Visteon Corp (VC) 2002 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Visteon Corporation conference call.

At this time, all participants are in a listen-only mode, and later we will conduct a question-and-answer session.

To ask a question, please press the number one key on your touch-tone telephone. To remove yourself from the queue, please press the pound key.

As a reminder this conference call is being recorded.

Before we begin this morning's conference call, I'd like to remind you that much of the information that will be shared with you today consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. <

Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties, some of which are identified in the company's annual report on Form 10-K filed with the SEC on March 29, 2002. Please read the entire form 10-K if you have not done so already. <

I would now like to introduce your host for today's conference call, Mr. Derek Fiebig, Director of Investor Relations for Visteon Corporation. Mr. Fiebig, you may begin.

Thanks,

, and good morning, everyone. I'd like to welcome you to Visteon's first quarter 2002 earnings conference call. <

We posted our first quarter earnings presentation on the "Investors" section of our Website under "News and Events" this morning. I hope you've had time to pull down and review those materials.

In the event that you did not receive the notification, the site is at www.visteon.com, and you can view those materials online as we cover them over the course of the call. If you'd like to receive these materials via e-mail in the future, please send a request to

@visteon.com and we'll add you to the list.

Leading today's call with be Mike Johnston, our President and Chief Operating Officer, and Dan Coulson, our Executive VP and Chief Financial Officer. Immediately following our formal comments, the operator will open up the lines and allow Mike and Dan to respond to your questions. <

And with that, I'll turn it over to Mike.

OK. Thanks, Derek. <

Visteon posted first quarter results slightly above consensus expectations and up versus the fourth quarter of last year.

We maintained a solid cash position in the quarter that is seasonally weak working capital. Ending the quarter with almost 1.1 billion in cash and marketable securities.

We turned in strong cost performance during the quarter getting off to a solid start for the year. And we implemented a number of initiatives that will improve our financial performance.

And finally, we settled the North American pricing issue with Ford with no impact on our financials. Discussions on the European issue are continuing.

Our new business wins continue to be strong. We won more than $350 million in the quarter.

Over half of that is with customers outside of Ford and about a third is outside of North America, strengthening our customer and geographic diversification.

We won significant new business with General Motors, DaimlerChrysler, Honda, VW, Peugeot, and Ford Motor Company.

Announceable new business includes the GM slipping to Propshaft on the 2003 Chevy Express and GMC Savannah. This is a new technology that offers substantial weight savings, fuel economy, and packing benefits.

The next chart shows non-Ford revenue to date and estimates through 2007. We've increased non-Ford revenue each year to more than $3 billion at this time.

Non-Ford sales were 18 percent of total sale in the first quarter.

Going forward, based on booked business and high confidence wins, we expect an acceleration of this growth.

The totals by 2007 are almost double non-Ford revenue today. At the same time, these new wins are a challenge because the spending starts well before the revenue begins.

In 2003 model year, we have four major non-Ford product launches in North America, including the Nissan mini van in Mississippi and two significant contracts with General Motors. Additionally, we have five Ford launches.

Spending to support new business starts the day the order is won providing people, engineering, testing, prototypes, and other resources before any revenue is received. This is par for the course in the auto industry, but we're a bit unique in that we're in a high-growth mode with new customers.

This puts a premium on identifying ways to streamline operations and program management and to cut the costs of new product development while still meeting our customer's needs and expectations.

We were able to implement a number of structuring actions during the first quarter.

We completed the sale of Restraint Electronics to Autoliv, selling the order book and transferring more than 250 plant employees and more than 100 salaried employees. This enables us to complete our exit from the Markham, Ontario plant, moving the climate control and body electronics business to Mexico. <

We've targeted a 10 percent or about $100 million cut in engineering. As a part of this reduction, more than 200 positions were eliminated in the first quarter, with other actions planned for later in the year. <

We also closed Visteon Technology, which supported navigation software, as part of our change in navigation strategy, and are exiting the manufacture of

leather, shutting down our leather works joint venture. <

In total, more than 1,600 positions were eliminated. And we'll self-fund these initiatives while maintaining a strong cash and financial position. <

We had strong cost performance in the first quarter, in excess of 125 million before taxes. <

We've stepped up our focus on supply chain management, and we've set a goal of reducing material cost purchases 18 percent over three years.

We have implemented a program of sharing cost savings with suppliers to eliminate waste in product design. <

We're rewarding those suppliers participating in idea generation with new contracts.

And we've had some pleasant surprises as we assumed responsibility for our non-production buys. <

The cost of some of these products has been reduced by about one-third using e-commerce.

We remain focused on improving our cash flow. <

First quarter of this year was much stronger than 2001, and Dan will take you through the details. We're maintaining our cap on capital spending levels while absorbing economics and the cost of supporting new business. <

We continue to focus on under-performing businesses. Glass operations made a slight profit in the first quarter as we realized improvements worked out with the help of the UAW. <

We are continuing discussions in other areas while making parallel efforts to improve the viability of these products, minimizing their losses and continuing to improve their attractiveness for other partners.

