Dana Inc (DAN) 2002 Q2 法說會逐字稿

Good morning and welcome to Dana Corporation second quarter conference call. This call is being tape recorded. The format for today's conference call includes remarks by dana's chairman and chief executive officer Joe Magliochetti and by Bob Richter, vice president and chief financial officer, followed by question and answer session. This quarter, Nick Cole, president of heavy vehicle technology will be available for questions. At this time, I would like to begin the presentation by turning the call over to Greg Smitanski, director of investor relations. Please go ahead.

Welcome to Dana Corporation second quarter conference call. I would like to remind everyone that today's call is supported by a slide presentation, located at our website, dana.com. Go to the home page and click on second quarter conference call. This webcast also enables you to direct questions to us during the presentation. Joe, Bob and Nick Cole, president of the newly realigned systems group will answer as many questions as time permits. If you have not yet received a copy of the earnings release, please call 419-535-4635 and we will fax this information to you immediately. Hopefully everyone has now located the site. Let's move to slide number two. I must remind you this conference call and supporting visuals may not be recorded, copied or rebroadcast without written consent. I would like to remind everyone today's conference call remarks include forward-looking statements. These statements are based on current knowledge and involve assumptions and risks, Dana's actual results may differ materially from those expressed or implied in statements today, due to factors we will discuss and other set out in the SEC reports. Continuing on to slide three, I would like to introduce Dana's chairman and CEO, Joe Magliochetti. Joe.

Thanks, Greg and good morning everyone. I would like to begin with a quick review of numbers. Sales for the second quarter were 2.8 billion dollars and including nonrecurring items, we reported a profit of $52 million or 35 cents per share. Net income during the quarter included a $27 million gain associated with the sale of Select subsidiary subsidiaries of Dana Commercial Credit leasing business. This It also included $42 million of charges taken as part of the continuing restructuring plan we announced in the fourth quarter of 2001. I will expand upon that initiative in a few moments. Adjusting for these items, operating income was $67 million or 45 cents per share. A continued positive improvement from the same period last year. Now, let's move to slide number 4, we will examine these results by strategic business unit. This chart compares 2002 second quarter performance to our results during the same period last year. As you can see, with essentially the same level of sales, all reporting units have been able to increase operating profits. This clearly reflects the continuing benefits of our restructuring actions. With two full quarters of restructuring action under our belt, we are gaining increased traction as we progress through the year. During the first quarter, we benefited primarily from headcount reductions taken during the fourth quarter of last year. This quarter, we are continuing to benefit from these reductions, as well as additional facilities closures. Our engine and aftermarket groups performed especially well this quarter and appear to be reaping early rewards of their restructuring initiatives. You may remember that these two business units are receiving the largest portion of our restructuring monies in an effort to lower respective break even points. Stronger operating performance was not as noticeable in automotive systems group as gains made through restructuring have been dampened by abnormally large start-up costs associated with secured structures business, which had an impact on the bottom line. I will come back to this, but first let's advance to slide 5. I would like to highlight the sequential improvement of operating units further. Here we see the continued improvement trend of our second quarter sales and operating profit, compared to first quarter of this year. As you can see, all business segments improved sales and profits. Our bottom line were supported by strong North American sales volume in both light and commercial vehicles. However, we still believe this additional volume is due to aggressive incentives on light vehicle sides and prebuying of Class 8 in change of emissions requirements for heavy diesel engines. It is worth noting the continued progress made by our aftermarket group. This improvement reflects the continuing success of restructuring initiatives within the business unit. Among our four major business units, this group is probably the furthest along with restructuring plan. Returning to the automotive systems group, please advance to slide 6 where I will illustrate the start-up issues impacting this group. As you can see here, our structures business is currently preparing for 7 new model launches. Each new model requires significant investment and generates start-up cost impacting the automotive system's group bottom line. Today the costs, denoted by check-marks, are expensed with little revenue available until the start of production in 2003 and 2004. Early pain for long-term gain, I guess. Now, we are certainly not complaining about this new business. We are obviously thrilled to have been awarded so many new opportunities. We look forward to the positive impact they will have on our future. The concurrent timing in the midst of a massive restructuring program has posed more than a few challenges. Continuing to slide number 7. Here we see the progress of our restructuring program. Among the key elements of the plan are workforce reduction of more than 15%. And the plan to closure or consolidation of 30 facilities. As of the end of the quarter we booked $358 million or 80% of the plan. To date, we have reduced headcount by 8%. Actions involving further 3% have been announced. The full impact of this reduction has been lessened by the need to hire additional temporary people in order to assist with transitioning of assets from closed facilities. As we concluded the first quarter, we closed 7 facilities. As of June 30, we closed another 7, bringing the total to 14 facilities. We have announced plans to close additional 14 facilities. Again, many of these facilities have been smaller and employed relatively few people. As we close the remaining facilities, we will see further reduction in headcount. We feel confident the majority of the projects remaining in restructuring plan are on target and will be complete by the end of this year. Now, move on to slide 8. Our restructuring progress is driving earnings improvement. As Bob will share with you in a few minutes, it is supporting cash flow. This chart, measuring our earnings before interest, taxes and depreciation, illustrates steady progress we are making. We will continue to place major emphasis on restructuring initiatives, ensuring when we are finished, you will see a Dana that is leaner and more flexible with significant reduced cost structure. In the meantime, our results show we are moving in the right direction and making solid progress. Let's move to slide 9 for review of net new business. This is our traditional projected net new business chart, showing anticipated incremental business through 2006. Max's decision to realign sources by tough market conditions within the Volvo RBI business impacts numbers after 2003. Even so, we have added to the book of business with other programs, secured during the quarter. We are confident the 3% decrease from last quarter's chart will be replenished by pending opportunities. We will secure this business the way we have been doing it, with strong emphasis on core products and innovative technologies. Our current book of business reflects projected net new revenue of $2 billion in 2006. I believe it is particularly important to note many of these programs, with our nontraditional customers, such as Isuzu and BMW, allowing us to diversify our base and create additional new opportunities moving forward. I would like to ask you to move to slide 10 and I will turn it over to Bob to review financials. I will return to discuss north American market projections.

