Visteon Corp (VC) 2002 Q4 法說會逐字稿

Good morning and welcome to the Visteon Corporation conference call.

All lines have been placed on mute to prevent any background noise.

As a reminder, this conference call is being recorded.

Before we begin this morning's conference call, I'd like to remind you that some 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 from time to time in the company's periodic filings with the SEC.

We assume no duty to update this forward-looking information.

After the speakers' remarks there will be a question-and-answer period.

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I would now like to introduce your host for today's conference call, Mr. Derek Fiebig, Assistant Treasurer for Visteon Corporation.

Mr. Fiebig, you may begin.

Thanks, Anissa [ph], and good morning, everyone.

I'd like to welcome you to Visteon's fourth quarter 2002 financial results conference call.

We posted our fourth quarter financial results presentation in the investors' section of our website this morning.

During the call we may refer to certain non-GAAP financial measures.

Additional information regarding these measures is included in the appendix of our presentation material.

Leading today's call is Mike Johnston, our President and Chief Operating Officer; and Dan Coulson, our Executive Vice President and Chief Financial Officer.

Immediately after our formal comments the operator will open up the lines to allow Mike and Dan to respond to your questions and with that, I'll turn the call over to Mike.

Thanks, Derek.

I'll start out with highlights of our fourth quarter results.

Our results met our previous guidance and your expectations, despite a cut in Ford production that came late in the quarter.

Our non-Ford revenue rose again this quarter almost $1b.

It accounted for 22% of our total revenue and increased $160m compared with a year ago.

Cash flow came in above the top end of our projections and Dan will cover this in more detail in a few minutes.

The combination of a more diversified customer base, lower spending and better operating efficiencies resulted in improved operating performance.

We also made progress on our European Plan for Growth, reducing our work force by about 300 employees from the eight targeted plants.

And Visteon Brazil reduced salaried and indirect hourly head count by about 200 to better align the cost structure there with local market conditions.

In addition, a voluntary early retirement program in the U.S. late in the year will reduce our work force by over 300 salaried jobs and we've completed the transfer of all of our non-restraint electronics business from our Markham facility and have efficiently shut down all Visteon operations there.

This next slide shows the 2002 objectives we laid out last January, all of which we accomplished.

As we indicated previously, cash flow was a key metric and we achieved positive operating cash flow of more than $500m for the year.

Much of the improvement came in each of the elements of working capital.

Our positive operating cash flow also strengthened our financial position.

During 2002 we self-funded our restructuring actions, we reduced outstanding debt and we increased our year-end cash balance.

During the year we implemented several large initiatives, including the European Plan for Growth, the U.S. salaried streamlining, the exit of the restraint electronics, as well as navigation software and public seating and a restructuring of our operations in Brazil.

Finally, we were able to improve our profit before taxes, excluding restructuring charges, by $83m compared with 2001 and we've included appendix material that has the reconciliation of profit before taxes and operating cash flow to the amounts included in our GAAP statements.

Next we'll cover some of the operating highlights for the year.

We reduced capital spending to $723m, which is down from 2001 and 2000 levels.

We also exceeded our goal of cutting R&D spending by 10% and we were able to reduce both capital spending and R&D by reducing waste but also re-using equipment and tooling designs where we could and also re-allocating resources.

We've partnered with the UAW to eliminate waste in glass operations, which had a $20m turnaround after taxes and we hope to carry out the same kinds of programs in all of our facilities.

We also improved our J.D.

Power ratings in problems per 100 vehicles score by more than 11% and we successfully launched more than 175 individual product projects for our customers.

Nearly 40% of those were from non-Ford customers.

We achieved a reduction in salaried and hourly head count of more than 3000 positions worldwide in 2002.

That's more than 7000 since our spin.

And we continued our improvement in business processes with a focus on programs including order-to-cash and our SAVE program.

And since we launched SAVE in January of 2002 virtually all suppliers have actively participated and have generated about 1500 new cost-savings ideas.

Turning to the revenue side, our non-Ford business remained strong.

Although we've won approximately $900m in net new Ford business since our spin-off in June of 2000, during 2002 it was really about a wash.

New wins and lost business offset each other.

We still have an average of about $3000 of content per vehicle on Ford's North American products and about $1200 per vehicle on their European vehicle lines.

And for all products we're finding better cost solutions that are mutually beneficial with our customers.

We exceeded our goal for the year in securing more than $1b in net new business wins.

Obviously, virtually all of those now in 2002 were non-Ford.

Equally important, we're broadening our geographic base.

Of the $1b in new business, about 45% of that is outside of North America.

As we mentioned two weeks ago, we're experiencing solid growth among a variety of customers throughout Asia-Pacific and posted revenue increases of 40% in China and 10% in South Korea.

And then we have some recent wins that we can announce and they include instrument clusters and plastic trim for the Renault Megane II.

We'll be supplying our expertise in thermoformed fuel tanks on future GM products and our slip-in-tube propshaft business is growing with a win from the Chrysler Group for future SUV North American programs.