We made progress in negotiations on unprofitable business that has not yet been launched, and we put new discipline into bids on new business that insure the new programs are priced appropriately. <

We have a lot on our plate for 2002. Probably number one is continued progress on expanding our customer and geographic base. <

We've set a goal of a billion dollars in non-Ford business wins for the year, and we have a solid road map to get there. We must deliver our operating objectives - cost, quality, and delivery. <

And we have to support our customers, both old and new, with flawless launches.

While meeting our customer commitments, we haven't lost focus on improving margins. <

We have made progress versus the fourth quarter, and are beginning to gain traction from earlier actions.

We'll continue to structure the business improvements as affordable, and we must continue to focus on cash flow. <

This is allowing us the fund structuring actions and still maintain a cash and marketable securities balance of nearly $1.1 billion.

Now Dan'll take you through the financials.

Thanks, Mike. We had a lot going on in the first quarter, as Mike has indicated. And page nine provides a summary of our financial results.

I'm going to start with the right-hand column that's called Total. In total, we're reporting a net loss of 338 million in the first quarter, which includes the affect of a new accounting standard.

Effective January 1, we adopted Financial Accounting Standard number 142 regarding accounting for goodwill. As a result, we're writing off goodwill that had been reflected on our balance sheet.

The net affect of this write off, after tax offsets, is $265 million. This is a one-time non-cash charge.

You'll see this reflected in our financial statement as a change in accounting principal with our results reported both before and after the affect of the change.

We also incurred restructuring charges for the actions that Mike described to total $74 million after taxes.

From an operating standpoint, excluding restructuring charges and the write off of goodwill, we earned $1 million after taxes in the quarter. I'll discuss our operating results in more detail in the next several pages.

Page 10 provides added detail of our first quarter 2002 operating results, excluding the affect of all special charges. Revenue totaled $4.5 billion in the quarter. This was down $254 million, or five percent, from first quarter 2001.

The decline was more than accounted for by lower sales to Ford reflecting primarily lower vehicle production in Europe and North America, as well as price downs.

Revenue also declined because of unfavorable currency changes, worth about $60 million.

And lower sales of precious metals under pass through arrangements with Ford, which was worth about $50 million.

Non-Ford revenue increased by $13 million, or two percent, to $823 million.

This reflected new business growth offset partially by a softer production environment than in 2001 and adverse foreign exchange changes.

We earned $1 million, or one cent per share, in the quarter.

This was down $30 million compared with the first quarter of 2001, reflecting the impact of lower volume and price reductions provided our customers.

reductions and the discontinuance of goodwill amortization, worth $4 million after taxes, were partial offset.

I believe it's helpful to look at the trend of our results over the past few quarters to get a better perspective on how we're doing, and we've shown this on the next page. <

Page 11 tracks our revenue and EBITDA since the first quarter of last year. As shown, our first - our results for the first half of last year were stronger than in the second half. <

The second half results were down substantially, reflecting in large part lower production from Ford in North America.

In the last two quarters, we've seen improvement, reflecting somewhat stronger volumes, continue

to address cost-saving actions, and the impact of restructuring actions taken in 2001. <

Our first quarter 2002 EBITDA was $188 million or 4.2 percent of sales. This was up $36 million or eight-tenths of a point from the fourth quarter of 2001 on slightly lower revenue. <

Mike described the restructuring initiatives that were implemented during the first quarter. Page 12 provides some added financial detail. <

A number of actions were completed in the quarter, the largest of which were for the sale of Restraint Electronics and exiting the market - Markham plant and our engineering restructuring actions. In total, we're eliminating over 1,600 positions. <

Many of these positions are being eliminated completely, while some - although some of them are being redeployed as we move selected operations from Markham to Mexico.

The actions are resulting in a one-time charge of $116 million before taxes, which is not shown on the slide, or $74 million after taxes. <

About 62 percent of the charge will be in cash. The balance reflects a net write-down in equipment and investment as we move out of these activities. <

On average, the actions provide good payback, with those implemented at Markham requiring a little longer payback than the other actions which will pay back in about a year. And we're already seeing some of the savings from some of the actions that we've taken. <

Operating cash flow during the first quarter was $45 million negative excluding the impact of restructuring charges. The outflow during the quarter was more than accounted for by the impact of seasonal working capital changes. <

As we've stated in the past, working capital for us is highly seasonal during the year, with outflows in the first quarter and a little in the second quarter and inflows later in the year.

The first quarter outflow reflects payback from the year-end holiday shutdown period. <

Changes in accrued liabilities resulted in an improvement of $123 million in cash flow. This reflected primarily the impact of accruals for retiree health and life benefits as well as fringe benefits that exceeded cash payments. <

We're encouraged with our first quarter cash flow. Despite lower earnings, all other categories improved compared with the same period a year ago.

And in total, our operating cash flow was $314 million better than in the first quarter of 2001.

Our financial position remains strong.

At March 31, we had almost $1.1 billion in cash and marketable securities, which was down about $100 million from year-end. Our capital structure remains solid with equity of $2.9 billion and debt of $1.9 billion.

Equity is down $364 million from year-end, reflecting primarily the impact of the write off of goodwill and restructuring charges. Our debt-to-capital ratio was 39.6 percent, well within the investment grade rating.

And incidentally, the goodwill write down required by S.F.S.A. number 142 increased our debt-to-capital ratio by 2.1 percentage points.