Thanks, Joe. My comments today will refer to financial statements with DCC showing on equity basis. Slide number ten reconciles our reported income statement to income excluding nonrecurring items with the differences shown by line item. In the divestiture column, you see $27 million nonrecurring gain we generated during the quarter, from sale of certain subsidiary subsidiaries of DCC flowing through the equity of affiliates line. Of the cost associated with restructure initiatives, 7 million in impairment of inventory and other current assets associated with exiting certain businesses was included in cost of sales. The balance, $56 million, was categorized as restructuring expense and included the cost of downsizing operations, and providing for severance cost associated with announced facility closures. Excluding nonrecurring items, profit after tax was $67 million during the quarter or 45 cents a share. Now, turn to slide 11. This slide compares the numbers for the second quarter, including the nonrecurring items on the preceding slide, with the results of last year's second quarter on the same basis. Sales were up 21 million dollars, this in spite of the fact the effects of currency movement reduced sales by 9 million, due to the Argentina peso, and the (inaudible) sales by further $40 million. The major change on the other income line was currency transaction, which was negative $3 million last year and a positive $5 million this year. Gross margin came in at 12%. SG and A is down by $30 million, it was 8.9% of sales a year ago and only 7.7% this year. Interest expense was down $4 million, due to lower debt levels. The effective tax rate is getting closer to normal. Last year, earnings get close to break even and the effective rate gets distorted by states and foreign jurisdiction which are not always proportional to income. Equity and earnings increased $12 million from a year ago, reflecting stronger earnings from Track. We have one hundred percent ownership from our partner in Venezuela. That includes a loss from DanaVen. The fact we consolidated is one reason we did not show as much improvement in gross margin as we might have otherwise expected. Overall, we showed significant improvement in operating income on similar sales. Let's move to slide 12. This slide shows our cash flow for the first 6 months. As we did in March, we have moved the amounts related to October 2001 restructuring program to a separate section at the bottom of the slide. Starting from the top, when you add back the effect of our adoption in the first quarter of FAS 142, related to goodwill accounting, income before the change, but including all the nonrecurring stuff was $43 million. Depreciation was $195 million and we had a couple of small divestitures in the first quarter that brought in $10 million. I will talk more about working capital later. It was reduced by $54, bringing total sources of cash to $300 million. There are no real surprises. capex is sufficient with plans to spend $250 million for the full year. The $29 million change in other accounts is mostly the unremitted equity affiliates that get hung up in the balance sheet. In the restructuring section, you see we have taken $79 million and restructuring charges this year, bringing our program to date total to the $358 million number Joe showed. Cash payments during the 6 months were $78 million and we received $19 million in cash from asset sales. The line share of the proceeds related to the outsourcing of non-core operations, which will continue through the balance of the year. Overall, net debt was reduced by $156 million and that takes us to slide 13. We started the year with 2.8 billion of net debt, as shown on the first line. This net of $182 million we had in cash, left us with $2.6 billion in net debt. On the second line, you see the application of the $156 million in cash flow from the previous slide. We paid down $23 million in debt and added 133 million to cash. Foreign exchange worked against us to the tune of $39 million. Debt went up by $25 million and the cash went down by $14 million. We also saw $28 million dollar increase due to the market to market of interest rate swaps. You may recall we swapped both of our last two debt issues back to floating rates. With the decline in interest rates our swaps moved up in value by $28, as did the offset, including in other assets. Probably seems counter initiative when you look at the effect on debt, but this is a good thing. Debt, net of cash at June 30, was $2.5 billion. Moving to slide 14, I said I would come back to working capital. Here you see the walk forward of the working capital by quarter for the first six months. We are pleased with the 54 million reduction from operations. As you see here, the number in the second quarter alone was $64 million. We were able to offset increases in receivables with reductions in inventories and other current assets, as well as increased payables. If you have been following our progress for the last couple of years, you know we usually see seasonal increases in the first six months, facilitated by reduction at the end of the year. Having avoided the increase in the first six months should allow us to take more out of working capital for the full year than originally planned. Please turn to slide 15. We usually talk about working capital dollars. I think it is important to note we are also significantly improving our efficiency, as measured by working capital as percent of sales. We are still not where we need to be in this regard, but are proud of the progress. It is nice to be in the single digits. Moving to slide 16. This slide updates our cash flow projection for the full year. Based on actual results for the first half and consensus forecast for the second half, we would wind up with net income before nonrecurring items of about $165 million. Our depreciation, which we had been showing as $420 million, will probably be lower given the pace of the capital spend. As I said earlier, we increased expected reduction in working capital, which should easily be $200 million based on where we are year to date. We are confident we will realize $300 million from divestitures and asset sales, including whatever we get from the DCC businesses, outsourcing of non-core operations as part of restructuring and anything else we might accomplish. This would bring total sources to well over a billion dollars. As I said earlier, we are still trending toward $250 million in capex. So, if we maintain current dividend rate, we would have $800 million in cash flow before restructuring payments. As you saw earlier, we paid out $78 million so far this year for restructuring. There is probably no way we will exceed the $300 million maximum number we talked about previously. That means we should be able to reduce net debt by at least $500 million, which would be just short of 20% reduction in net debt in one year. With that, I will turn back to Joe for a recap on slide 17.

