Dana Inc (DAN) 2002 Q3 法說會逐字稿

Good morning, and welcome to Dana Corporation's third quarter conference call.

This call is being tape-recorded.

The format for today's conference call includes remarks by Dana's Chairman and CEO, Joe Magliochetti, and by Bob Richter, Vice President and CFO, followed by a question and answer session.

This quarter, Mike Laisure, President, Engine and Fluid Management Group, is also attending the call and will also be available for questions.

At this time, I would like to begin the presentation by turning the call over to Greg Smitanski (ph), Director of Investor Relations. Please go ahead.

Greg Smitanski (ph): Good morning, everyone. Welcome to Dana's third quarter conference call. Today's call is supported by a slide presentation located at our Web site, www.dana.com. Simply go to our homepage and click on "Third quarter conference call." This Webcast enables you to direct questions us to during our presentation. Joe, Bob, and Mike will answer as many questions as time permits and all bona fide questions will receive a follow-up response.

At the request of several participants and in the interest of fairness, during today's question and answer session we would ask that dial-in questions be limited to one or two per caller so that more people are able to participate.

If you have not yet received a copy of our earnings release, please call my office at 419-535-4635 and we will fax you this information.

Hopefully everyone has now located the site. Let's move to slide number 2, where I must remind you this conference call and its supporting visuals may not be recorded, copied, or rebroadcast without Dana's written consent.

I'd like to remind everyone today's conference call remarks include forward-looking statements. These statements are based on current knowledge and involve assumptions, uncertainties, and risks. Our actual results may differ materially from those which are anticipated or projected due to a number of factors that we will be discussing and others set out in our SEC reports.

Continuing on to slide number 3, I'd like to begin today's conference call by introducing Dana's Chairman and CEO, Joe Magliochetti -- Joe.

Thanks, Greg (ph), and good morning, everyone. I'll begin by reviewing our third quarter performance. Sales for the period were 2.6 billion and after nonrecurring items, we reported a profit of 4 million or 2 cents per share.

As most of you know, it was the -- this time last year that we announced the largest restructuring program in Dana's history. Our work in this area is continuing as planned and is actually ahead of schedule. Excluding the nonrecurring net charges taken during the quarter associated with this program operating income was $44 million or 30 cents per share, a significant improvement from the same period last year. Our results this quarter clearly reflect progress in our restructuring actions. This morning Bob and I, along with Mike Laisure, will speak to the progress on these initiatives and other highlights from the quarter.

Now, let's move to slide number 4, where we'll review some of the specifics of our restructuring progress. The key elements of our restructuring plan are the workforce reductions of more than 15% and the closure and consolidation of more than 30 facilities. We said that our plan would cost about $455 million after tax. As of the end of the quarter we booked about 398 million or 90% of the expected charges.

To date, we've reduced our permanent head count by 9%, and announced a further 5% reduction. However, our total head count has been temporarily impacted by the need to hire transitional short-term workers at certain locations to provide support during our restructuring actions. Often this has to do with machinery relocations and so on. And our heavy truck group, for example, has already taken out about 300 temporaries accommodate its lower fourth quarter production schedules.

As to the end of the third quarter, we had closed 18 facilities and announced plans to close another 16 in relationship to this plan. As these remaining facilities close, we will see further reductions in our head count and a corresponding reduction in our asset base.

A primary focus of this restructuring is to lower Dana's net investment and break-even level. We're making solid progress on both fronts, as evidenced by slide number 5, our strategic business units comparative of sales and operating profits. This chart compares 2002 third quarter performance to our results during the same period one year ago. As you can see, every one of our reporting units that increased its sales and operating profits. We benefited from the headcount reductions and reduced our facilities' infrastructures.

Now, let's move to slide number 6. We'll begin a more detailed examination of our four strategic business units. Sales for the automotive systems group were up 7% from the third quarter last year, despite net dispositions in currency fluctuations, reducing sales by 2%. Sales grew primarily on the strength of North American light vehicle production. Operating income was $31 million, almost 30% better than last year's third quarter.

Although automotive systems continues to be impacted by startup costs associated with many of its new business wins, it has been able to achieve margin improvements largely through headcount reductions. The majority of this group's restructuring is still unfolding as it divests non-core processes now linked to its products. For example in our torque and traction management group we are beginning to outsource many commodity items such as tubes, shafts, and brackets.

These commodities typically require capital but don't directly add to the value of the products we provide to our customers. We anticipate completing the majority of the planned automotive systems restructuring initiatives during the current quarter, which will result in a further reduction in fixed investment for this strategic business unit.