Now Dan will take you through the financial data.

Thanks, Mike.

As Mike indicated earlier, we achieved our financial objectives for 2002.

As we entered the year, we knew it was essential for us to improve profit and cash flow performance during 2002 and we did.

We had positive earnings and cash flow before restructuring charges during the year.

In each case, this represented an improvement compared with 2001.

We had an intense focus on liquidity throughout 2002 and this really paid off and allowed us to maintain a strong cash balance and reduce debt during the year and I'll discuss this in more detail in just a moment.

And we continued to re-evaluate the allocation of our resources, utilizing them to generate the greatest profit and growth potential for 2002 and beyond.

Over the next few slides, I'll go through some of the details of our fourth quarter and full-year 2002 financial results.

Our revenue for the fourth quarter totaled $4.543b.

This was up $50m or 1% compared with the same period of 2001.

Within the total, non-Ford revenue was $984m, up $162m or 20% compared with a year ago.

The improvement reflected strong organic growth and the favorable effects of currency changes in the quarter.

Non-Ford revenue accounted for 22% of total revenue in the quarter.

Full-year revenue totaled $18.4b, up about $550m or 3% from 2001, reflecting growth in Ford and non-Ford sales.

Ford production volume in North America was up 111,000 units or 3% for the year, but it was down 50,000 units or 5% in the fourth quarter.

Non-Ford revenue continued to reflect steady growth in 2002.

Our $3.6b of non-Ford revenue in 2002 was up 13% compared with 2001 and is up $2.2b over the past four years.

We also reached an important milestone during 2002.

Non-Ford business accounted for 20% of total sales and it was 21% of the total over the last half of the year.

We're very pleased with this progress and believe we're on track for further improvements in the future.

And, incidentally, the substantial in non-Ford revenue achieved in 1999 and 2000 included the impact of two important acquisitions made in 1999.

The revenue growth since that time, essentially, is all organic.

In the fourth quarter we had a bottom line GAAP loss of $34m after taxes.

This included a restructuring charge of $51m for restructuring actions reflecting primarily a retirement program offered to our salaried employees in North America and continued implementation of our European Plan for Growth.

Excluding this charge, earnings were $17m, in line with the guidance we provided and equal to the analysts' consensus.

It compared with a loss of $14m on the same basis in the fourth quarter of 2001.

Results for the full year included a number of items.

Effective January 1st, we adopted Financial Accounting Standard Number 142 regarding accounting for goodwill.

This resulted in a $265m non-cash write-off that we reported in the first quarter, which removed all the goodwill from our books.

We also incurred restructuring charges during the year that totaled $142m.

Excluding these factors, we earned $55m after taxes.

This was up $52m compared with full-year 2001 results on the same basis.

In total, including the accounting change and all other factors, we had a loss of $352m for full-year 2002.

Next I'll turn to cash flow.

As Mike mentioned, our fourth quarter came in very strong and reflects the emphasis we placed on cash management during the year.

Improvements in operating cash flow have been comprehensive.

Compared with 2001, each element of cash flow improved.

Profit is up, reflecting a continued attention to the blocking and tackling of the business.

Capital spending is lower as we continue to find ways to invest more efficiently in our core businesses and substantial improvement was achieved in trade working capital.

This was the area where we made our largest gains.

Inventory turns improved by 10% from 18 to 20 turns, reducing funds tied up in inventory.

And, as Mike mentioned, we also lowered our receivable days sales outstanding and we standardized payment terms.

These actions freed up over $300m in trade working capital, making it available to further strengthen our financial position.

Finally, net accruals were higher in 2002, as well.

And we define net accruals as the difference between the expense recognized in our profit levels and the actual payment of cash and retiree health care expenses are the largest contributor to this item.

We've summarized on page 12 on the material that was posted our cash flow for the year.

Full-year operating cash flow of $501m exceeded guidance and it reflects the focus that we placed on cash flow and liquidity throughout the year.

This compares with a cash outflow of $222m in 2001.

As we've stated in the past, working capital for us is highly seasonal during the year, with inflows in the second and fourth quarters and outflows in the first and third quarters.

In 2002, substantially all of our positive operating cash flow was achieved in the second and fourth quarters.

As a result of this strong cash flow, we were able to repay over $300m of debt, fund our restructuring actions, pay dividends, complete a modest stock repurchase program and end the year with a balance of cash and marketable securities of $1.278b.

We've shown our financial position at the end of the year on the next slide and it remains strong.

As noted, we ended the year with almost $1.3b in cash and marketable securities.

We reduced borrowing by $300m during the year to $1.6b.

This was achieved by cutting back on our commercial paper outstanding and reducing debt at overseas locations.

And we're continuing to look for opportunities to further reduce and restructure our debt going forward.

Our capital structure remains solid with equity of $3b and total capital of $4.6b.

Our debt-to-capital ratio is 36%, 1 percentage point better than last year and well below the median for BBB companies.

Now I'll turn it back over to Mike and he'll take you through our objectives for 2003.