Thanks, Bob. The first half North kitchen American production volumes exceeded original estimates. As we noted, this volume, coupled with black belt initiatives helped to speed our financial improvement. Looking ahead, we now believe 2002 North American light vehicle production will total about 15.8 million units. This reflects stronger than expected first half production, tempered by cautious forecast for volumes in the second half. We still believe that to some degree, sales are being pulled forward by heavy incentives. On the commercial vehicle side, we expect North American class 8 vehicle build to come in at 150 to 155,000 units for the full year. This increase from the original forecast of 130,000 units is largely due to prebuying of class 8 trucks. We see this pre-buy continuing into the third quarter, but with the tapering, we expect a soft fourth quarter. With that said, our restructuring remaining on plan and we expect to continuing reaping the benefit of these efforts. We look to have a solid second half with earnings per share in the range of 50 to 55 cents. As Bob has shown, we are also generating ample cash to support the program and continue to reduce debt. We are making solid progress with restructuring and feel good about our ability to see it through to a successful conclusion. In doing so, we will be well positioned for 2003 and beyond. I will open the floor to your questions.

Thank you. Today's question and answer session will be conducted electronically. If you would like to ask a question, you may signal by pressing the 1 digit on your touchtone telephone. Dana will answer questions from the website. We will take as many questions as time permits and will take your questions in the order they are signals. Thank you. Our first question is from Steve Girsky of Morgan Stanley Dean Witter.