Turning now to slide number 7, I'd like to spend a moment looking at the automotive systems group new business for the next couple of years. Here, you can see a sampling of the new business programs for the automotive systems group for the next two years. This year, incremental automotive systems growth comes from the axle and driveshaft programs for the GM Express, Savannah, and the Lincoln Aviator axles as well. Axles for the GM 560, the Top Kick (ph) and Kodiak, the Quadra Steer (ph) for GM vehicles, and the axle modual for Ford Falcon in Australia.

Also, as we mentioned during our last call we have a number of future frame programs that are now incurring startup costs with very minimal offsetting revenues. As you can see, we made some positive inroads with the North American transplants, such as Nissan, Isuzu, and BMW.

As this chart illustrates, today we announced our innovation in technology has helped us to secure additional driveshaft business with Toyota for a future vehicle to be produced here in the United States. We're enthused by these continued successes and by the diversified customer base that's evolving for Dana. And we see a number of other related opportunities awaiting us as we move forward.

Now, I'd ask you move to slide number 8, where we highlight the automotive after market. Our automotive after market group has done an outstanding job of working through restructuring initiatives. So far this group has reduced its headcount by more than 1,600 people and has closed six distribution centers and two manufacturing centers. These actions have enabled the group to achieve operating profits of 26 million in the third quarter, about three times that of a year ago. Sales for this group were up 2% from the same period last year despite currencies reducing sales by roughly $9 million.

Sales during -- sales grew really on the strength of new brake business with NAPA Canada and Auto Zone, as well as price increases we laid out at the end of last year.

Moving to slide number 9, I'll discuss the performance of our heavy vehicles technology and systems group. This group posted a 16% increase in sales and increased its operating profits by more than 200%. The group has benefited from the reduction of more than 1,000 workers and has closed five facilities. The sales increase was largely due to prebuying of class 8 vehicles by fleet owners prior to the October 1 emissions mandate. We believe this pre-buy has borrowed heavily from the future.

As a result, we expect lower sales for the next couple of quarters. Even so, we believe our restructuring will aid in maximizing our returns on what are expected to be softened revenues. The off-highway sector remains mixed, with North American ad market recovering slightly. But the capital bid sector, construction, mining, and material handling all remain fairly sluggish.

Moving to slide number 10, Mike Laisure, President of our Engine and Fluid Management Group is here with us today, so I'll ask him to update us -- Mike.

Thanks, Joe. Good morning, everyone. Engine and Fluid Management Group revenue was up about 4% for the third quarter. Excuse me.

However, if we adjust for the divestitures, the Glacier Vanderbilt (ph) industrial bearings business, ThermoPlast (ph), and SU Air Induction (ph), which impacted the third quarter by 25 million, our actual sales increase on an apples to apples basis is actually closer to 9.5%.

Now, reviewing our restructuring plans. The FSG has moved from nine divisions to four, and the Engine Systems Group we just recently announced has gone from 10 divisions to seven, and we're headed toward three by year-end. We've reorganized the engine hard parts group and reduced layers of management. We've reached an agreement to sell our light-duty liner business, which is progressing on schedule, and we signed a definitive agreement to sell industrial fluid (ph) business (inaudible) Boston Weather Head (ph).

Our original plans called for 12 facilities to be closed, and they are on plan, and additional facilities will be reviewed before year-end, but we will not exceed our original budget.

We have one new business. Based on current estimates, our -- we won an auxiliary transmission oil cooler business amounting to about 7 million a year, we won engine front cover business in Brazil amounting to about 10 million a year, and some fuel hose business in North America, approximately 3 million a year, and some machine liner business in North America as well on a large engine program amounting to 15 million a year, all totaling about 35 million.

With that, I'll turn it back over to Joe and slide 11.

Thanks, Mike. Slide number 11 is our traditional projected net new business chart, showing anticipated incremental business through 2006. Our current book of business projects additional revenue of more than $2 billion in 2006.

As stated previously, we believe it's very important to diversify our customer base with additional nontraditional North American customers. This broadens our relationship base and creates additional opportunities as we move forward. In 2005, this represents 17% of the new business wins within our automotive systems group in the Engine and Fluid Management Group.

As we discussed last quarter, the reduced projection in the commercial vehicles systems group stems from Mack's (ph) decision to realign its sourcing, necessitated by its tough market conditions and further consolidation within Volvo and RVI, and also from a small program cancellation in the medium truck area.

We'll continue to secure new business in the future the way we've done in the past, with strong combination of core products and technologies evidenced in our portfolio.

Moving to slide number 12, I'd like to offer a comment on productivity. As you know, our restructuring is intended to move us forward to a lower break-even point with greater flexibility and a lower investment, which will enable us to recoup the cost of capital at the trough of the cycle and to exceed a 15% after-tax return on invested capital at the peak.