I'll turn now to the outlook for the balance of 2002.

On page 15, we've summarized our North American production assumptions. We're remaining somewhat conservative in our volume assumptions because the overall operating environment continues to be uncertain.

We're projecting North American industry production in the range of 4.3 to 4.4 million units in the second quarter and 15.3 to 15.7 million vehicles for the full year.

We expect Ford's production for the second quarter to be in the range of 1.1 to 1.2 million units in North America.

And for the full year, we're projecting Ford's production of 3.8 to 3.9 million units in North America, which would be down slightly, about two to three percent, from 2001.

On page 16, we've summarized our expectations for 2002, based on these volume assumptions.

For the full year, we believe revenue will be in the range of 17.5 to $17.8 billion. This compares with full year revenue of $17.8 billion in 2001.

We're targeting to be profitable for the year, excluding the affective restructuring charges, as well as the European pricing matter, which remains open as Mike indicated. And we're estimating after-tax earnings between break even and $50 million, excluding the affect of special charges.

For the second quarter, we're projecting revenue of 4.7 to $4.8 billion, which would be down slightly from 2001. Net income is projected to be in the range of $20 million to $40 million. We expect cash flow from operations to be break-even in the second quarter and positive for the year. <

Our projections for the second quarter and the full year are in line with the analyst consensus estimates.

To summarize, like most of our quarters lately, the first quarter has been a challenge. <

Despite this, we've worked hard to deliver our operating objectives, to improve our profitability, and to deliver our projections. We continued to restructure where it made good sense, and we completed the sale of one of the businesses that didn't fit into our product portfolio plans. <

Our focus on cash flow is paying off. We had a very modest cash outflow in a quarter that typically is much worse seasonally. <

This enabled us to retain a cash balance of almost $1.1 billion.

And our capital structure remains solid, despite writing off all the goodwill on our balance sheet. <

Based on the progress being made and the present volume outlook, we expect positive operating results for 2002.

That concludes our formal comments. <

And

, if you could open it up to Q&A now?

Thank you.

And ladies and gentlemen, again, if you have a question, please press the number one key on your touch-tone telephone. <

If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

And our first question is from

of Morgan Stanley. <

Good morning, everybody.

Morning.

Good morning. <

I've got three quick questions - first is on the Expedition - Navigator launch. There were rumors of some seat problems there. <

Is that largely behind us yet, or no?

You're going to ask them one at a time, I guess,

.

At this point in time, the Expedition - Navigator production and launch

ramped up at the same rate our customer is, and we've worked closely to, you know, synchronize those schedules. <

So I'd say we're - you know, we're working hard to be in lockstep with them, and I would just state that we're keeping them in supply and expect to be able to continue to do that.

And that is a high-content product for you guys, right? <

That is correct.

OK.

The second question is on cost performance. <

You said 125 million. Is that net of tax or pre-tax?

That's a pre-tax number,

. <

The after-tax equivalent number is around $80 million.

And I should also mention that that number is net of economic cost increases and foreign exchange cost. <

For instance, we had some bad news of foreign exchange cost that we absorbed within that. And also our retiree healthcare and pension costs were up a little bit during the quarter, and that's netted in that number, as well. <

What was the foreign exchange bad news?

It was worth around - in round numbers, around $10 million of bad news on an after-tax basis. <

OK.

It's a - it's a net number. <

And the last question. When I look at Ford's production in Q2 versus Q1, it's up about 12 percent.

And if I apply that to your Q1 revenue, it gets a number closer to five billion. Is there anything going on content-wise, is there anything going on price-wise that content per unit Q2 is actually should be worse than Q1?

No.

No.

Should be better as the Expedition Navigator is being launched, right?

Yeah.

That would be correct, Steve.

So, which it's just conservatism?

Well, I'd say it, you know, at this point and in the year, Steve, we're looking at a lot of launches coming at us. Schedules are still changing a bit as we go forward.

And, you know, we've built our budget and our forecast probably on the conservative side. And at this time in the year, I don't think it's appropriate to change it.

So we'll watch it closely and advise you as we go forward.

But Mike, Ford's second quarter schedule - you're sort of taking a conservative approach to that, also?

What we've done, Steve, is we've provided a range, which includes at the top end, their second quarter schedule.

Yeah, but even if I used the top end, I got 12 percent unit growth and that would imply a $5 billion number for you guys.

And it would certainly look like it would be above your - it would be above your top end of your range. And I don't know what's going on with the Non-Ford, but GM's schedule's pretty strong, also.

Yeah. Again, Steve, we acknowledge we're taking a conservative look and it's just a little bit early in the quarter and a little bit early in the year for us to start raising that up.

So ...

OK.

It's correct that we're on the lower end of those numbers.

Thank you.

Thank you.

Our next question is from

of Salomon Smith Barney.

Good morning, everyone.

Good morning.

Good morning, Mike.

I wonder, could you shed any more light on some of the detail with the cost savings from these recent restructuring actions and the timing? It seems like it should be a little bit more than you projected at 75 million.

Is that what you're saying?

Well, let me see if I can start on that one, Mike.

The charge itself is $74 million on an after-tax basis. That's how much the charge is.