Go morning, everybody. Couple of quick questions. Joe, do you want to take a stab on commercial vehicle sales for next year?

Nick Cole is here, Steve and he has responsibility for that, let's let Nick give it a whirl.

Right now, of course, it is Fluid systems environment we are in. We are looking at 196 to 200,000 units next year in Class 8.

What is the comparable number this year?

Probably, as Joe said, 150 to 155 units.

You don't think we could fall off next year, then?

I don't think so at all. I think too many things will stimulate the buyer next year. Just normal replacement rate runs traditionally about 7% of the existing trucks out there. You are looking at average around 200,000 units. People keep talking about the Class 8 market, but they often times forget about 30% of the market is what I call vocational, dump trucks and so forth. These are the vehicles that are less sensitive to the cost of new engine. They are parked at home every night. Unlike the over-the-road, count on roughly 30% being in that area. I think there is a lot of reason to be optimistic with 2003.

Okay. Bob, could you break out payables versus other?

Uh, actually I don't have that detail with me.

Is it mostly widening of payables or is there something else?

Mostly widening of payables, very clearly. One thing we tried to do in the working capital loss was separate out the restructuring effect on a separate line. So, there is no restructuring accruals or anything like that going on. It is really the increase in payables.

Your suppliers, they can handle that?

Yes.

Okay. One more question. I see the automotive systems group backlogged as growing. When I compare revenue to vehicle build, it seems like you are coming up short. Is that a launch issue or what is that?

That is some of it, Steve is the launch issue. The other thing to tends to distort is certain of the growth in the last quarter and actually in the first half has been on vehicles that we don't have substantial contact. GM can be the leader this year. Our concentration is with Ford and others.

Okay. Is there anything on the launch that may slow you down in the second half?

Not really. I was actually surprised at the recent report on the Navigator. There was nothing there extraordinary, that was a normal launch, where we tend to keep up the first couple of thousand units to ensure production does start on a full-time commercial basis and there are no problems. That went smoothly for us.

Thank you.

Thank you. Our next question is coming from David Bradley of J.P. Morgan. Please go ahead.

Good morning. Uh, a few small items. Accounts receivable sold or anything different this quarter than last quarter?

No, as a matter of fact, there was a question on the Internet asking why receivables went up by $140 million. It is really just a function of the sales.

Okay. Equity income last quarter and this quarter was coming in higher than we had been forecasting. Are we forecasting too low? Is 17 million what we ought to be thinking about or revert back to 5 to ten range eventually here?

You would probably end up about half way in between the two, because as the DCC stuff runs off that goes down a bit. The other, the foreign affiliates stay drawn.

As you have had nice gains, particularly with cost restructuring and the engine systems and the aftermarket. As you look to next quarter and the one after, where do you see big opportunities for substantial near-term improvement in earnings? Particularly given the spike in heavy truck builds, is that going to slip back? Where do you see the opportunities?

I think you will see continued improvement both in engine, as well as aftermarket. Frankly, I think Nick and the folks in the heavy truck group are just now starting to reap the benefits of the consolidation of that with our off-highway business. So, I think you will see in all three sectors.

The automotive system group has room for upward movement.

That didn't do as well as I would have thought. Joe, you are saying that was due to the builds rising with products you are not on rather than the ones you are on?

That is the larger issue there, in addition to the start-up cost we are accepting on new business.

In Q3, you will see maybe some of the ones you are on will see better growth?

Right.

Thank you.

Our next question is coming from John Daviduk of Goldman Sachs. Please go ahead with your question.

Good morning. Looks like I am getting this system figured out after four and a half years in the business. I guess first question relates to headcount. If I understand it correctly, headcount is down 8%, through the first half, but you added back 2% in temporary workers and you are having another 3%, coming in the third quarter?

The way this goes, you generally announce the impact 30 to 60 days before you are actually able to pull the folks off. We have announced the further 3%. So, we have 8 plus 3, would be 11. Unfortunately, we have had to add back 2% in terms of temporary status to assist in the transition of that machinery equipment to new locations and the establishment of new functions. So, those folks will start to come out as we get toward the end of the year.