We've made solid progress in lowering our people count and our investment this year, as evidenced by the sales per person and sales to net asset calculations shown in these slides. Both these measures far exceed the 7% increase in revenue for the quarter.

Clearly, our operations have made solid progress with our restructuring issues (ph) this quarter, as they have done throughout the year. We're on plan and will continue to update you on the progress we make in reducing our head count and net investment.

With that, I'll turn it over to Bob and slide number 13 to discuss the financials.

Thanks, Joe, and good morning everyone. As usual, my comments today will refer to our financial statements with DCC (ph) shown on an equity basis.

This slide reconciles our reported income statement to our income excluding nonrecurring items, with the differences shown by line item. In the divestiture column is a small gain that went to other income, the tax provision on that gain, and a loss of 1 million on a DCC (ph) transaction that went through the equity and earnings of affiliates line.

The third column shows the charges associated with the restructuring plan we announce a year ago. $16 million hit (ph) cost in sales, and this is mostly the impairment of inventory and other current assets associated with exiting certain businesses.

Also, 35 million was categorized as restructuring expense and includes the cost of downsizing operations and providing for severance and other exit costs associated with announced facility closures. Excluding these nonrecurring items, profit after tax was 44 million during the quarter or 30 cents a share.

Let's now turn to slide number 14. This slide compares the numbers for the third quarter, excluding nonrecurring items shown on the preceding slide, with the result of last year's third quarter on the same basis. Sales were up 167 million, or 7%. This was in spite of the fact that currency fluctuations reduced sales by 23 million, primarily in South America due to the Argentine and the Brazilian real, and the effect of divestitures net of (ph) acquisitions reduced sales (ph) by a further 28 million.

The major change on the other income line was currency translation, which was a negative 2 million last year and a positive 11 million this year. This was due to South America. Gross margin came in at 11.3 percent compared to 9.8% for the same quarter last year. SG&A is reduced by 13 million from Q3 of last year; on a percentage basis, it was 7.9% of sales this year versus 9% a year ago.

Operating margin improved to 3.4% this quarter compared to .8% last year. Interest expense is 15% below the third quarter of last year due to both lower interest rates and reduced borrowings, and our effective tax rate is getting closer to normal at 36.5% this quarter.

Equity and earnings isn't a whole lot different than last year. There weren't any big swings, just a lot of little stuff making up the delta. Bottom line, we went from an 8 million loss last year to a 44 million profit this year. There were several factors that contributed to the improvement but the main reason was clearly the cost reduction due to the restructuring plans.

Let's now move to slide number 15. This slide shows our cash flow for the nine months, with some of the numbers moved around to isolate the effects of the restructuring program. Net income before the effect of a change in accounting for goodwill we made in the first quarter is 47 million. That's 139 million from operations plus 27 million in net gains from divestitures less the 119 million in restructuring charges.

Depreciation was 291 million, which is tracking toward 400 million for the full year, as we said last time. The divestiture line shows 10 million, which differs from the 64 million shown on the financial statements for two reasons. First, we pulled out 23 million of proceeds from dispositions related to our restructuring plan, which are shown down below.

Secondly, on this sheet, we netted the 31 million as classified as an acquisition in the statements against divestitures. There isn't any sleight of hand here. We unwound a relationship in Europe with GKN (ph). They bought out our share of a JV in the UK; we bought out their share of a Spanish JV. That was a big zero, but it gets shown broad in the statements.

I'll come back to the working capital number later on a separate slide. Cap ex is 186 million, on target for 250 million for the full year. The big item in the changes in other accounts line is the cashing out of interest rate swaps. You might remember that, when we did the last two bond deals, we had swapped them back to floating rates. With the subsequent decline in interest rates, those swaps were significantly in the money, so we cashed them out and replaced them with new swaps. No income effect at all, but a cash benefit of about 72 million.

At the bottom of the slide, you see the items related to the restructuring. As Joe mentioned, with this quarter's charges we've now recorded about 90% of the planned charges. The balance will be booked in the fourth quarter. Cash out for the program year-to-date is 108 million, leaving us at the end of the day with 330 million of positive cash flow.

Moving to slide number 16, you see what we did with that 330 million in cash. We paid down 103 million in debt and added 226 million to cash. Other changes in the debt number on the balance sheet include the effect of foreign exchange, which worked against us to the tune of 38 million. We also saw an $89 million increase due to the mark to market of our interest rate spots. The way the accounting for this stuff works is that, when your swaps are in the money, the debt goes up, as does other assets to reflect the fair value of the swap.

As I said earlier, we closed out 72 billion on the asset side. As a result, most of what you see here in debt will now be amortized income over the remaining life of the bonds as reduced interest expense.