We're expecting to get a good pay back from that, but it will not be quite as fast as some of the actions that we took last year, which had a payback of about a year.

And the reason for that is that at least part of the actions relate to the, relating to the

plant, have some plant closure and plant writedown costs.

In other words, we're writing down some equipment as we sell the business, sell a portion of the business. So the payback on some of those parts of the actions are a little bit longer.

But all things considered, we're looking at a pretty solid return in pay back on them.

What about the materials purchasing?

Are you - what is your

materials by?

I'll take that.

The buy that we're applying this 18 percent target to is about an $8 billion buy. <

And we're comfortable that we're going to achieve those results. And, in fact, the results we saw in the first quarter are running at a run rate that's ahead of what we've traditionally seen at Visteon in the - in the first quarter against those annual targets. <

OK. And that's - is it roughly six percent a year is what you're looking at?

Well, I'd

to be 12 percent the first year and less later, but we targeted the 18 percent over the three-year period and assumed that we would get at least six percent in the first year. <

OK. And then one last one as it relates to Markham

were some of the issues and - that you dealt with? I assume it was a CAW facility. <

No, it was not a CAW facility. And there really weren't any unusual issues that we had to deal with. <

I think any time that any of us go through a restructuring, which is, you know, a common theme in the industry right now, there are issues that have to be dealt with, but I wouldn't say there was anything extraordinary at all in this particular case. <

Thank you very much.

Thank you.

Our next question is from

of Prudential Securities. <

Morning, guys.

Morning.

Good morning.

Couple of quick ones - first of all, could you quantify how successful you've been in scaling back your R&D

your goals and maybe tell us what it was in the quarter and the year-ago period? <

Well, I can start to tell you that we are absolutely on track for scaling back.

A year ago, we had taken some actions early in the first quarter. <

We set a target of reducing expenditures in total of somewhere around $100 million in that category. And we were able to achieve that. <

And as we looked at - you know, frankly prioritizing our product portfolio and reallocating resources and looking at some of the things we could do more prudently in terms of where in the world we source some of the services that we purchase, we concluded that we should be able to achieve a savings of another $100 million. <

Part of that initiative resulted in moving some folks out of the organization, and I think I mentioned we eliminated about 200 positions in the first quarter. There's some more to come in that area, but most of the additional savings will come from where we source the services and products that are provided into that group. <

We're comfortable we're on track to hit that number.

If I could just add to that, Mike, if you look at our total cost savings in the first quarter, lower R&D or engineering costs represent a pretty important portion of that savings. And if you calendarize it, as Mike said, we're very much on track to hit our full year targets based on the running rates that we're achieving so far. <

OK. So you're at 25 of the 125 or so with R&D?

Ballparkish.

OK.

And then, could up update us on the geographic mix of the Ford business, maybe in terms of content per unit and where that's trending?

At this point, we haven't, we wouldn't disclose the content per vehicle or per product line of any of our customers.

So I have a little bit of trouble giving you that information.

Can you give us just general geographic distribution of your revenue?

Sure. We can give you that.

In terms of general geographic distribution of our total revenue, about maybe 15 and a half to 16 percent is in Europe. Roughly a percent or so, a percent and a half, is in South America.

And about six to seven percent in Asia. And the balance is in North America.

And that hasn't changed over the last year, has it?

In the last year, it's pretty, been pretty stable.

We've won a lot of new business outside of North America and that will be coming on the books over the course of the next couple of years.

Also, one of the things that's occurred during the past year is that as we brought some new business on outside North America, we've had softer volumes from Ford, outside of North America as well, and Europe in particular.

And that's - they tended to be offsetting, so if you stand way back, the distribution of our revenue by geographic region is pretty stable over the last year.

So, it's non-Ford is picking up for the drop in Ford overseas?

A little bit, yes. I don't have the exact numbers in front of me, but yes.

Conceptually, yes.

We had disclosed previously that about 40 percent of the new business wins last year were outside of North America.

OK. And, I guess, is that the, counting this large jump in non-Ford business in

.

What are the key drivers there?

Well, I think if you look back historically, you know, you'll see that a couple of years ago, right at the time that we became independent, is when we truly were able to start to grow that non-Ford business.

So if you look in earlier years of that chart, you'll see just a slight amount of growth that we're shipping, say 2002 versus 2001. But when you get to the 2003 time frame, going forward, that's when we start to kick in the significant business wins, given the two to three year product introduction.

That's pretty normal for us. So I think you see a pretty linear growth starting in 2003 forward.

But the plateau is really based on the economy of our independence. So those orders we're receiving or shipping this year, were actually received prior to our independence.

So that '04, '05 business is all booked already?

Not all of it, but a large percentage of it. <

And the portion that isn't booked, we've placed a very, very high hurdle rate for ourselves to cross over. It's got to be a 75 to 80 percent confidence on the portion that isn't booked. <

So, a large portion is booked, and the portion that isn't booked is high probability.

OK. Thank you very much. <

Thank you.

Our next question is from

of Goldman Sachs.

Good morning, guys. <

Morning.

Hi,

.

I'm trying to understand the content per vehicle here. <

I mean even if we sort of - if we sort of take the Navigator - Expedition out, which is high-content, out of Q1 '02, you know, it - that would explain maybe why your content per vehicle is down in North America at Ford. <

But it also - it still implies a pretty significant fall in content per vehicle in Ford's International operations. Am I interpreting this right? <

I don't ...