We see both opportunities and challenges in the 2003 environment.

First of all, the global market conditions look somewhat better than they did even just a few weeks ago, but Iraq, oil and a generally queasy economic environment remain concerns.

We expect higher cost on certain commodities in 2003, as well, such as steel in the U.S. and resins in Europe.

And, as we've detailed previously, we expect health care and pension costs to rise.

These are all factors, obviously, we're closely monitoring.

The joint portfolio work ongoing with Ford and the UAW is crucial for our future.

Work completed to date should leverage ability to move from strategy to actions.

The North America market is changing also with increased volume and entries from Asian and European manufacturers.

Visteon will be a major participant in Nissan manufacturing in the U.S. and Europe.

A large piece of that will go into production later this year.

Also, we're off to a good start in 2003.

We've won a substantial piece of business with Hyundai's Alabama operations and this win is not included in our 2002 new business wins.

And we believe we're well positioned to win some more.

Our relationships with our newer non-Ford customers are strengthening as well.

We're now at a point with some where we're being considered for advanced technology projects that are included in road map discussions on forward-year products.

Many of the environmental and safety needs faced by OEs for future programs will require systems solutions.

Visteon has a solid portfolio of advanced entertainment and communications electronics to meet needs in these areas.

This next screen shows how we'll measure ourselves and report to you this year.

We're committed to improving profitability and margins by a combination of winning new business at rates that can help improve overall margins, improving operating efficiencies our supplier initiatives and our restructuring actions.

And we recognize it'll be a challenging year, but our objective is to improve our profitability for 2003.

And as our product portfolio actions are resolved, we'll revisit this outlook with you.

Growing the non-Ford business also continues to be a major goal.

It is an important part of reducing our dependence on North America and Ford and of improving our margins going forward.

So we've set a goal for 2003 of an additional $1b.

We will follow through on our European Plan for Growth to assure that we can achieve an improvement in pretax profits by $100m by 2004.

We're on track now and we'll remain on schedule throughout 2003.

Also, we will complete the TVM process with Ford, which should lead to cost improvements in all product lines and we expect to implement some key initiatives as part of the first phase, including seats and steering columns, as we've discussed with you previously.

We will maintain a strong cash focus.

We believe our cash position has served us well in a difficult environment and we'll keep our focus on cash and liquidity and on our debt/equity ratios.

Now we'll be happy to take your questions.

Anissa [ph], if you can please remind people how to queue?

Thank you.

If you have a question at this time, please press star, then the number one on your telephone keypad.

If your question has been answered or you wish to remove yourself from the queue, please press star and then the number two on your telephone keypad.

Our first question comes from John Casesa with Merrill Lynch.

Thanks.

Mike, just three quick ones.

One, why do you think market conditions are getting better?

I heard you say that.

Two, what's the cap ex outlook for '03 versus '02?

Are there any special projects in there that could cause cap ex to increase?

And three, what are the latest developments on the seating negotiations?

OK.

First of all, when we look at market conditions, we're maybe in a little bit of a unique position in that we have a lot of non-Ford business wins that we've booked over the last couple of years.

So as we look at our opportunity to grow, it's really new sales with booked business and we've shown that backlog to you in the past with some of the projections on increased non-Ford revenue in the coming year.

So even though there's some uncertainty, maybe, in the domestic car build on our largest customer or some of the others, we are probably uniquely positioned to take advantage of new business wins that we've already reported on.

OK, so you mean like the build prospects for the new programs in which you've win business as opposed to sort of general industry conditions?

That's correct.

Got you.

OK.

OK.

Then on the cap ex, we've continued to make significant progress in the efficiency of our cap ex.

If you look at the numbers we reported, at just over $700m for 2002, being down from the two prior years, tie that to the fact that we also had about 200 launches this year, which is up significantly for us.

And we've also projected launches of about 400 for 2003.

So as we look at the efficiency improvements in the way we spend our capital, our goal is to maintain that number consistent with prior years.

We have a couple of unique items that do come up this year, John.

We've talked about the centralization of all the offices around southeast Michigan and there's some cap ex involved with that in 2003.

And we also have some unique capital expenditure requirements in the IT area as we continue to move off of the Ford systems.

In the area of seating, one of the reasons we're posting objectives -- and we did that, obviously, deliberately here -- was because there's some unique situation in the product portfolio with both seating and steering.

And we need to wait to see how those are resolved before we can really clarify out outlook for you.

Negotiations are ongoing.

It's active.

We can't predict what the time of conclusion would be and we really aren't in a position to make a prediction at this point on what the specific financial outlook of that-- of any settlement in that area would be, but obviously, there's progress, discussion and activity going on in that and as soon as we can report something to you, we will.

OK.

So does that mean that on these things you're past the conceptual stage?

You guys are starting to talk about ways to do this, presumably?

We have been talking about ways to get it done and there's a variety of options, as you can imagine, that go with that, because you have multiple parties involved.

It's not just two players, it's really four entities that are being represented.