Anyway, everything included, debt net of cash at September 30th was under 2.4 billion, which is down about 14% from where it was nine months ago.

Moving to slide number 17, you see the breakout of our debt as of September 30th by maturity. There's two points I want to make here. First, as you can see, we have no term debt due until May of 2004. Secondly, we have ample availability from our revolvers and accounts receivable securitization program. Just to remind everybody, we have committed facilities that total 1 billion (ph). This is a 100 million, 364 day bank facility, a $500 billion (ph) five-year bank facility, and a $400 billion (ph) on balance sheet receivable program. Against this 1 billion of availability we have 20 million drawn on the 500 billion five-year facility and 180 million drawn on the accounts receivable securitization program. That leaves us with 800 million in available borrowing capacity. On top of this, of course, is the 370 million we had in cash on the balance sheet. So liquidity is not an issue.

Please go to slide number 18. This chart tracks EBITDA in dollars and as a percent of sales for the last 4 quarter. EBITDA for the quarter was 207 million, and the margin was 8.1%. Comparisons to the second quarter reflect the seasonal sales drop of 223 million. However, both the dollars of EBITDA and the EBITDA margin are up from the first quarter, when we had roughly the same level of sales reflecting the benefits of our restructuring.

I'll move to slide number 19. I said I'd come back to working capital. Here's the customary walk forward chart. It's really not a lot to talk about here. I was afraid if we didn't show it, someone might think we were trying to duck the subject because we had an increase in working capital from operations for the quarter.

You can see that the increase in working capital from operations was the result of an increase in inventory. This was deliberate, as we took advantage of the summer shutdowns by our customers to build a little inventory buffer on a couple of programs. This extra inventory should be gone by year-end, and we're still confident that, for the full year working capital will be down by 200 million, as we said previously.

Let's now go to slide number 20 to talk about how we see our cash flow coming out for the full year. As we said in our press release this morning, we're still comfortable with our previous earnings guidance of 50 cents to 55 cents before the nonrecurring items for the second half. The low end of that range gets you around 170 million for the year. As I said earlier, depreciation should come in at 400 million, with 200 million coming out of working capital.

The divestiture number continues to be a topic of conversation. We said all along it would be made up of three things - proceeds from divestitures of non-strategic operations, proceeds from asset sales associated with the restructuring plan, and dividends from DCC (ph) payable with the proceeds from the divestiture of their businesses.

As I mentioned, when discussing the year-to-date cash flow, through September 30th, we've realized 33 million -- 10 million from divestitures, and 23 million from the restructuring. However, earlier this month we announced we had signed an agreement to sell our Boston Weather Head (ph) operations. Proceeds from this and other transactions in the pipeline that we expect to close this year would get us to the divestiture number of 300 million exclusive of whatever we get for DCC.

And we could even do better than this 300 because we do plan on a dividend from DCC before year-end, although it likely won't be as much as originally expected. Given the current environment it's taken us longer to exit these businesses than we had hoped. It will definitely happen through a number of smaller transactions rather than one or two big deals. So far we've closed two transactions, one in the second quarter, one in the third quarter, which together brought in over $200 million to DCC (ph). Based on the 26 million net gain on these deals, we still believe we'll wind up getting more than book for what we sell at the end of the day, it's just going to take a little longer.

In any event, total sources of cash for the year would be over one billion, and after the 250 million in cap ex and the dividends, we should wind up with over 800 million before restructuring expenditures, which are trending much closer to 200 million than the $300 million figure we've been using earlier. About half of the reduction will probably spill into 2003. The balance is a combination of non-cash charges in lieu of cash charges and pension or retiree health care stuff, which will not affect 2003.

All this leaves us with around 600 million that will wind up as debt reduction or an increase in cash. This is more than 200 million better than the number we talked about when we started using this slide back in January.

One more point I want to make before I move on is that there will be no call on cash this year for higher pension contributions. There's been a lot of noise about this being the perfect storm for pensions -- lower interest rate are causing the present value of the liabilities to rise at the same time that the value of many asset classes are falling. While this is true, a lot of the attempts to speculate as to the impact on various companies, including ours have been pretty shallow.

Through September 30th while the S&P 500 dropped 28%, our domestic pension funds were basically flat. I think we were off .2% or something like that. We don't lock in our assumptions for next year until December. But if we were to use a range more reflective of today's conditions for our domestic plans, we'd move from a credit for income for pension this year of 11 million to pension expense next year of somewhere between 15 million and 25 million. Those are before-tax numbers. Our contributions would go from about 15 million this year to somewhere in the range of $25 million to $35 million in 2003.

We'd also expect an adjustment to shareholders equity at year-end in the range of 180 million to 220 million to reflect the minimum liability for some of our underfunded plans, just like the $80 million charge we took last year because we're not about to use the most precious resource we have, cash, to avoid a non-cash charge that bypasses the income statement.