I mean I must be because the numbers have to add up. <

No.

, this is Derek.

When you - when you look at the numbers, Ford doesn't report their European number. <

But when you go through the math, you know, we've said in the past that the European content's probably, you know, 1,200 to 1,300 a copy. And it was - it was in that ballpark.

No, I'm not talking Europe. I'm talking

as a total. <

Yes, ...

Is the issue that - because of the Fiesta? Because it looks like your

- your content per vehicle on Ford

is down significantly year-over-year. <

No, they - it is not.

No, no.

It is not. So, maybe

...

Well, then, your North American content per vehicle's got to be down a tremendous - I mean one of them has to be down. <

They can't both not be down because your overall is down big time.

It's the mix between what's Europe and what's other overseas production. <

OK. So it's internal to the

. That's the problem.

Yes.

Yes.

So

is down, but it's not - but it's only a mix issue. It's not - it's not a

individual line item problem. <

Right, right.

That'd be correct.

OK.

Second, on revenue, your non-Ford was up a little under two percent. <

Can you decompose - I'm assuming that the underlying growth is greater than that. But ...

Yes, I - we can give you a little more texture on that,

. <

And your assumption is right. We had several factors that offset some pretty solid organic growth. <

For instance, within the currency category, currency changes brought down our non-Ford revenue by about $20 million quarter-to-quarter. In other words, ...

Yes.

... first quarter last year to this year. <

Yes.

We had an - roughly another $25 million of just plain lower volume if you - if you just ...

OK.

...

volume last year to this year.

And there were a couple of other items that I won't get into that also were minor, but contributed to a lower reduction.

Offsetting that, we had organic growth in the range of $75 million.

And it was made up of a lot of different customers that came on stream over the course of the last 12 months. So loss in the, I'll call the business environment, through the organic growth that otherwise would've been stronger.

OK. You mentioned you're writing off a bunch of goodwill.

I'm just curious. I mean this is a relatively new company here.

I mean, what goodwill at this point would we be writing off?

Well, almost all the goodwill, in fact virtually all of the goodwill that we are writing off was acquired prior to

.

It was acquired in the '98, '99, early 2000 time frame. The largest single element of it related to our acquisition of the Plastic

Interiors business in Europe.

Yeah.

But there were a couple of other pieces as well, as well, in different parts of the world.

Is Plastic

not working out the way it was anticipated?

No.

And in fact, Plastic

and most of these acquisitions are doing well. But there's a different test that has to be applied.

It no longer focuses directly on the acquisition, but more on the overall value of the goodwill and the context of your reportable segment. And for us, our reportable segment is our automotive operations.

So, it has to be evaluated in a little different way, Gary.

OK.

And just one last question. This may seem like a nit, but it looks funny to me.

Your income before minority interest is 7 million. Your minority interest is 6 million.

How does that happen?

Well, we have some very solid minority

.

I guess they must be.

We have a couple that are very very solid and we're real pleased with them.

And consequently, they're making a nice contribution.

OK.

Thank you.

Thank you.

Our next question is from

of

.

Good morning.

Good morning.

Good morning.

You talked about exiting the navigation business and I think you alluded to a navigation strategy. What is the strategy then going forward?

OK, Wendy. What we said we were going to do was close down the operation that we had that was really doing the navigation software.

We did not say we were going to exit the navigation business.

OK.

And we expect that we have the capability to integrate anybody's navigation system into ours. And we just saw that was a better use of our resources than trying to develop our own software.

OK. And then the 50 million lower pass-through on the precious metals - I'm assuming that's tied to that Ford write-down? <

Well, not actually. The arrangement that we have with Ford is that in this particular case, we purchase precious metals from them and put it into catalyst and pass it back - sell it back to them at largely almost entirely the same price that we purchased. <

There's a very, very slight markup, and that's reported in our revenue and in our cost.

And to the extent that the price we pay for the previous metal changes significantly, it can be - have a distortive effect on our revenue and cost relationships. <

And that's what's occurred in the last 12 months. There has been a pretty significant change in the price that has very little impact on our bottom line, but it tends to distort our revenue over this period of time. <

That's what it reflects.

Will it continue or does that depend on what's going on in the market?

Well, the arrangement will continue. And we would expect that the precious metal market would be more stable, so the volatility would be less. <

But that's just - I can't

.

Yes, I know.

OK, and then I just want to go back to the sort of first quarter to second quarter or year-over-year issue. Second quarter production at Ford is going to be stronger than a year ago and stronger than the first quarter was. <

But, again, net income is down from a year ago.

So what are the principal things? Is it launch cost? Is it higher pension and healthcare cost? <

What exactly is causing this problem of lower earnings in the face of higher production at Ford?

Well, I'll start with it, Wendy.

I think the - you know, first of all, we've said we're estimating a range. And we tend to be conservative, so we're more on the lower end of that range, I think, than the precise number that Ford has predicted. <

The other thing that we are - you know, we have been referencing is that we have a backlog, you know, and it's in the $4 billion to $5 billion range that we are ramping up production, you know, virtually with a - with a whole lot of new customers with no revenue and we're absorbing those costs. <

So I think we're a little bit unique in the area that we're not - these things that we're not churning at a constant rate.

