. Almost all our remaining debt is in long-term bonds, which are currently valued at a premium to their face value. Our cash balances increased 76.5 million during the year, reaching a total of 113.1 million.

Regarding working capital, our net operating position, which we define as receivables and inventories less payables and accruals, increased by 119.1 million for the year. Most of the increase was from receivables, and the reasons for the increase are several factors. We paid down about $40 million on our securitized receivables program. We also experienced a one-time change in terms from a major customer. We're doing more business in segments of the European market where customers have longer pay terms and, finally, we have increased our business levels. We still maintain our general guidance of working capital in the range of 12 to 15 percent of our increase in sales.

Now, let's look at 2004. We told everyone last month that we expect our 2004 earnings to be in the range of 7.10 to 7.30 per share or, post-split, 3.55 to 3.65 per share. Our build assumptions are for basically flat in North America, as well as Europe and Asia. We expect our interest expense will run at the current run rate, as any decrease in debt levels would be offset by potential rate increases in the second half of 2004. Based on our current mix of business, and recent tax law changes in Europe, we anticipate our tax rate will increase to about 30 percent from the current 28.5 percent. We believe our capital spending will be in the 5.5 percent of sales range, roughly the same as it was this year. And for selling, general and administrative expenses, we have set a target in the 10 to 10.5 percent range. We plan to offset increased research and development spending with controls elsewhere. And speaking of research and development, we expect it to be approximately 4 percent of sales for the year, and it's included in our overall SG&A spending.

Finally, we expect our net cash flow to be in excess of $100 million for the year. Overall, 2003, including the fourth quarter, were strong performance for BorgWarner, and we are going into 2004 on a positive trend.

With that, I will turn the call back to Mary.

Thank you, skip. We will now ask the call coordinator to give the procedures for Q&A, and turn to the Q&A portion of the call. Kathy, if you will, please?

(OPERATOR INSTRUCTIONS). Stephen Girsky, Morgan Stanley.

Did you guys give an FX impact on sales and profits, or no?

Yes, we did, Steve. On sales, it was about 161 million. On profits, 14.5 million.

That's in the quarter?

No, that's for the year.

Oh. What was the quarter?

If you hold on for a second, we'll get that. For the quarter, it was about 45 million in sales, and a little more than 4 million in earnings.

Pretax or net?

That's net.

That's net? Could you just go over -- I missed the receivables. Why was the receivables up so much?

Well, one piece is that we sold 40 million less under our securitization agreement. We're doing more business in those parts of Europe that have much longer pay terms, so we have seen our days sales increase by about 5. GM changed their terms to second day, second month, which has a one-time impact on us. And the business levels are also up.

Okay. So it was GM that changed the terms?

Yes.

And am I reading this ride? Engine margins were down?

Engine margins were down slightly, yes.

And what was the reason for that?

Most of it relates to startup cost and some premium freight cost. On the startup cost, we've got new operations that are in the development stage in Korea, as well as startup of new products.

We're launching a variable-cam timing program in our Sallisaw plant. So that's also that startup cost attached, along with some of the R&D that went with it.

Okay. And could you guys speak to the appetite for acquisitions in there? With the balance sheet improving and all that?

Well, we are definitely looking at strategic acquisitions, if they fill a gap for product technology, a geographic gap or a customer gap. And as you can see, we haven't done anything lately, so we are being very selective. But we're looking at strategic acquisitions that are not that significant. And one of the things we, as part of our evaluation, is we're planning on protecting our credit rating.

Rod Lache, Deutsche Bank.

Good morning, everyone. It's Mike Heiffler (ph). Just a couple of questions. The net impact of currency versus the sales looks like it's a 9 percent margin in Europe. That's pretty extraordinary. Is there anything unusual happening there? Am I calculating that right?

No, that's about right. And I'm trying to think -- I don't think there's anything unusual.

Unusual in what respect? In a positive way?

Like any type of transactional hedging that you're doing that might affect that.

We have natural hedges. The only transactional hedging we do is when we're doing business in a currency other than the local currency.

So that's actually reflective of your profitability in Europe?

Don't forget, though, that one element of the currency impact relates to our earnings from our Japanese joint venture, and that is on an after-tax basis. So that might make it look a little higher than it would be otherwise.

Okay. So a couple of percentage points higher, maybe?

1 to 2.

As far as startup costs go, it looks like the startup costs, I think you mentioned, in the drivetrain group, went down a little bit in the fourth quarter. Should we see startup costs begin to mitigate in the first half of the year? How should we see the timing of the startup costs over the course of 2004? How should we see startup costs roll out?

Are you asking by group or just in general?