The point of all this is that, at least in our case, we're not talking about some sort of huge sea change as some of this stuff you might read might imply.

With that, let me turn it back to Joe for a recap on slide 21.

Thanks, Bob. Looking at the near term, we still remain somewhat cautious in our outlook for the markets during the fourth quarter, largely due to the traditional soft demand for after market products in the final quarter of the year. There's also an anticipated decrease in the billed rate for class A trucks following the advance purchases by many fleets in anticipation of changes in the heavy-duty emissions requirements, and of course, the growing uncertainty about the broader economic outlook, which some believe would negatively impact light vehicle production rates.

Despite this uncertain environment, as we have shown, we remain very confident we will continue to benefit from our restructuring plans and achieve the 50 cents to 55 cents in earnings per share guidance that we had previously forecasted for the second half of the year.

Now, with that, we'll open up for questions, and following the questions, I've got a few closing remarks. Let's begin with the questions, please.

Today's Q&A session will be conducted electronically. If you would like to ask a question, you may signal us by pressing the 1-4 on your touch-tone telephone. Dana will also answer questions from their Web site. We will take as many questions as time permits. We will take your questions in the order that they are signaled.

Our first question is coming from David Bradley of JP Morgan. Your line is live.

Good morning.

Good morning, David.

I guess, as we try to model Dana, there are a lot of numbers that are hard to -- that move around a lot quarter to quarter, and I wonder if you could help; this other income and foreign exchange line has moved, you know, quite significantly. How should we think about that going forward?

I don't know, but if you figure it out, Dave, let us know.

Okay. Then the year ago number, we had it as 11 and now you're showing it as 61. Did you change the methodology on the way you calculate that?

I missed the question, David.

The year-ago number for that other in foreign exchange we had as 11 and you're now showing it as 61. Was there a change in the way you've accounted for that?

Not that I'm aware of, but we'll get back to you.

Okay. Then the equity income trends, are those -- that's been quite volatile also, close to 20 million in the first two quarters, then dropping off. Should we think about that as running in the 20-ish range or 7-ish range going forward?

There are seasonal variations because a lot of those operations are subject to the same kind of factors that all the rest of our businesses are subject to. The one thing I would say is that, if -- looking ahead to Q4, if I recall correctly, I think DCC (ph) had an abnormally good quarter in Q4 last year, and I think they're not going to hit the same kind of number this year. So if you throw in DCC (ph) at about the same kind of quarterly level it's been coming in at in the first three quarters of this year, exclusive of the gains in lieu of what we had last year, you're probably pretty close.

One last thing. On accounts receivable, could you just give us the status of sold receivables, if any in the quarter relative to the most recent quarter? Also, do you avail yourself -- there's a number of programs being offered through GECC (ph) and Ford and others where you can collect your receivables early with a small discount. Do you avail yourself of any of those types of programs?

No, sir, we don't. The only receivables securitization program we have is the one I talked about earlier that we keep on the balance sheet. We don't have any sold receivables off the balance sheet.

It's in the receivable number we see.

Yes.

Our next question is coming from Wendy Needham of Credit Suisse First Boston.

Good morning. Some very solid margin improvement in a lot of these divisions. Could you talk, I guess, just in a little more detail about the automotive systems group margins? You said it really was headcount, not volume, I guess, and sort of what's the outlook for next year? Do we start to get even more significant improvements in that group in '03?

I think so. I'll take a swing at it and let Bob take a swing at it as well. I think the continuation of that looks very positive for us. You recall that, in one of our conferences, Wendy, Bill talked about the fact he had, I think, seven new plant startups that were underway. Three of the seven will begin producing product as we go into next year. So we will see the benefit of that, plus he has had a very significant outsourcing program dealing with non-core content of his products. In most instances, he's been able to negotiate solid long-term contracts at significant savings that will not affect the top-line but, of course, will give us a much stronger bottom line. I guess the short answer is we should see that continuing.

And I guess on the top-line, with Ford and Daimler being your most important customers, they were both up -- I guess Ford's production was up 18% in the quarter and Daimler's 12. And your sales didn't keep pace, so what would we attribute that to?

I think most of it has to do with mix -- the vehicles that we're on versus the vehicles that they're producing. I was just with the folks at DaimlerChrysler yesterday, Wendy, and I think the products that we're on are selling better than I would imagine at this particular point, given the other economic issues which we're facing. But clearly there's a preference for some of the light vehicles that we're not on..

Okay. Great. Thank you.

Wendy, they also, in the ESG (ph), had about $18 million of currency and divestiture of that that dampened the sales increase.

That would be significant.

That's significant.