So it's fairly complex and we really don't want to speculate what those negotiations look like in a public forum at this time.

I understand.

But just back on cap ex, Mike, is it fair to assume, then, that your cap ex for '03 will be up from '02?

And what kind of numbers should be using?

Is it $750m?

Is it $800m?

No, we're projecting, in very round numbers, that it'll be up about $100m.

And that encompasses, as I said, the improvements in the efficiency of cap ex, taking on twice as many launches, but also covering our needs on the centralization of the offices and also some unusual areas or items in the IT area.

OK.

Thanks, Mike.

OK.

Your next question comes from David Bradley with JP Morgan.

Hi, good morning.

Good morning.

Good morning.

I guess first of all, I know not many people have put numbers on First Call for this coming year, but how do you feel about the-- I mean, you want to improve profitability and the numbers out there are lower than this last year.

Does that imply that you think the consensus is too low for 2003, first quarter of minus 11 cents, about 30 cents positive for the year?

Yeah, as we said, David, what we're going to stick with is just posting the objectives and how we're going to measure ourselves this year and that's the best we can do at this point in time.

I'd point out that we started out this morning presenting how we did against the objectives we set forth a year ago.

We did beat all of those.

We've consciously just stated an objective to improve profitability in 2003 over 2002.

And with the issues or things, especially in the product portfolio area, in the state that they're in, that's really where our degree of comfort lies right now is just to solidly put up objectives, tell you we'll measure our progress against them and we'll keep you advised as some of these product things develop.

OK, but improved profitability means higher EPS, is that correct or not?

We're looking at-- That's correct.

Our improved profitability is measured that way.

OK.

Then secondly, could you just review for us the status of the-- you did some of this in Detroit a week ago, but review the status of the unfunded pension at the end of the year and the OPEB, where those stand, what the change was year-over-year and what the dollar impact on earnings '02 to '03 in those two categories?

David, I'll take that one.

We gave a preliminary report on this back in our September third quarter conference call and provided some initial data that we had at that time.

We've pretty much completed now where we stand on the unfunded pension situation.

And just to remind everyone, our pension situation's a little bit different than most companies.

If you recall, we pay Ford on a continued basis for the employees that are assigned to us, the UAW employees.

So essentially our expense and our payments for those employees are pretty comparable throughout the year and that represents a pretty substantial portion of our pension cost.

And the assets and liabilities associated with those employees are on Ford's books, not ours.

But just focusing on our pension plans themselves, at the end of 2001, our period of time was September 30th, we were unfunded at that point in time by -- just a second, I'll give you the precise number -- by about $326m worldwide.

At the end of September 30th, 2002, that number had a little more than doubled.

It's about $700m unfunded worldwide.

In rough numbers, about $290 of that is in the U.S. and the balance is in non-U.S. plans in a variety of operations worldwide.

In terms of--

By the way, --back at September 30th, that would presumably be the valuation date?

Yes.

That is our valuation day.

Our--

But the-- that's the number that'll be on the December 31 balance sheet?

That's the number that will show up in our financial statements.

That's our valuation date.

I'll remind people that that happened to be a pretty low point in both 2001 and 2002 and market values since then have improved by about roughly 5% since that point in time.

But that is the number that we will report.

We also changed most of our assumptions that we use to value assets and liabilities.

For instance, we reduced our discount rate in the U.S. by 75 basis points from 7.50 to 6.75 and we reduced our long-term expected rate of return by 50 basis points from 9.50 to 9%.

We think both of those are very realistic.

They happen to be pretty comparable to others in the industry and outside of the industry and we feel comfortable with those assumptions.

With regard to expenses and cash contributions, in both 2002 and in 2003 we had we're expecting higher pension expenses.

In 2002 our pension cost, what hits our books, was up about $30m and we're expecting about another $30m increase in 2003.

Could you give us an absolute, from what to what?

Yes, I can.

In 2002 the pension expense -- and this excludes any unusual restructuring charges.

In other words, it would be what we would consider the ongoing pension expense, will be about, in total worldwide, about $125m and it will be, we estimate, about another $30m on top of that in 2003.

And I want to emphasize again, that includes any unusual one-time pension charges that might be associated with retirement programs or anything of the like.

In terms of our cash payments, they're very, very similar to the expenses and really only differ by a small amount, just the timing of a particular month or two or when payments are made.

So we don't expect any extraordinary cash contributions or payments beyond what I just described.

Let me turn to OPEB.

It's not quite as lengthy a story as pensions.

On the OPEB side, we have also experienced higher costs.

In 2002 our retiree health and life expenses were up compared with 2001 by about $30m.

We're expecting another increase in 2003.

We're still estimating the number, but it will be a bigger increase than we experienced last year.

I'm estimating it will be more in the $50m to $70m range.

Can you give absolute numbers for '02?

In 2002 the absolute number is in the ballpark of $290m to $300m, absolute.

OK.

And, as you know, in terms of funding, we fund that on a pay-as-you-go basis.