Drivetrain?

In drivetrain and in general.

I think that they will start -- in drivetrain, they will probably start to slow down a little bit, as we proceed throughout the year. As we ramp up most of the startup -- as we get farther into the year, most of the startup costs and expenses will start to be behind us. And we'll have more volume to go with it.

But, Mike, don't forget that with the success of the DCT, we have a lot of people lining up for potential new business. And so that will put some strain on our development budgets.

But I just in general, we should be thinking that the startup costs should go down as the year progresses?

In the drivetrain business. I think, in the engine business, you'll see some continue, because in a couple of cases, these are launches of new facilities.

New facilities, plus we're continuing to add a lot of capacity as we proceed through turbochargers.

And can you, just lastly, comment on the cash flow in the fourth quarter, what was the free cash flow?

We'll have it in a second.

We have to get our sliderule out here.

It's about 50 million, if your factor in the off-balance-sheet.

Again, your receivable securitization outstanding at the end of the quarter was what?

50 million.

Scott Merlis, Thomas Weisel Partners.

The currency effect in the fourth quarter on sales was 45 million?

Yes.

Can you break the down by group?

Well, generally, we prefer not to get at that level for the currency effect. For your purposes, obviously, the engine group is much more significant than the drivetrain group, at this point in time, because of the turbo business.

And to summarize the previous discussion, would startup costs overall of '04 versus '03 be flat, down or up, or net net? When you think of the various new products that are coming onstream, when you think of the backlog?

Scott, as we look at the backlog, obviously, we'll have big startup costs. We think they will be somewhat comparable to '03, because a couple of our major launches are now behind us, and we've got ramp-up.

And the mix going forward -- how would that compare to '03 also, if you think of the product mix and the geographical mix, from a profitability impact?

Well, I'd say, just on the surface, the mix is starting to shift toward Europe. We're seeing more growth in Europe, more growth in Asia. But Europe is the number-one growth area for us. In Europe, the growth is going to be in the DualTronic and turbocharger side. In Asia, it's more on the four-wheel-drive side and the timing drive side. And in the United States -- well, in terms of our production location, in the United States, it's a combination of some turbocharger business with international, some transmission and engine business with GM and some timing drive business with Nissan.

But when you think of the mix effect on profitability and ROI, the turbocharger is the fastest-growing business. And I guess you've outsourced a lot of that business, so on one hand, does the ROI on that -- it seems like the ROI on the turbocharger business is going up faster than the margins themselves, because you've outsourced so much. Is that not true? In other words, if turbocharger business remains one of the fastest-growing businesses for the next year or two, how does that affect overall margins versus ROIC?

I'll take that. In both cases, we believe that the turbo business has dealt fairly effectively with their growth curve, and should see margin improvements, as well as ROIC improvements in 2004.

The other part of your question, though -- I think we told you in January, we still think that the mix between engine and drivetrain for the next few years has probably stabilized at the 60/40 range, thereabouts. And we're seeing the profitability on the two businesses probably coming a little closer together. We've ridden the turbocharger wave, but beginning in 2004 and forward, the DualTronic will help on the drivetrain side, to keep growth in the two businesses a lot closer.

And that also affects the mix in drivetrain, so a lot of the growth in the four-wheel-drive side is anniversarying now in the new business. And as the DualTronic picks up, that will affect that mix.

Brett Hoselton, McDonald Investments.

I wanted to talk a little bit about your timing chain business. I'm a little bit confused here, simply because you mentioned it on page one as one of the three key drivers for your growth in 2004, but then you talk about fourth quarter, it sounds like being a little softer, maybe even down versus the prior year. And then you go on to talk about, on page two, that turbochargers are going to be a key driver for revenue growth in that group going forward. And you don't seem to mention the chain business as being a key driver. And then I look over at your backlog, and it talks about engine timing -- and I'm assuming that's the chain business -- suggesting that's going to be a key driver for your backlog. So what's going on in the chain business? Is it slowing down, speeding up? Should we expect a lot of good growth?

There's probably two things going on in the chain business. When you look at new business coming on, there is new business coming on with people like Nissan, Hyundai. We're in the middle of rolling out Honda's business. But the big effect on the fourth quarter, and part of '03, was our biggest existing programs are with people like Ford and Chrysler. So, on one hand, we've got new business with the transplants. But on the other hand, you've got volumes affecting existing business. So, while it sounds contradictory, it all fits together.

I think it makes sense. The second question I had for you was just looking at the 350 million backlog for the full year 2004, that appears to be heavily weighted toward the engines. Can you just give me a rough split of the breakdown between engine and driveline? Is it kind of a 40/60?