Okay. Joe, you are at net 9%, is that correct or 9% that has been announced and will be through by Q3 and the remaining 6% in q4?

Right.

Which will roll into 2003.

Exactly.

Then, the final headcount target is still 75,000, is that correct?

No, that was the starting point. We are looking at significant drop below that.

So, 75 less 15?

Right.

With Nick there, I have to ask what does he expect in terms of Class 8 for Q4 of this year and Q1 of next year, with the pre-buy ending as of the end of September with the emissions regulations coming in October 1.

As we read it today, we are looking in the high 20s, maybe 29,000 for the fourth quarter of this year. First quarter of 2003, maybe getting into the low 30s. That is our best forecast at this point. We feel it is a pretty good one.

The remaining 170,000 or so coming in the last three quarters?

I think you will see quarter after quarter improvement throughout 2003 going from low 30s to almost 50s and 60s by the fourth quarter.

Okay. Give us your medium truck outlook, Nick, as well as - I guess I missed when the Volvo RVI can rolling off.

The chasty build ends in December of 2003. And the axle business ends in 2004, I believe, May of 2004, if I am not mistaken, we will be out of that business with them.

Okay. Can you give us your medium truck outlook?

Medium truck outlook for the balance of this year. I was just talking to marketing guy yesterday. I think we are looking at for 2002, around 165 to 170,000 units and next year about 200,000, at this point. This was volatile in the Class 8 market because of the engine situation. That are the numbers we are going with at this point. As the peek in the Class 8 market, we are seeing people shifting to the medium, and this changes things around, as well as trailer numbers. It is tough at this point tac ratly forecast. We are looking at 160 to 166,000 this year and close to 200,000 next year.

Terrific. That is all I have.

Our next question is coming from Andrew Newton of Dresdner. Please go ahead with your question.

Good morning. Question, I look at the net incremental business relative to Q1 and I guess you take out the 850 million in commercial vehicles. But, you are still net up. Is that industry build assumptions changing or new business? There?

Heavy trucks?

Overall incremental business is up from Q1, even though we are taking out commercial vehicle business.

Mostly it is new business. The future years we size the current year to our expectations on builds. (inaudible) expectations, so that doesn't fluctuate.

The last quarter, you guys have won 950 north of 900, million in new business, it looks like?

That is strong, but we had a solid quarter, no question about it.

Okay. Thank you.

Thank you. Our next question is coming from Monica Keeny of Morgan Stanley. Please go ahead with your question.

Good morning. In terms of clarification for the first part of the DCC sale, the proceeds were used to pay down DCC debt, is that correct?

Yeah.

For the subsequent pieces you are going to be selling, can we - or should we not make the assumption that will be used to pay down DCN debt or DCC debt?

Probably doing a little bit of both. With the completion of the first transaction, the DCC 364-day credit facility, we let lapse because we didn't need it anymore. And that was the only document that restricted cash back to the parent. So, we are free now to take dividends out and based on our expectations, we have said when the book value was 200, we didn't expect to get less than that. Most of that will come back to the parent. So, as we complete other transactions over the balance of the year, I am sure we will see dividends from DCC in expense of $200 million and their debt will go down at the same time. That whole DCC sale, I think I can conclusively say now will happen in multiple transactions, probably five or more. We had the first transaction in the first quarter. We had another one on the real estate business that's signed up and we will probably fund over the next three weeks, that is another 150 million in proceeds. We are making progress.

The 150 will go to pay down which debt?

DCC debt. By the end of the year we will have taken out probably dividends in excess of $200 million. So, it could initially go down to pay down DCC debt and then we could drawback on the lines to pay dividend. We will just money being plungeable. At the end of the day, we will get the dividend and DCC debt will be down.

Okay. And in terms of Clinton -

No progress. I wanted to beat you to it.

Nothing there, okay.

We are working on several other transactions. On the cash flow statement, the $300 million is one of the more conservative numbers on the cash flow forecast.

When you talked about other, you eluded to other things, can you give us color on that?

No, other than to say it is DCC, it is the outsourcing of non-core assets. We saw that coming through this quarter. Some of the other strategic activities that we may accomplish.

Okay. Conservative. In terms of then, -

Frankly I think the 300 is conservative. I think the 200 in working capital is conservative. (inaudible). I think we are probably going to come in under the 300 million in restructuring cash.