Okay. Thank you.

Before moving on, I've got Dave's other answer. He had asked about, was there a change accounting on other income that was 61 last year? That was 61 including nonrecurring items, and the comparison we were showing was to last year without $50 billion of nonrecurring numbers, notably the sales of the industrial bearings and PTO (ph).

Our next question is coming from Darren Kimball of Lehman Brothers. Your line is live.

Good morning, guys. 2003 versus 2002, if we just isolate the benefits you expect across the company from your restructuring, can you give us some sense of the range of what the benefit might be?

You know, it's a difficult one for us at this particular juncture. We're right in the middle of budget planning for next year. I think it would be purely speculation on our part. I'd prefer to wait until we get some solid numbers back in here.

I'm not talking about forecasting volumes for your various markets, I'm talking about restructuring plan where you've identified the number people and facilities that are coming out. Why would you need more time to come up with an estimate of the benefit there? The Street has your earnings up substantially into 2003, despite the fact that the consensus expectation is that most of your markets will be down. So it's obviously an expectation across the street that the benefit will come from a continuing benefit from the restructuring.

Well, I think at least the broad concept is exactly right. I think that the reluctance on our part really has to do with the fact that we're building a completely different business model here in the way we produce our products and source our componentry. The traditional margins, the ratios we've used in developing that model have changed dramatically. So I'm just hesitant at this point to put out anything. We've been very cautious; as we get a better handle on the numbers, we'll be happy to share that with you. I think, again, it's speculation. I think it is unnecessary at this juncture.

But is there still a lot, in terms of that broad plan that hasn't fallen into 2002, without giving us a number?

Yes, there is. That's another reason. You know, we say we're going to get the whole $445 million booked this year so we don't go into next year having to differentiate between net income before restructuring and net income after restructuring. But that doesn't mean all the actions will be taken. That means all the charges will be recorded, and as we go into 2003, there will still be some other actions that will be taken. We won't get to the full run rate until probably the last quarter of next year. And as those actions move around from quarter to quarter it picks up the annual total.

My other question is on revenue. Did you, by the way, give a range for fourth quarter company revenue?

No.

But it's typically down a bit from the third quarter?

Yes.

Okay. So what I'm trying to what I'm struggling with is getting to the new business, the net new business number. If you look at your backlog estimates for 2002, you should have about 4.8% growth over 2001 from net new business. And if I look at your total revenues coming in this year, it may be up 1 1/2 to 2% in a very strong light vehicle billed environment, very strong medium and heavy-duty environment, it's difficult to get to those numbers. I guess the two offsets are your divestitures and maybe currency, although I think that would sort of be a neutral or net positive. Can you speak to what the total divestiture impact is in 2002? Total currency effect and whether you think that those estimates are, you know, whether you're realizing that internal growth you put in your backlog slide?

Sure. Let me take a crack at it. If you take a look at the nine months of sales of 2001, I think the number was like about 7.9 and it's about 7.9 this year. And you say, well, gee, where did the new business go? Well, currency for the full year and divestiture effect for the full year is over $200 million. So you take the 7.9 and you start out by subtracting 200 million. Then you've got about nine months of the 495; call that 300 million. The 495 being the number from the new business chart.

You add that to it. You get a number of about 8. You back off some for mix, which was certainly not favorable to us this year, in terms of the models we're on; that's about 100. You're back to the 7-9 (ph). So it's last year's number plus new business, less currency, less divestitures, less mix.

The one thing you didn't mention, though, was the billed. The billed was probably up 6%.

I'm throwing that in the mix number. We've got some models that are down significantly.

So your mix was so bad that, despite a light vehicle billed increase of 6% and probably a weighted sort of -- based on your sales mix, medium and heavy truck billed increase of about 10%, it was a net negative?

Well, we -- you know, again, Darren, you know, I'm just telling you the facts. That's how it walks forward, yeah.

Okay. All right. I appreciate it, guys.

No, I don't think it's a secret that, you know, we're heavily weighted DaimlerChrysler and Ford versus General Motors. If you look at the sales by models, a lot of the models that have been selling very well are General Motors.

Our next question is coming from Steven Girsky of Morgan Stanley. Your line is live.

Jonathan Steinmetz (ph): Good morning, it's Jonathan Steinmetz (ph) for Steve. A few questions on the backlog. It looks as if you've got it going -- in total going down a little bit in '03 and then up in '04, '05, and '06. Just wondering if you've made any changes to your assumptions about either volumes or market shares during that time period.

Not really. Some of that has to do with the outsourcing on the Mack program we've announced previously. That's about it. No other change.

Jonathan Steinmetz (ph): Was the Jeep Cherokee business ever in the backlog and if so, when did it come out?