It is a 40/60. And actually, if you look at the backlog, about one-fourth of it is new turbo and one-fourth of it is DualTronic. That's not this year, but that's over the three-year period.

So 40/60 is over the three-year period?

Yes.

But I guess, for 2004, it looks like it's weighted much more heavily towards engines. Is that a fair statement?

I think it's still pretty -- it may swing 5 percent one way or the other, but it's still pretty comparable.

It was about -- it was 60/40 in 2003, and it's going to be about 60/40 in 2004. So that's kind of both grown equally on a percentage basis.

And then as far as the engine margins, I heard startup costs, premium freight, and then you also said some Korean ops. Can you just go through that again? I'm not sure I understand what's taking place there. You're starting up some new products in the Korean ops, and then also, I heard something about variable-cam timing?

Well, what we're doing is we're starting operations, and launching with a new plant in Korea for those timing-drive systems, and we will be investing for an operation for turbochargers in Korea. We will be launching variable cam timing, which has some development expenses and some startup expenses, normal startup expenses. We're not talking about expenses caused by problems, but normal startup expenses driven by growth. And on variable cam timing, those will hit this year, too -- partially in this year.

The expenses will hit this year, but the product doesn't launch until late in the year, and is really not a factor in our 2004 new business.

Jon Rogers, Wachovia Securities.

I just want to clarify on Brett's question. The 2004 is 60/40 -- 60 percent engine?

Yes.

And then just some other questions on the turbocharger business, maybe long term. Do you see that growth slowing through the backlog, or is there more penetration gains through the end of the decade? Tim, can you just tell us where you see penetration in Europe and the rest of the world going in turbochargers?

Yes. Throughout whichever time period you are using, if you are using a three-year time period, it's pretty strong and pretty steady growth rates throughout the whole period. As you get outside the three-year time period, into like maybe 5, 6, or 7 years from now, there's still strong growth, but the rate of growth starts to slow down a little bit. That's basically the nutshell for the European diesel market, which is tied directly to our turbocharger business. But what you have now is we're starting to ramp up, and the market is starting to see increased usage of diesels in Korea and probably China as the next wave. So you're going to see growth in diesels, in turbochargers for us, and the Korean market and the China market, basically starting to ramp up about the time the European market growth rate slows a little bit. But it's still a strong growth rate in Europe, even at 5 to 7 years from now.

For us, turbochargers also are going to be used on gasoline direct injection engines. So in that is a piece of the turbocharger growth rate that's tied to gas engines that will also be turbocharged. You may see more of those -- some in Europe, some in Asia, and also you'll see some of that, I think, eventually in North America. And basically, to continue the story with diesels, I think after you see the growth that we are all enjoying in the European market, and then you see the growth in the Asian market, I think you're going to start to see growth of diesel engines in the North American market; it's just going to come in probably the 8- to 10-year timeframe. You'll see some earlier than that, but you'll see more beneficial growth rates in the probably 7- to 10-year timeframe for North America.

David Leiker, Robert Baird.

First, a number question. The depreciation and tooling (ph) amortization both had a pretty good jump in the quarter. And can you give us a sense, a little bit of background on that, and give us a sense of where those numbers are expected to run in 2004?

I'm digging out some information here.

I was hoping I didn't knock you off your chair.

Do you have another question you want to ask while we're figuring this one out?

With this one, you're getting down into the nuts and bolts.

Okay, a few other items here. Have you seen the strikes in Germany have any impact on your business yet?

Not yet. We're always concerned, but so far, we've not seen any impact whatsoever.

And back to your depreciation and amortization question, we finished the year at 161. We're looking next year at 170 to 175, based on what we see and what our capital budget is, it should be somewhere in that range.

So that's actually a little bit below the fourth-quarter numbers, if I just multiply it by four. Was there something extra that fell in the fourth quarter?

Well, a lot of times in the fourth quarter, what you'll see is our units estimates (ph) throughout the year, and then in the fourth quarter, they true up. And we actually ended up a little bit -- if you notice, our capital expenditures for the fourth quarter are a little higher higher than we had anticipated. And I think that was one of the factors.

And then the last question is, if you look at production schedules from your customers, going out over the next couple of months, would you characterize them as generally getting firmer or getting softer?

The way we would characterize them right now is guardedly optimistic. We see the North American, the big three are down; their schedules are a little bit down compared to last year. But we've already factored that into our models. But in general, we think the fourth quarter could be okay -- first quarter could be okay.

Rob Hinchliffe, UBS Warburg.