So, in other words, the expenses are based on an accounting accrual of lifetime cost, but we only pay out during the year what we actually incur.

So the actual payment during the year was much, much less than that.

With respect to the future liability, we have on our books a liability for OPEB expenses of, in round numbers, about $2.3b at the end of 2002.

That was affected by the increase in health care costs that I think most companies have experienced over the past year or two and the agreement that we have with Ford is that that liability will begin to be repaid over a 15-year period, starting with 2006.

OK and just the absolute change, year-over-year from '01 to '02 in the liability?

It is about $250m increase.

OK.

Thank you very much.

Your next question comes from Steve Girsky of Morgan Stanley.

Good morning, everybody.

Can you hear me?

Yes, good morning.

Just I'm going to tick down a couple of things.

Do you guys have employment numbers handy, total employment year-end '02 versus year-end '01 and U.S. hourly year-end '02 and year-end '01 or no?

Yes, we do.

At the end of year-end '02, we had total employment -- and this includes-- by the way, I'm going to include some what I'll call agency people, supplemental people, total, total employment -- of about 78,700 people in round numbers.

At the end of '01, it was about-- a little less than 82,000 people.

If you look within that at hourly employees, we had total hourly employees at the end of '02 of a little more than 59,000 employees.

At the end of '01 we had about 61,800 hourly employees.

And if you look within that at UAW Master Agreement employees, which we sometimes talk about, we had 22,000 at the end of-- a little over 22,000 at the end of '02 and about 22,700 at the end of '01.

And how many are on layoff or jobs-- what do you call it?

Jobs bank or [gin pool]?

I forget what you call it?

In-- I don't have the exact number, but it's approximately 100 people that are on that.

So not a lot.

And, as you move through TVM, do you anticipate more of these people are going to be moved into these sort of [gin pool]-type things or no?

Part of -- Steve, this is Mike -- part of the process with TVM is to find a way to reduce the total cost, so we're looking at plant-by-plant flow-backs as we go through these product TVMs and we identify opportunities for improvement that might generate some available workers.

We're working with Ford specifically to identify opportunity to flow back where they have hiring needs.

So it's a pretty comprehensive approach to it.

You know it's a very wholesome approach.

It's not a matter of taking people off the line and putting them in a [gin pool] somewhere.

OK.

And the profit sharing, based on the Detroit papers, I guess you paid profit sharing this year to your hourly guys?

That's correct.

Yes.

That was not true last year, right?

That's correct.

That's correct.

So what was the-- Is it just simple, take the profit sharing amount?

I don't know, what was it, $900 a person, times the 22,000 and that would be favorable-- that would be unfavorable this year?

Was it all--

It was a little bit different than that.

I think the average payment that the UAW employees will receive is about $160 per average employee and we've got roughly, as I said a minute ago, 22,000 employees.

So I think the math works out to something like $3m to $4m of cost.

Was it all in this quarter?

Well, we work real closely with Ford to make sure that our accruals for this cost are consistent with their assumptions and I think it's fair to say that the accrual for profit sharing occurred fairly late in the year.

I think that's what they indicated in their conference call and we'll go with what they said.

OK.

And I understand on the guidance that you don't want to, because there's so many moving pieces, you're not-- I'm sensitive to that.

But what is the probability some of these moving pieces will be resolved in the first quarter or are we going to go through the whole first quarter with no guidance kind of thing?

Steve, it's Mike.

Every time we make a prediction that we have a solution for one of these things, it tends to evaporate.

So it's hard to put a timing on it and obviously it's significant to us.

We're in discussions.

It would be great to have it resolved in that time frame.

We would hope that we could get it done then, but that's about as far as I could go with it and as soon as we can tell you more about it, we will.

OK, so we could conceivably go through the entire first quarter with no guidance or anything?

That's correct.

That could happen.

OK.

And, Dan, do you have the FX impact on sales and profit in the quarter?

Yes, I do, Steve.

Just give me a second.

In the quarter there was a favorable impact on revenue of -- I want to make sure I give you the right number, because I've got two pieces of paper here -- a favorable impact on revenue of $65m.

In other words, the fourth quarter revenue on a year-to-year basis was better by $65m because of foreign exchange.

From a profit standpoint, we had-- for the full year-- foreign exchange items actually were adverse to us.

We had around $20m on a pretax basis of bad news profit effect because of exchange changes during the year.

In the fourth quarter, because of the late strengthening of the Euro late in the year and some favorable movements in the Mexican peso, we actually had some good news and it was in the $8m to $10m range-- good news in the fourth quarter.

On profits?

On profits.

And that's pretax profit effect.

So bad news for the year, some good news in the fourth quarter -- moderate.

OK.

Thank you.

Your next question comes from Darren Kimball with Lehman Brothers.

Good morning.

Good morning.

Just one follow-up on Dave Bradley's line of questioning.

Dan, what was the-- what's your expectation for the cash payments related to OPEB, the medical bills, if you will?

What was it in 2002?

What will it be in 2003?

In 2002, as I said, it was a very small number.