Well, the Jeep Cherokee business is still kind of a speculation at this point, Jonathan. You know, we've seen the trade press and we've had conversations with our customer, but no one has officially told us that that business has been resourced. Most of that's just speculation.

Jonathan Steinmetz (ph): To be clear, then that business is in the automotive systems group backlog at the current time?

Right.

Jonathan Steinmetz (ph): Okay.

More correctly, it's not come out.

Jonathan Steinmetz (ph): It's not come out; it's counted as part of net incremental business.

Yes.

No, it's not counted as part of net incremental business. It's not subtracted as lost business.

Jonathan Steinmetz (ph): Got it. If it were to be lost, that number would come down?

Yes.

Jonathan Steinmetz (ph): Finally, on divestitures, how much more do you have to realize in proceeds through the end of the year above what's sort of been contractually committed to at the end of the third quarter?

We've realized 33 million, and we're saying we're going to do 300, so the difference is what we have to realize in Q4. As I said, we've got Boston Weather Head (ph) that we've announced. Hope that will close this quarter. There's a couple others in the pipeline.

Jonathan Steinmetz (ph): So Boston Weather Head (ph) sort of contractually committed. Is there an amount that's sort of not contractually committed that you can give us that you would need to raise in this quarter?

No, because then I'd be telling you the proceeds on Boston Weather Head (ph), which I can't.

Jonathan Steinmetz (ph): Thank you.

Our next question is coming from John Daviduk of Goldman Sachs.

Good morning, everyone. I'll try to keep it short as the credo stated at the beginning of the call.

You were the target caller.

Was that me? Then I'll do my best to improve on this call versus what I've done in the past.

Can you just give your outlook for truck production in Q4 as well as Q1, and when we start seeing things improving? And then, based on that number, which I'm guessing is going to be something in line with what you did, or what the industry did in the last Q3 or Q4 what type of improvement in margin or operating profit we should expect to see over last year?

Well, if you're talking about light vehicle ...

No. About heavy truck.

Heavy truck. Okay. Heavy truck, David, right now, our trend on heavy truck is probably 160,000-165,000 total for the year. If we look at the -- if we look at the last quarter here, we've seen a pretty significant falloff. And I think production is probably in the high 20s, maybe 26,000, 28,000 units.

And from everything we've seen, it looks like that will carry into the first quarter next year. The full year next year is subject to a lot of speculation in the sense that, if the economy continues to strengthen, we'll see a continued growth in demand and we'll get back on cycle here. We might look at something as high as -- I've seen numbers as high as 190,000 units for next year.

We're using a planning number that's 165,000 to 175,000 units at this juncture. We haven't firmed our number and we haven't built our forecast around that, but just from a planning standpoint that looks like a reasonable number. As we talk to our customers, some are below that and several are above that. so it's pretty hard to draw the line in the sand at this juncture. That's kind of where we see it. It's not 225,000 or the good old days as we might have remembered it.

Right. With the production level of 25,000 to 30,000 in Q4 and then rolling into Q1, should we see CDS truck profitability going back to the levels we saw last year's Q3 or Q4, when production was 30,000, 35,000 units?

Actually, thanks to the restructuring, they could actually report higher profit in the fourth quarter this year on that 25 to 30 kind of volume versus what they reported last year on -- I think it was 34,000 that was built in the fourth quarter.

As I mentioned during the call, they've been very quick to take out their temporary people at the peak. They've taken out something in excess of 300 people already.

Okay. So they've gotten prepared for this, and then it's just a matter of seeing how things pick up as next year progresses?

Absolutely.

Then this is a very quick question -- final question on pension. I'm not keeping to my goal here, but pension, how did you manage to only be down two-tenths of 1% year to date when the market's down like it is and a lot of other pension plans are down 15% to 20%?

A lot of that has to do with asset allocation. We've tried to view pension investment management as a risk management activity rather than tried to maximize return on a pile of assets. The risk, of course, the biggest risk you face in pensions is the -- an interest rate decline, which causes the liabilities to rise. The asset class that performs the best when interest rates are falling are long duration zero coupon bonds, and that makes up a big huge portion of our pension fund.

You're managing your fund in house?

We manage about half of it in-house and about half of it outside managers look at. We do the bonds internally.

Do you do any private management? I could send (ph) you guys a check.

I'll mention (ph) that to our investment guys.

That's all I have. Sorry for being long. Thank you.

Our next question is coming from Rob Hinchliffe of UBS Warburg. Your line is live.

Good morning, guys.

Good morning.

With the backlog, can you give us a sense of revenue from the Grand Cherokee? And then, is the Durango in your backlog still too?

The Grand Cherokee's about one quarter of a billion a year in sales. And that's there, and I think the Durango, at this point, has already been invested (ph).