So we're not launching a billion dollars in new business and replacing it with a billion dollars in new business. <

We're launching $4 billion to $5 billion worth of business, where today we have zero, if you will, because that's total incremental revenue to us. <

So we are managing that, I think, very well, and able to absorb the revenue with the - you know, virtually the same overhead that we have today. <

So there is some ramp up cost.

You know, it's not purely free to us. And some of that's offsetting what, you know, some of the gains that you may see if you just apply the formula to it.

I would just ask you to consider that once you get out into the 2003 or 2004 time range and you see that kind of linear ramp up, then you'd expect a little more stability in our launch up, our ramp up costs.

OK.

So this, is it like mid '03 when, I guess it's hard to pin that down, but is it next year when you start to see better return on the sales or better margins on the sales that are coming in?

Yeah.

That would be watched. Frankly, we hope we continue to have the problem and grow the business at an increasing rate.

But if all things hold equal in 2003, we start to get some revenue for the costs that we're incurring today. And then if you look at the backlog for 2004 in the non-Ford increase, it starts to look the same as 2003 over through 2002.

So I'd expect we'd have, you know, a more stable environment in our launch area.

OK.

Wendy, I want to just come back to one point that you mentioned and just elaborate a bit on it. You alluded to pension and retiree healthcare costs.

And as I mentioned a minute ago, our pension and retiree healthcare costs are up this year compared with last year.

We absorbed that in our cost savings.

But on a pre-tax basis, they're running at about, I'd say roughly 15 to $20 million higher per quarter. So we are going to be facing that kind of cost increase on an ongoing basis this year relative to last year, which is, I'd say it's normal business.

We have to offset those things, but it is an increase.

OK.

Great. Thank you all.

Thank you. Our next question is from

of

.

Hi. Good morning.

Just a quick question on the glass operations. Can you continue to make money there without investing in the business?

Well, at this point and time,

, you know, we're, we just can't say enough about the cooperation we've had with the U.A.W. on that, to take it to a point where it's not a drain on our resources. And I'd say, you know, they're running that business and trying to continue seek out small improvements in it.

I would expect that, you know, looking at their budgets that they're going to continue to do that. Certainly for this year.

But it is a, you know, you are kind of up against the wall. It's not a part of our business that we're going to make capital investments in.

So, it's more a matter of improving continuously the smaller things in the operation and make sure that we'd have the factories loaded properly. Which, again, I think our folks did a great job getting that done in the past year.

I wouldn't see that kind of incremental improvement, say year-over-year, going forward.

And, do you have any sort of update on the European pricing dispute with Ford

time frame?

Sure. I don't know about a time frame, but you know, we're following a similar path there that we did in North America. <

We had a difference of opinion on some things, and we were able to get it resolved in North America.

We had the same situation in Europe. <

And our priority was to get North America resolved first, which we did. And we're in discussions with Ford of Europe. <

And at the same time, you know, we continue down a path of mediation and arbitration which the separation agreement calls for because we have an obligation to do that. Our hope and expectation is that we would

this resolved pretty quickly. <

OK. Thank you.

Thank you.

Our next question is from

of Banc of America Securities. <

Morning, everyone.

Good morning.

This chart on page four - the "Non-Ford Revenue Growth" - you guys are - it looks like you're saying that the non-Ford revenue growth will be about 100 million this year. <

Can you help me - can you tie that to what your total net new business is this year? I think you said it was going to be a billion this year. <

Is that right or was that not net of price?

Well, yes, our - when we talk about net new business - let me clear that up. When we're talking about new business wins ...

OK.

... and that won't be launched in some cases for three to four years. <

And so what you're seeing now in the - in the relatively smaller increase in non-Ford shipments 2002 versus 2001 is really a result of new business wins

probably in the '98 - '99 time frame. So it takes a few years for that - for that new business win to flow through into the shipment for us. <

So, what is your total? I think you gave us a number - a total what net new business would be in 2002 versus 2001.

Right. We said we had a target of a billion dollars of non-Ford net new business wins in 2002, and we're on our roadmap to achieve that number. <

Last year's number was about 1.2 billion.

OK, but, Mike, what I'm - I guess what I'm getting at is I - booked business - booked incremental business for 2002 - that business that you booked three or four years ago, what is - for the total company, what's the net growth number supposed to be for 2002? <

On the - yes, it's on the - I mean I think you can get there from that chart. We're saying in 2002 versus 2001, our shipments would be up roughly $100 million in non-Ford business. <

OK. And then for the total company?

Well, the total company revenue we're projecting in the range of 17.5 to 17.8. <

That's our total company projection.

All right. I'll circle back to you on this. <

I'm just - I'm trying to tie what you guys think your net new business will be for this year, next year, and so on. I'll circle back.

Just on the margins, how are margins performing on business that you guys launched last year? <

What are you seeing there - new business launched last year?

Well, you know, what we're seeing is, I'd say, relatively similar margins on business launched last year. What we're, two issues we have going forward is, you know, we've said we'd put in the disciplines in place to make sure that we take new business wins that are going to be at margins that are attractive to us going forward.