I don't have the precise number, but it was I'll say in the $25m to $30m range.

And that goes up marginally in '03?

Excuse me.

Excuse me.

I misspoke.

It was more like $50m.

I'm sorry, I was looking at something that was incorrect.

And just to remind you, the expense is much higher than the actual cash payment and the cash payment was in the $50m range.

Right.

It looks like about a $250m delta.

For next year -- I should say this year -- for 2003, that cash payment for retiree benefits should be more in the $80m range.

It'll go up-- it starts to go up pretty quickly as we get more retirees on stream and it will be in the roughly $80m range.

OK.

And in terms of the whole cash flow picture, it looks like you had about a $450m delta between your net income and your cash flow.

And that's excluding your restructuring cash costs.

I would actually use a little bit lower number than that, but when you look at 2003, what kind of delta would you expect?

Something similar in terms of cash flow outperforming net income or is it unlikely that you'll see a repeat performance in terms of your working capital efficiencies?

Well, let me say that we were really pleased with the achievement we had last year.

I think the team did a terrific job and, as a result, there were a number of -- I don't want to call them one-time-- but a number of really extraordinary actions that were taken this year.

I think for us looking at it in 2003 it's unrealistic for us to assume we're going to be able to deliver exactly the same level of one-time improvements in cash flow.

Having said that we're keeping the same focus on and we're going to try to drive to get as close to the same kind of improvements as we got in 2002.

But realistically, I think we're expecting it to be lower.

We will not achieve, in our judgment at this time, that level of improvement in cash flow.

OK.

And one for Mike on the SAVE program.

I think you guys had a target of 18% material cost reduction over three years.

You mentioned steel's going up a bit in '03.

Can you just comment on how you did factually in '02 and how you think you're going to do in '03 and beyond?

Yeah, I would just say we hit our expectations for '02.

It took a little bit of rallying in the fourth quarter, frankly, to get there, but we were able to get that done and the number of SAVE ideas is important, but also the dollar value of those ideas is probably more important.

And then obviously, you don't get to implement all of those ideas.

So what we're seeing is that about half of the suggestions we're seeing come in we're able to implement.

When we look at the dollar value of those that we are able to implement, we are on track to hit the numbers that we gave you guidance on previously.

So is that roughly 6%?

Yeah, actually, I would describe it as in that ballpark.

OK, great.

Thank you.

Your next question comes from Saul Rubin with UBS Warburg.

Good morning.

Good morning.

Good morning.

Sorry, just a couple of quick ones to finish up on the OPEB.

Could you just give that number again?

The liability at the end of '02 was-- did you say $2.3 or $3.3?

What I said was $2.3 and I want to make sure that's right.

I'm looking around just to make sure, but yes, it's $2.3.

At the end of '01--

At the end of '01--

--it was $2.7.

Pardon me?

Was that the amount recognized on your balance sheet?

Yes.

Yes.

OK.

OK.

And then, you said that the payments begin in 2006 and previously you said it would begin at about $410m.

Given the increase in that liability, does that number now go up?

Yes, it does.

If nothing else changed, based on today's assumption, today's agreements, that number in '06 would be higher.

But actually payments have already been taking place in terms of pay-as-you-go.

We're paying the benefits on a pay-as-you-go basis.

The payments that we're talking about in '06 would be the payments to pay off the note with Ford.

Our present estimate of what that would be starting in '06 is about $535m.

OK.

So it has gone up because the amount of the liability has gone up.

OK, fine.

And what is the discount rate you're using now?

Is that also 6-3/4 for the OPEB?

Yes, it is.

OK, fine.

Can I just clarify on your Ford business, sorry, non-Ford business in 2002, the $3.6b, that beat the $3.5b you were targeting?

Are you still sticking to the guidance of $4b this year and $5b the next year?

That would be directionally correct, Saul.

We haven't gone back and, frankly, recalculated the numbers based on current car build projections on each of the platforms that we're on with each of the systems that we have on each of the platforms, but directionally that's correct.

We did beat our numbers in 2002.

We've communicated what's in the backlog that we expect to ship incrementally in 2003.

We haven't gone back and fine-tuned those numbers.

OK.

And you mentioned a win with Hyundai and you're looking to book another billion dollars through the course of this year.

How significant what that Hyundai win?

It was significant for us and, of course, they won't allow us to describe the total dollars.

And also, with each of the customers, as you know, Saul, sometimes we're not even allowed to talk of what systems we were awarded.

So I would just communicate that we were really excited about the win.

I think back a couple of weeks ago we talked about how we were leveraging existing relationships like in Asia where we're having significant growth of our business and then taking that relationship to other parts of the world and this was a real good example of where our team did a great job to do just that.

So it's a significant win.

I would call it a significant number.

OK and just on the Ford side, you're still doing-- the content per vehicle is still very high, $3000 in the U.S., $1200 in Europe.

You're going through this TVM process and we hear that Ford is being very aggressive right now de-contenting, re-sourcing, whatever.

Where do you expect that to trend, that number?