Where do you think restructuring comes out then?

We spent 78 million year to date. We will be under the 300.

The 200. If we are really too high on 300, what do you suggest? 200?

Between 200 and 300, but won't exceed 300 for the moment.

In terms of covenance, I guess the question is from the information you give us, do we get close to what the company calculation would be for - what was the covenant calculation, the leverage this quarter according to the definition for the banks?

We don't disclose the covenant calculations, but I can assure you debt to net worth, the coverage of interest expense and debt to EBITDA, we were substantially better than the covenant requirements for the current quarter.

Would we get close if we looked at the financials?

You are not going to be off by much. We use the financials, as well. I guess the only thing I caution you, for example, on the net worth, there is allowance for the change in accounting and so forth. Other than that, not a lot of mystery.

Leverage ratio for this quarter was 4 7, is that right?

Which leverage ratio?

Net senior ratio?

4 7, yeah.

You were substantially below the 4 7?

Yeah, almost 20% below it.

Okay. For the subsequent, for third quarter it rashed down to three and three quarters?

Yes.

You don't think there is a problem with that at all?

No.

None at all, no covenant problems for the third quarter?

No.

Thank you.

Thank you. Our next question is coming from Darren Kimball of Lehman Brothers. Please go ahead with your question.

Thanks. Good morning. I guess first on the heavy duty business. Assuming that the third quarter bill schedule is not going to change much with the pre-buy, it will stay strong. We will be at 140,000 units through the first nine months and Nick was saying 29 or so in the fourth quarter, which would put us at 170. So, your 150 to 155, is this just a continuation of kind of throwing out conservative numbers? If we build 170, does that mean there is upside in terms of heavy duty segment profitability? How should we look at that?

There might be upside to that. I don't see the 170 frankly, but if it gets to 170, Darren, I am sure there is upside.

Okay. And in terms of - 00:59:18 is there a customer mix issue going on? If you look 00:59:22 at first half results in that segment, you know, trying 00:59:28 to sort of identify the leverage you should have to 00:59:31 the North American heavy truck build, separate from 00:59:34 what is going on in medium truck. It just looks like 00:59:39 you didn't have the top one would have predicted? 00:59:42 00:59:44 >> What pop do you think? 00:59:47 00:59:48 >> ANALYST: Look at year over year build 00:59:49 increase in the Class 8 market and accounting for 00:59:51 how much of your heavy truck segment revenues that 00:59:54 is, in other words, not confusing with medium, it 00:59:57 looks like you are not getting as much of a pop as we expected in the first and second quarter. Is there a customer mix issue or something else we should be aware of?

Our lead customers in that business are Paccar and Navistar. We don't do much with Freightliner, but see the benefit of Paccar and Navistar.

The mac vehicles were way down.

That is right. And that was the primary reason for it. Other than that, things pretty much ran the normal course.

Okay. And you know, not to beat this issue to death on the ASG side, but by our calculations, mix in terms of industry production, has cost you about $170 million in revenues to date versus the $150 million you guys are citing as net backlog for the full year. So, assuming mixes flat in the second half, should we assume that relative to the build, you should be flat for the full year or do you expect that - the mix issues may reverse themselves? Do you think we will see the build, plus 150 or that is not realistic at this point?

I think there is some - I look at the new vehicle launches planned for the second half. I would expect we would see upside in terms of the mix. Clearly there is no question if you look at the first half of the year, General Motors has been the winner in the light vehicle side, particularly on the sport utility and light truck sectors which are heavily cons-concentrated. We feel (inaudible) some of the product coming into the market are exciting and we will be a part of it.

Top line comparison for asg versus last year ought to look pretty good in second half.

Okay. And if I could ask a question or two on the aftermarket side. You had a positive year-over-year comparison at the top line, which is the first in quite sometime. So, that is very good news. If you could speak to the composition of the change there in terms of how much was pricing and how much was unit volumes or currency and in terms of the segment margin and the aftermarket group, that was also much better than we had expected. I wonder if you guys would want to take a stab at the full year? I guess last time you talked about it, you talked about maybe - I think about 3% after-tax margin. Is there reason to be more optimistic on that at this point?

You could be, we will stay conservative.