And we've also mentioned that we had a segment of business that probably didn't meet that criteria that wasn't to ship. So it's in the window between what you and I are talking about right now.

And we are in the process of negotiating what to do with that business in cooperation with our customers. In some cases, we're resourcing it with their assistance to other folks.

In some cases we're doing a deep dive on what's realistic market pricing for that kind of product.

So there's a lot of activity going on and current, I'd say, current launch business not yet shipped, but we feel very good about new business wins with the disciplines we've put in place to make sure we achieve the margins that we're entitled to.

OK. All right.

And then, just on the cash flow stuff. Is there a cash flow component in the compensation, incentive compensation plan?

Yes.

Yes.

Does that include special charges? Like when you guys take these charges for restructuring and stuff?

Does that include that or exclude that?

It excludes it.

It focuses on operating cash flow.

OK.

All right. Good.

That's all I have. Thanks.

Thank you. And again, ladies and gentlemen, if you have a question, please remember to press the number one key on your touch-tone telephone.

Our next question is from

of McDonald Investments.

Good morning, gentlemen.

Good morning.

Good morning.

On the European pricing issue, can you kind of give us some idea as to what or how this might differ from the North American pricing issue, such that it might yield a different result? Or should we just assume that it's going to be basically the same?

Well, you know, our intention that would be that it would come out basically the same. And I think both parties, again, are working together to get to that conclusion.

The European pieces is a little more complicated in a couple of areas because there's a separate agreement with the European Works Council and you've really got like three parties of agreements going on here.

And in Europe, there was a, I'd say, a difference in interpretation of some language as opposed to numbers that we need to get cleared up. And that's really what we're working through right now.

I would expect, you know, we meet constantly. We're in dialogue constantly.

And that goes on parallel to any activities with mediation. So, I'd say both sides are working hard to reach, you know, an agreement that's equitable for everybody.

OK. And then, can you just give us an update that - the net new business backlog going forward.

Right now, I think you said it was around 4 to 5 billion. Is that the right number?

Yes, it would be in that range,

. <

What we've said is, you know, we report our net new business wins. So if something is a carry-over, you know, to a new model, we don't record that as a - as a net business win because it's just replacing existing business. But if we have a true net business win, we talk about that in the context of, say, a billion dollars of non-Ford. <

Is the ...

OK, just let me finish what I'm saying.

What we don't do - and we've communicated we don't do - is go back and constantly adjust that backlog number for any changes that might be going on in contenting or engineering changes or changes in volume projections that may occur any time over that three or four-year window. <

And we've said, you know, periodically, maybe once a year or so we'll go in and audit that and make sure it's relatively correct. But we feel comfortable saying that that backlog is in that $4 billion to $5 billion range. <

And then the mix between Ford - non-Ford on the backlog, is it - is it - what's it look like at this point?

Again, it's roughly half. <

I think the last time we did a precise number on it, it was 45 percent, and we reported that. But again, that may change slightly based on changes in volume projections and content. <

OK, great. Thank you very much, Mike.

Thank you.

Our next question is from

of J.P. Morgan.

Good morning.

Good morning.

Good morning.

A couple of things - you've talked in the past and you've alluded to it a little earlier in this call about exiting unprofitable business lines. <

Have you actually had success in, you know, getting Ford to agree to transfer product lines where you're not making a negative return to another supplier and been able to actually exit those product lines?

Well, David, when you - you know, we talk about a product line, that would be, you know, a segment of our business. <

And we have not exited any segments of the business other than Restraint Electronics. We've taken some pieces like our cut-and-sew operations and been able to move away from that. <

If we look at individual products and parts within product lines, we've had some success in moving some of those orders to other suppliers or in some cases ending up compromising on what a reasonable price would be for that product.

So, a little bit of a ramble, but "no" to exiting complete product lines, "yes," having some success exiting parts within those product lines where the profitability was unacceptable. <

OK. Then, broadly speaking, credit rating - we're in an environment where credit rating agencies generally I think - S&P, in particular, are offering a very negative view on outlook despite what looks like a pretty promising economy out there. <

And with a propensity to want to downgrade companies that aren't generating, you know, significant positive cash flow and earnings, how important is maintaining that credit rating? And I know you've done a

recently. <

I mean would you consider doing - taking steps to shore up the balance sheet in order to preserve that credit rating? What's - have you - what do you see as trade-offs there? <

Well, David, we've said all along that, you know, we believe that having and retaining a strong financial position is very important, and we think we have a solid financial position.

And frankly, we were very very pleased that recently Standard and

reaffirmed our triple-B rating on our senior unsecured debt shortly after we issued the shelf offerings.

So, it is important to us.

We're pleased with the recognition by Standard and

recently. We're doing things internally to ensure that we retain a strong balance sheet.

And so it is very important to us.

OK.

And then lastly, pension healthcare. What kind of steps, I mean these costs are rising for everyone.

Rising for you, rising for the industry. And pension returns haven't, you know, last year turned out to be pretty bad.

What do you - what's the outlook this year in terms of what can you do on healthcare costs? Do you have a special initiatives?

What do you think the healthcare turn in inflation rate will end up being? And on pension returns, you know, what are the - what are you running year-to-date and where do you think you might end up there?