I mean, do you assume that that number, those numbers come down over time?

Well, the base is built on such a large number of parts and systems and vehicles, it's hard to imagine a significant change in that number.

And also, if you consider that we were net positive on Ford wins since our spin, even though this year was a push, that would indicate that we had continued to win business on product that's going to be built in-- even starting in production-- say, three years from now and then take that out for five more years.

So it would look like we wouldn't expect to see a significant change in those numbers for some time in the future.

And literally, this year was a net of like a $20m difference net gain at Ford for 2002.

So it was literally a push.

The TVM process that you ask about, that may, in certain cases, reduce revenue and cost as well.

And so there may be, you know, I would expect to see some progress and some benefit to both companies through the TVM process.

But I don't think you'll see significant changes from those numbers.

OK.

So we can assume $3000 and $1200 for 2003?

Yes.

OK very finally, could you just explain in a little bit more detail -- you did a very good job on working capital.

Could you just explain in a little bit more detail what exactly it was you achieved, you managed to do?

Yeah, I'll elaborate a little bit further.

As we said, that was the area where we achieved our largest cash flow improvement.

We had improvements in each element of working capital.

I'll start with inventory.

I mentioned we improved our turnover by about 10%.

And that really reflected, literally, a day-by-day, week-by-week focus on it throughout all of our plants, trying to share best practices from one plant to the next and it really paid off.

In the areas of receivables and payables, I think receivables just really reflected more focus.

We just spent a lot more time on the collection side of the business to get after our collections and make sure that we had no or very few Past Due's and so it was a lot more involvement by the operating people in just getting collections done.

On the payables side, we did do a number of things to standardize our payment terms and also to go more to industry standards.

We found two things, that we had a variety of terms internally, so we wanted to get that standard among suppliers and then we compared ourselves in a benchmark way to the rest of the industry and found that we were not in line with the industry.

So we moved to industry standards.

So it was a variety of actions across the board that paid off.

OK, great.

Thanks very much.

As a reminder, if you do have a question, please press star, then the number one on your telephone keypad.

Your next question comes from Michael Bruynesteyn with Prudential Securities.

Hi.

It's actually John Tomlinson [ph] in for Mike.

Could you comment on the extent of the collaborative cost reductions that you're experiencing with the OEMs and their impact on your pricing reductions for the year?

And where do you see that, going forward?

OK, I'll take a stab at this.

I'm not quite sure I understand the question but we do have a collaborative effort underway with all of our customers.

Obviously, Ford being the largest and the TVM process at Ford being the most publicized.

It is a very cooperative effort where we identify waste in the system.

And it's not really about de-contenting, even, it's about making sure we're using the most efficient production processes, the right materials, that we're meeting specifications but not necessarily triple exceeding requirements and things like that that together can take cost out.

And the intent here is not to affect margins.

So that's an effort that I think is one of the best in the industry and being led by David Durstfield [ph] and his team and it's having-- I think it has great potential for both companies.

So I don't see that as an impact or part of price.

Then, on the other hand, there's normal pricing negotiations that go on with all customers and I'd say we're operating in line with other people.

We're on time tables that are consistent with the industry, so I'd say we're pretty much in a standard environment on that with everybody else and we wouldn't comment on the status of those negotiations with anybody in any public forum.

OK, so it's safe to conclude that the annual price reductions are in line with what they've been historically?

Is that a safe assumption?

Well, it's an unusual-- You know, we are in an unusual situation where some of our numbers were public historically and, again, frankly I wouldn't want to comment on where we are versus anything historical and I really don't want to discuss it in a public forum.

These are private negotiations between us and each of our customers and they're progressing along just fine.

OK.

Thank you.

One more question.

Can you also comment on the estimated savings for the European Plan for Growth in 2003?

Yeah.

It's-- we had publicly stated that we were going to improve profits by $100m by 2004.

That plan started in 2002 and actually was a little bit ahead of schedule in 2002.

It's not a hockey stick and it's almost-- frankly, it's almost linear with approximately half of that, savings being realized in 2003.

So somewhere in the $50m range is the projection for 2003.

All right.

Thank you very much.

Your next question comes from Wendy Needham with CSFB.

Yeah.

Do you have an estimate for the D&A or depreciation for '03 with the higher capital spending?

Yeah, we do.

I'm just not sure if we have it at our fingertips.

Just to let you know what D&A was for this year, it was, in total, $630m for 2002.

I wouldn't expect it to change dramatically in 2003 because it'll take a while for the spending effect to work its way into the numbers.

So I just don't have it right handy, but it shouldn't change dramatically, Wendy.

OK, then like no more than 10% probably?

I wouldn't even think that much.

OK.

And then, can you just remind us what you are doing for Nissan in '03 and have you given us a dollar value for when it would be fully ramped and I'm assuming that's '04?

Wendy, this is Mike.

We have not given a dollar volume.

Nissan wouldn't, frankly, let us do that.

And, again, Nissan was one of the customers that kind of restricted what we could say, even, about the products and the systems that were on their vehicle.