Just looking back at the presentation from the auto show in January, revenue for '04 -- I think you were forecasting at 3.3 billion. This year, it came in a little over 3. With your backlog, is that 3.3 probably -- does that need to be revised up, or is 3.3 for '04 still a good number?

3.3 is still a good number because, if you take the existing business, take some price give-back of 1.5 to 2 percent, and you get to the 3.3.

Margins for the year? You're talking about systems business, and that's part of the impact. What do you see for margins for the year?

For '04, we actually see -- we believe there will be a slight increase in margins because we have got -- in terms of product lines, for the most part, we see some stabilization. And so we don't see much in the way of mix impact. And each of our businesses has got a strong program to enhance their margins, despite the customer pressures.

I think we told you in January that they would be up about 0.5 percent, and we still believe that to be the case.

But more important, though, is we are continuing to focus on improving in our returns on invested capital. And yes, we are working and always looking at improving -- holding or improving our margins, but we are really focused on continuing improvement of our return on invested capital.

Makes sense. Last one, getting back to the revenues -- for the euro, are you still using 1.15 for your forecast?

We haven't moved off the 1.15, but obviously the first quarter will be -- barring a real surprise, will be substantially in excess of that.

Chris Ceraso, Credit Suisse First Boston.

A few follow-up questions. On that margin question, you said that you expected margins to be up a little bit. You'll have less in terms of total payments to Honeywell in '04 than you had in '03, correct?

That's correct.

So does that account for the margin improvement, and you sort of lose a little bit on mix and startup costs?

Well, Honeywell is positive. Internal gains at our businesses are also positive. And we said startup will probably be about the same year over year. So that won't be negative. So I think that those are the main factors, as the ongoing push on top of the Honeywell is what -- we'll have a half a year at Honeywell, basically, in 2004, versus the full year in 2003.

Okay. And if we sort of look forward to 2005, it's about 500 million of new business, right, that comes on in '05?

No. It's about maybe 450 or so.

450 in '05? Are the investments that you're making in '03 and '04 -- you've talked about startup costs, launch costs, new plants in different regions. Is that what's going to drive the '05 new business, or is there additional cost associated with that?

The investments we are making now, for example, in Korea, that support some of the new timing systems business over there. So we probably, what, run a year in advance?

In a situation like that, yes. (multiple speakers)

So we continue to have to invest for some of these new programs. This one -- geographic expansion is, like we did in Germany for DCT, and in Korea for timing, is a little more substantial than equipment for a program, so --

If new business goes from 350 in '04 to 450 in '05, we shouldn't expect a similar increase in startup and launch costs, because you're maybe taking a little bit disproportionately more in '04?

I don't think so, no.

Ronald Tadross, Banc of America Securities.

In terms of '03 versus '02, have you been able to quantify the impact of lower industry production? I think North America and Europe were both down, maybe on sales and profits. Have you thought about that?

That's a difficult one for us to measure, because some of our volumes are up and some are down on particular vehicles. So it's very difficult for us to measure on an overall content per vehicle.

The biggest thing for us is the mix. Our products are on the products that are basically seeing large growth rates, in spite of markets that are declining. So the market -- the market going up and down doesn't have as much impact to us on our increase in sales, because we have the growth on top of the daily base business.

And maybe let me ask it another way because, if I look at your growth, you did about 80 cents a share in EPS growth to '03 from '02. And it looks like about 50 cents was currency and the rest was taxes. And so I thought maybe the difference -- maybe the reason we are not seeing the 10 percent go to the bottom line, the topline growth that you have still to the bottom line, was because of industry production. But you're saying that's maybe not the case. Am I missing something here? Why are we not seeing that filter to the bottom line?

Obviously, industry production on some vehicles affects us. But we have a large content on mid-size passenger cars, particularly GM and Ford. And that affects us, and that hurts. But we have new programs that tend to offset it.

And one of the things I guess we need to make clear is, when we measure our currency impact, we're basically measuring this year's performance at old rates versus new rates. So we do get some of the volume kickers in Europe incorporated into that.

So you're just taking the new level times the currency?

Yes.

And also, the margin translation on that sales increase that's related to currency doesn't have the kind of contribution that a product volume would. Maybe it's half of what it would be.

This does conclude the question-and-answer session. I'll turn the conference over to Ms. Brevard for any additional or closing remarks.

Thank you very much. I appreciate all of you joining us today. I want to remind you that this call will be replayed through February 9th. The replay number is 719-457-0820, confirmation code 506978. There's also a replay available on our Website. You're welcome to direct any follow-up calls to me. And with that, we'll end the call. Again, thank you for joining us.

That does conclude today's conference call. You may disconnect at this time.