That's already been taken out.

Right.

OK. Working capital, to get to your target for the year of 200, inventory's still the biggest contributor there?

Inventory and receivables. You know, if you look back, as I did, on these conference calls, in 2000, I was saying that, you know, gee, we're up 200 year-to-date but we're still going to be down for the year, and with the seasonal drop in receivables and inventory reductions, we took 500 million out of working capital in the fourth quarter, so we ended up that year with, like, a couple hundred million reduction.

Last year, it was -- we were up 100 through nine months, and we went down about one-half million -- or half a billion in the fourth quarter, so we finished with an even bigger reduction. So the fact that we're 100 million better than we were last year at this point, 200 million better than we were two years ago at this point, suggests to me that the 200 million is a very credible figure.

In automotive systems group, assets down 3% for the year. It sounds like you still have some work to go there. Where do you see -- how much more are we going to get out of that group or do you see net assets kind of flattening out at?

There's a great example of one of the programs that still has more work to do. They've announced some of their stuff, but they're still outsourcing plans to be put in place, probably another $100 million worth of assets to come out (ph) as part of the restructuring and outsourcing.

These are big programs, not something that can be achieved over a weekend, so we're moving on it as quickly as we can and trying to assure that, through the process, we can provide comfort to our customers and continuity of supply.

Great. Thank you, guys.

Our next question is coming from Brett Hoselton of McDonald Investments.

Good morning, gentlemen.

Good morning.

One of the big swing factors here is, what do you assume for the restructuring savings next year? The one guidepost that I think you have kind of given us in the past has been that you had roughly estimated that you thought the restructuring savings, which I think you derived off of the restructuring charge using an 18% after-tax return, was going to be about 80 million after tax here in 2001. I understand all that's kind of a rough swag (ph). I wonder if that might be a good guidepost to use for next year, given that you probably have not received even half of the restructuring savings this year.

I think that was a placeholder for us, in terms of the modeling that we were doing. I would hope that our performance is something better than that.

Then the second question I had, which was just kind of a rather simple one, was what do you think about for cap ex next year? This year you're fairly light on the cap ex given what you've done historically. What are your thoughts for next year?

We're going to continue to hold a pretty tight reign on capital expenditures. I think we'll probably end up something in the neighborhood of 350 million next year, but I'd make this comment -- recognizing that we're in the process of outsourcing this non-core content and the machinery and equipment associated with that, you've got to recognize that, previously, we would have had the expense of repair or replacement in new capital additions in that area of our business.

So we're being very prudent in the way we manage our capital, but we're also trying to be very certain that we're not putting capital dollars into this sector of our business that's being outsourced.

Thank you very much, gentlemen.

Thank you. We have time for one last question, and that question is coming from David Leeker (ph) of Robert W. Baird. Your line is live.

David Leeker (ph): Hello everybody. Don't worry, they never get it right anywhere.

I have one real simple question, and it has to do with Quadra Steer (ph), if you could give us some sense of what the volumes are you're seeing there currently and looking forward into '03.

That's a good question, David (ph). You know, that turned out to be a far more popular accessory than I think a lot of folks had imagined. I think initially when we got into this thing we (ph) were looking at volumes that were in the neighborhood of maybe 50 units per month, and that's grown pretty dramatically.

Right now, let's see. There's six vehicles in production that offer the Quadra Steer (ph) as an option. That's interesting because, again, that's something more significant than what we originally intended. I think the volumes there have gone to something in the neighborhood of 1,500 a month as opposed to the 50 that were originally proposed. So it's moving along.

David Leeker (ph): You think that that trend's still on an upswing, or is that where you think ...

I think it's on an upswing. I think there are others who are moving to that same configuration. It's a very popular accessory.

David Leeker (ph): Great. Thank you very much.

Very good. Just one closing remark here. Again, thank you for listening to our call today.

As our third quarter performance has demonstrated, Dana people are making significant progress with our landmark restructuring program. The program was announced just one year ago, and despite continued macroeconomic challenges we've already seen considerable progress and improved results that will provide important groundwork for a new and improved Dana Corporation.

This new cost effective business model, coupled with our systems capabilities and growing technological resources better positions our company to endure these challenging times and to profit from the eventual upturn in our markets. Certainly we are mindful of the many economic challenges that lie ahead, and yet we also believe we are solidly positioned for a strong 2003.

Through past year we have been very forthright in our plans and we have measured our progress. We have reduced our break-even point. We have generated substantial cash flows to strengthen our balance sheet without compromising our product development and technical growth. While our progress is significant, our work continues. This, I believe, is something that differentiates Dana from our peers.

As always, we thank you for your interest in our Company and look forward to seeing you soon.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful weekend.