So we ramp up in 2003.

You start to see sales from us in the second half of the year.

In 2004 we'd be fully ramped up and you could probably get, you know, a range of those numbers just looking at the non-Ford revenue, year-over-year, as we start to report that.

So is this one of the most important programs, non-Ford, coming on this year?

Yes.

OK.

Important in terms of dollar revenue.

As we've said before, every one of these programs, for us, is a major launch because it is an opportunity for the new customers to evaluate our performance.

Right, I guess I should have said largest.

And you haven't said at all what the product categories are, just that's it on the truck?

We'll go back and check that, Wendy.

I don't think we have because I know that Nissan restricted a lot of what we could say.

OK.

Terrific.

Thank you.

Anissa, if we can take two more questions?

Absolutely.

Your next question will come from Brett Hoselton with McDonald Investments.

Good morning.

Good morning.

Good morning.

Dan, could you provide the foreign exchange impact on revenues for the full year 2002?

Yes, I can, Brett.

It's-- just one second, I'm just double-checking here.

I think it's $120m increase, favorable.

In other words, it increased the revenue by that amount.

OK.

And then secondly, as we look out into 2003 and we see the dollar weakening against the Euro, a significant portion of your business, how does that impact your operating income?

Is that going to have a significant impact on your operating income or is there some reason to believe that it will not?

Well, if the Euro were to stay right where it is today, which is, obviously, stronger than it was last year throughout most of the year, that would have a beneficial effect on our operating results.

As I mentioned, last year we had a bad news effect and that was partly driven by the Euro.

This year, if it stayed where it is, it would beneficial.

But it is mitigated to a pretty large degree by the fact that we have hedging.

We have a natural hedge in the way we buy and sell products and, in addition, where we're not fully hedged, like on the Euro, naturally we would go out and buy financial hedges.

So the full effect of it, good or bad news, doesn't flow through to our financial results.

But having said all of that, if it stayed right where it's at right today, we would get some good news in 2003 as a result of the stronger Euro.

And then finally, with regards to the seating -- and I apologize maybe you've given this before -- have you given us the revenues, annualized revenues of the seating business and then also the profitability of the seating business, the impact?

No, actually, we haven't broken it out that fine.

What we-- we did give some ballpark numbers that included a range of products that we were looking to solve and that was in the $2.5b range and seating was a good part of that.

What we did indicate back a couple of weeks ago, we communicated that we had significant losses on the seating business and that those losses in 2002 were significantly greater than 2001.

But that's the extent of the information that we'll provide on that.

Thank you very much, gentlemen.

Your final question comes from Rod Lache with Deutsche Bank.

Good morning, everybody.

Hi, Rod.

I've got a couple questions.

Can you, first of all, give us a feel for the anticipated startup costs for F-150?

Is that expected to be significant?

First of all, we wouldn't break out the startup costs on any program.

We have a lot of content on that so just by the nature of launches and everything that goes in to making sure they go well, there's always a spike in the costs in the factories that are launching.

That's in our forecast and we wouldn't expect anything unusual on that.

Can you give us a feel for overall launch costs 2003 versus 2002, order of magnitude change?

Well, I would expect that we'll incur additional launch costs in total.

But, again, we're forecasting that.

As I mentioned, we're launching roughly twice as many by our definition of ''launch.'' So we have about 400 launches in 2003 versus 200 in 2002 and I think we also indicated in 2002 about 40% of those launches were non-Ford products and so as you get to know new customers and take on new systems with their launches and so on, there may be a slightly higher launch cost.

But all the costs associated with launch are included in the forecasts and they're built up on a plant-by-plant basis based on what's going on at the specific plant for specific launches.

So I'd expect we've got it contained in any numbers that we're forecasting.

But we don't-- as we don't have the forecast, can you give us some kind of order of magnitude some kind of dollar figure for what, you know, launch costs were or typically are, how much they could rise, potentially?

No, I really can't.

What I would just re-emphasize in terms of what we've communicated is that it's in order of double the number of launches.

Right.

But we've communicated our measured objective would be to improve our profitability year-over-year so we're certainly considering that when we've put that objective out there for the world to see.

Right.

And could you tell us roughly what is the sensitivity to the Euro in terms of bottom line impact?

I understand you have this hedging strategy, but eventually these hedges do unwind, don't they?

Oh, sure.

And we can only hedge out for a certain period of time and, yes, they do unwind.

But in terms of sensitivity of the Euro, that is the currency that we have the most exposure in, really, of all of our currencies in terms of net exposure.

Just in terms of ballpark sensitivity, if the Euro changes by 1%, that's worth in ballpark numbers, about $2m to $3m profit effect to us before taxes.

So you can do the math from there.

Great.

And can you lastly, just give us a rough estimate for the size of the non-Ford European business?

Approximately?

I'm not sure we've broken it out, so let me give you a very round estimate on that.

It would be about 1/3 of that business in Europe is non-Ford.

OK.

Great.

Thank you.

End