Let me talk about pension returns for just a moment, which is the one thing I think I can answer pretty specifically.

We're running year-to-date a lot better than we ran last year at this point in time.

Last year was not a strong year from a returns standpoint, as you know. And year-to-date, we're running better.

In fact, I'm looking at a schedule that indicates that we're positive, from an investment return standpoint, through the first three months of 2002. And at this point last year, that was pretty substantially negative.

I don't think I can provide an answer on the other parts of your question at this point in time. Now, we'll just have to get back to you on that.

OK. Thank you.

Thank you. Our next question is from

of Bank One.

Most of my questions have been answered, but if you can go to page 13 on the slides real quick. The working capital, obviously real strong improvement there.

Is there some seasonal component to that or, if you could just walk me through quarter-by-quarter? What tends to be the strong quarters for working capital and which ones don't?

In terms of working capital, there is a lot of seasonality in working capital. The first quarter is the worst for us because what happens during the year, late in the year they, most of the major O.E.M.s shut down, particularly in North America, over the last week or so of the year.

And that causes our receivables to be less. Our payables to be higher.

Our inventories to be distorted.

And so we get an improvement in working capital at the end of the year, and then in the first quarter, that turns around and we have a substantial outflow. <

There's a little bit of an outflow in working capital in the second quarter as volumes tend to increase. And then in the third quarter, working capital tends to strengthen as volumes are reduced because many of the plants are on shutdown and changeover. So working capital is very seasonal. <

What we're pleased with this year in our first quarter results is, compared with the same period a year ago, we made a substantial improvement in our working capital. So that kind of sets the seasonality aside because it's same period to same period. <

And it reflects a substantial improvement.

And in previous calls, we've indicated we've really stepped up the focus on our working capital elements, and we think we're starting to see some of that come through. <

Absolutely.

Just out of curiosity, as well, the capital spending obviously that implies I'm assuming your I guess what some could say, you know, relatively conservative like vehicle sales forecasts. Just out of curiosity again, what was your cap ex budget I guess target for 2002? <

That was 750.

Seven hundred and fifty - and, you know, assuming I guess a kind of a 16.25, how much light vehicle - how much do you think - how much do you think that would increase? <

Well, most of - again, most of our capital spend would be for production that's going to occur in the future, so it's not tied ...

Sure.

... directly to this year's car build numbers. <

OK. Very good. Thank you very much.

Thank you.

Our next question is from

of J.P. Morgan.

Thank you. All my questions have been answered. <

Thank you.

All right.

, if we have time for one more.

All right.

Our final question will be from

of Goldman Sachs. <

Hey, guys.

Just one final - if I just look at page 15, which is your - basically, your guidance or your volume and guidance, there does seem to be, I think - I think if you calculate it out, you're looking - if I took your second quarter guidance of 40 million, it's, you know, roughly 30 cents a share. <

And yet when you kind of - when you kind of look at the typical earnings that you get on this level of Ford production, it would suggest - their published schedule as it exists today, which I believe is about the 1.2 million that you've shown on page 15. You'd normally be doing significantly above that 30 cents and yet if you stuck with the 30 cents and then stuck with the full year, it would imply a dramatic improvement in your, well let me just call it profit per Ford vehicle produced, for lack of a better word.

Adjusted for the volume that they're running in the second half, which is normally less.

And so I'm wondering, is it that in fact the second quarter is conservative, or is it in that the second quarter's really not that conservative and rather you do expect a significant improvement in your profit per Ford vehicle in the second half?

Gary, let me see if I can answer your question as I understand it.

If you stand back and look at the full year, we think that revenue for the full year is going to be about what it was last year. Maybe a very small amount less.

But we expect to be quite a bit more profitable than we were last year on an operating basis. Which means that we believe we are improving our margins on both Ford business and non-Ford business because we're focusing on structuring - restructuring actions, cost improvements, and we're trying to, you know, improve our margins across the board.

So ...

Yeah.

We are expecting to have an improvement in profitability.

Yeah.

What I'm trying to understand is the

of it, though. Because the second quarter does look light, and in which - and if that's, you know - if that's - if that is a good guidance, then what it means is that in fact the second half looks really good.

In which case, that's got implications for 2003.

Well, one of the ...

But if the guidance is more conservative, then it tends to make the profit per vehicle look more in line with maybe, you know, what you've traditionally done in prior quarters.

Well, two points I'll give to you.

First is, we have said that we tend to be on the conservative side with our volume and production assumptions. And we hope as time goes on that they will get stronger.

But also, one of the things we've mentioned in the past, and really haven't brought out so much in this call, is that our cost savings tend to be

. In other words, as we achieve savings in our supply base, negotiated savings, and implement material usage savings, they typically come through the year and they build as the year goes on.

So there is an aspect of

in some of our cost improvements. Now this year, we got off to a very quick start.

We got off to a fast start in the first quarter, so we think we're ahead of the game. But the basic pattern is that we get some of these savings later in the year.

OK. All right.

Thank you.

Thank you.

OK. That concludes our call. <

I'll be around, as will

, to answer your questions today. So, thanks a lot.

Thanks very much. <

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may disconnect at this time. Have a good day. <