Let me comment on Terry's plans. Terry's restructuring plan is running about 30 days ahead of schedule. We are starting to see benefits there we didn't anticipate this early. Additionally, he has secured significant new business, including UAP Napa and others. The outlook looks promising for Terry from standpoint of growth and margin improvement

Can you just give color on the core, how much was pricing? How much was units, new business, if that is a factor?

I don't have that much detail.

The pricing about 2 and a half percent. The new business, there wasn't a lot. There was some new business, buts not a lot of margin effect in the new business because there was changeover expenses associated with that. We are recording those as we go. Once we get through that, that starts to kick into the margin.

Okay. Did you say what the overall currency impact was on your top line in the quarter?

9 million. It was against the prior year.

9 million benefit primarily from the euro?

Going the other way. Yeah, because of the South American currency.

Okay.

In the divestitures, I believe I said were 40 million down.

Okay. That's all I have for now. Thank you.

Thank you, our next question is coming from Mike Sender of Salomon Smith Barney. Please go ahead with your question.

Yes. Wanted to get clarification. One was on the pending divestiture part of the real estate portfolio. The 150, is that gross or net proceeds?

We are guessing those are net proceeds.

Great. On the other question I had for you. In the slide where you did the build-up of cash flow for the year. You threw out a number of 165 million in net income before nonrecurring items. Can you give us EBITDA equivalent on nonrecurring items?

I don't have that off the top of my head. I would have to think about that.

Okay. If somebody can get back with me.

Greg will get back with you.

Just something to use. The other question was on your bank revolver, were you undrawn at the end of the quarter?

We had $10 million drawn just because of the way you borrow into the bank revolver. You borrow for like a certain period at a time and we did have $10 million borrowed against it.

Okay.

On the other hand, we weren't - we were at 28 on the AR program, which is $400 million.

Okay.

Overall, as long as we are on the topic. We reduced the 364-day facility. We don't need it and are trying to save fees. Between the AR program, the 400, the five-year facility of 500 and the 364-day facility of 100, we have a total of a billion dollars of sources. We had 290 drawn against that, leaving us 710 million borrowed against the committed facilities and then again, the cash on the balance sheet.

Great. That's helpful. Okay. Thank you.

Thank you, our next question is coming from John Cacessa of Merrill Lynch. Please go ahead.

Just to follow up on the asg margins. I understand how the launch costs are hurting. You have a lot of book business and will have launch and start-up costs all along. Is there something unusual about the structure business? I guess if we look out a year or two, would the cost be less odorous?

Absolutely, John. This is the first time to my knowledge we have had 7 major launches in the same year. And the benefits of those don't really begin until 2003 2004. The fact is we spent a good part of yesterday going through the facility we have in Elizabeth Town, Kentucky because it is so advanced and unique that most of the machinery and equipment is new. The production methodology is new and it is exciting on the one hand because they have incorporated safety features into the design of the new structure. Of course, it is tedious and costly to put in place.

This investment will drive the acceleration of dollar revenues is a couple of years out. Right now, you wouldn't expect to see the same mismatch between backlog and cost?

Absolutely not. The accounting on this today, is we are expensing it as we go. Whereas in the past, we were able to spread the cost over the revenue. So, we should see significant upside on this, as we endure the pain of the present.

Thanks, Joe.

Thank you. Our next question is coming from Rob Hinchliffe of UBS Warburg. Please go ahead with your question.

Thanks. Good morning, guys. Sticking with John's question. I wonder if you could give us a feel for what kind of impact the start-up costs have had on ASG markets?

We haven't broken that out in terms of specific detail. I think Bill has speculated in terms of his gross margin, he has seen substantial improvement. If he wasn't dealing with the cost, he talked about moving to double digit. I think the key here is putting things behind us and trying to determine what would be normal expectation on start-up costs each year. We know that this is probably three times normal, but what is normal? That is what he is working on now. The numbers are vague to us.

I think it is safe to assume EBIT margins would have probably been comparable to last year before the start-up costs.

Okay. Bill's comment on double digit margins in that group. When could something like that be achieved? Would it be '04 kind of thing? That looks like that is when you start production or -

I would certainly hope so. If you look at the historic performance of the group. They have been in those kinds of trends and so, we would expect them to get back to normalcy by that period.

Uh-huh. Restructuring, looks like you guys have taken about half of the headcount and facility closures and done those already. Were those the moves that would have the biggest impact or are we still awaiting that when you move to the second half of the plan?

I think those were the moves that were the most expedient for us, not necessarily the biggest impact. The biggest impact tend to be the more complex moves that take more planning and a little more care and execution. The idea is to do all of this with a minimal amount of impact to our customers and optimize the benefit.

Then. One last one sticking on the commercial truck unit. Any doubt that that group will not make money in the fourth quarter?

No concern on my part. I think we will have a future looking exceptionally bright for that part of the business going forward. Just judging from the forecast we are seeing today and into the future, I couldn't be more optimistic about the market.

So, the fourth quarter, you expect to be making money?

Yes.

Okay. Thank you very much.

Thank you. Your next question is from Ron Tadross of Bank of America Securities.

Good morning, everyone. I see you reduced the length of your presentation and you get more questions. This ASG revenue thing, just wondering here on the Chrysler and Ford share assumptions baked into there, are they flat or up? How should we think about that? Is there a chance you may have to relook at them as Ford reduces capacity is this

You know, the only thing I can say, Ron. We have always taken a conservative view on the outlook and maybe in fact, we are more cautious than we should be at this particular juncture. I would rather err on that end of this thing than be globally optimistic in our plan.

Share assumptions are baked into asg sounds like they are down for Chrysler and Ford, even though it may end up being flat or up?

I wouldn't say they are down. They are fairly realistic.

Okay. Is there enough data on the Grand Cherokee axle program? Has there been an update?

No.

They are sitting on that?

Yeah. Demand is strong and we are producing a top quality product and the customer is pleased.

They haven't announced resourcing for the new model year yet?

No.

That's all I have.

Because of so many conference call, I think we want to wind down now, ending at 11 o'clock.

One more question and we will close.

Okay.

Your last question comes from Kirk Lutky from J.P. Morgan.

Made it.

Just under the wire, Kirk.

Couple of follow-ups.

Just to be clear, no follow-ups.

Uh, I think you went through the revolving credit situation at Dana Corporation thoroughly. I want to confirm the five-year revolver is 500 million revolver?

Yes.

10 million outstanding on that. You used to have uncommitted facilities, are those still in place? I remember having $400 million of uncommitted or other facilities?

About $20 million in uncommitted facilities in the state and there is foreign stuff out there. I think the total short term outside of the 290 that I talked about earlier, which was the 290, was the 280 on the AR program, plus 10ot revolver, there was another 80, bringing the total to 370 or something like that.

Of facilities?

Of short-term stock. If you are trying to - I mentioned $20 million of noncommitted facilities. That would be included in the 80 on top of the 290 to get to the 370 show as notes payable on the -

Got you. The total amount of the facilities outside these two revolving credits is like $400 million of uncommitted credit facilities and then you have 20 million outstanding on those?

Including the overseas, it is 243 million of uncommitted facilities. I thi - (THE WRITING CUT OUT RIGHT HERE FOR A FEW SECONDS AND THEN IT PICKED BACKUP BELOW) - that is good news. Last question is. The scheduled principle payments at DCC, have those changed from the presentations that we have seen historically? Is there anything else we need to factor into?

No. Not at all. They have got I think the - their schedule is there is like 18 million due in the third quarter and 178 million in the fourth quarter.

Thank you.

Thank you.

Just a couple of closing remarks. We appreciate you listening again today, as second quarter performance has demonstrated, Dana people are making significant progress with aggressive restructure program we outlined for you last October. The gains are beneficial in the near term reflecting improved financial results and also provide important foundation for a new and fundamentally improved Dana Corporation. With growing technological resources, I believe we are increasingly well prepared to better endure challenging times and profit from the eventual upturn in our markets. Again, despite challenges that may lie ahead, we believe we are very well positioned, perhaps better than many of our counterparts for a strong 2003. In the market turmoil of today, I think it is important to note that ours is now and has always been a prudent manufacturing company, with impeccable work ethic. We will soon celebrate our 100th year anniversary, a full century of serving customers and shareholders. We will continue to build on moment of our restructuring program to improve our financial performance, maximize cash and solidify our balance sheet. As always, we thank you for your interest Dana.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect at this time and have a wonderful day.