Visteon Corp (VC) 2004 Q1 法說會逐字稿

Good morning and welcome to the Visteon Corporation conference call.

[Operator Instructions] As a reminder, this conference call is being recorded.

Before we begin this morning's conference call, I would like to remind you the information 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 factors, risks and uncertainties, that could cause our actual results to differ materially from those expressed in these forward-looking statements, including the automotive vehicle production volumes and schedules of our customers, the effect of pensions and other post employee benefit obligations, our ability to recover our remaining net deferred taxes asset, the need to recognize restructuring and other special items, as well as those factors identified in our filings with the S.E.C. including our annual report on form 10K for the year ended December 31, 2003.

We assume no obligation to update these forward-looking statements.

Presentation material for today's call was posted to the company's web site this morning.

Please visit www.Visteon.com/presentations to download the material if you have not already done so.

After the speaker's remarks, there will be a question and answer period. [Operator Instructions]

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

Mr. Fiebig, you may begin.

Thanks, Ashley, and good morning, everyone.

I would like to add my welcome to today's conference call.

Leading today's call will be Pete Pestillo, our Chairman and Chief Executive Officer and Mike Johnston, our President and Chief Operating Officer.

Immediately after our formal comments, the operator will open up the lines and allow Mike and Pete to respond to your questions.

And with that, I'll turn things over, to Pete.

Thanks, Derek and good morning.

I'm very pleased to report the path to profitability that Visteon has been traveling is starting to deliver the intended results.

The first quarter revenue growth of $268 million brought sales for the quarter to $5 billion, a 6% improvement over last year.

Net income was $30 million for earnings of 23 cents a share.

Higher than earlier guidance of 5 to 15 cents a share.

Cash provided by operating activities reached $105 million, a $240 million swing positive from first quarter 2003.

Our performance this quarter sets the tone we expect to carry throughout the year.

We're delivering on our financial commitments.

While serving our customers with speed, focus, and discipline.

Our efforts to diversify our customer base continue to yield results.

Our non-forward sales from the first quarter set a new record, $1.3 billion.

A 36% improvement over first quarter 2003 sales of $983 million.

For the quarter, non-Ford revenue comprised 27% of our total sales.

We're on track to reach our goal of more than $5 billion for full year non-Ford revenue, an increase of approximately a billion dollars over the 2003 level.

Our new business wins are ahead of target quarter and full-year plans.

Our products are helping our customers differentiate their brands cost effectively and quickly.

Visteon First American Interiors are helping to meet a variety of customer expectations from the rugged look in the future Daimler Chrysler product to luxury interior of a future PSA product.

Nissan will soon be delivering [MAAC] voice link in a high volume vehicle.

The Hyundai Akai [ph] will deliver a leading radio platform that will offer the ability to play not only CDs but also other compressed file formats like MP3 and MAAC, a capability developed in about seven months.

We won some very significant business interior from Daimler Chrysler for a future vehicle.

We'll provide an attractive yet rugged interior. [inaudible] industry first bold in color instrument panel with enhancing complimentary door trim panels and console.

For Daimler Chrysler, we will apply our manufacturing expertise to deliver interior components, the same sequence in just in time as our customer builds its vehicle.

For Hyundai we are delivering entertainment package for the midsize vehicle class.

This is a leading radio platform offering the ability to play not only CDs, but also other compressed file formats.

Not only does this system help Hyundai provide leading audio capability for the vehicle segment, it is a platform concept that allows us to offer different features and functions for different customers, in a cost effective manner.

Visteon has recently received many industry and customer awards, I would like to share a few with you.

Toyota Motor Europe manufacturing recently recognized our electronics and interior trim plants in Spain and France with achievement awards for quality delivery.

In the Toyota [Kirisidar] Motor honored Visteon's India [Shenai] plant for the sustained achievement of zero defects.

We're also honored with the automotive news Pace award for product innovation for our long life filtration system.

This innovative first to market product can be found on the Ford Focus.

Looking at 2004, we had several priorities we outlined for you in the last call.

I'm pleased to say we're delivering on our commitments.

We achieved our financial targets and surpassed our own earnings expectations.

Awarding new business with non-Ford customers, especially in cockpits, electronics, employment.

We're delivering ongoing material cost savings and are continuing to deliver manufacturing costs and efficiency improvements.

Before I turn the call over to Mike, let me update you on a couple of our current issues.

One, our CFO search.

I think we all know that in these times that the CFO position has gained increasing importance.

We're proceeding very, very carefully.

We have a high standard set and we've examined dozens of resumes.

We settled on a few finalists and hope to be able to announce a successor to Dan Coulson in the near future, but we're proceeding very, very carefully and are going to have a full examination of the candidates to ensure we have both compatibility and excellence in the candidate.

We're satisfied that we can recruit an absolutely top flight individual and will proceed as quickly as we can.

We're also proceeding with the UAW supplemental agreement.

We're meeting regularly with the UAW to reach a settlement regarding a competitive wage and benefit structure for future Visteon employees, that will serve our business needs.

The issues are complex and while it's taken longer than anticipated to conclude bargaining.

Both parties recognize the importance of the supplemental negotiations.

And both remain fully committed to successful completion.

We believe we'll reach settlement soon.

But our priority interest is to do it right, not fast.

Mike?

Okay thanks, Pete.

I would like to take you through some supporting detail of our financial results before I update you on operational issues.

As Pete mentioned, we had strong sales growth in the first quarter.

Income before taxes totaled $56 million in the first quarter compared with a loss of $19 million in the first quarter of 2003, a $75 million improvement.

Net income was 23 cents per share compared with a net loss of 12 cents per share in the first quarter one year ago.

This is above our previous first quarter guidance.

Primarily due to lower than anticipated OPEB expenses.

The improvement compared with last year reflects the impact of new business, lower special charges, lower OPEB costs and material costs improvements, offset partially by price downs.

Special charges for first quarter 2004 were $7 million after taxes compared with $20 million for the first quarter of '03.

In the first quarter, cash provided by operating activities was positive $105 million.

A substantial improvement from last year's outflow of $135 million for the comparable period.

The improvement reflects higher net income and a continued strong focus on cash throughout the organization.

Especially in trade working capital.

Trade working capital was an outflow of $108 million in the quarter.

Reflecting the normal seasonal effect of higher vehicle production compared with year-end 2003.

However, this was significantly better than last year, primarily because of improved collections in part reflecting improved U.S. payment terms under our recent agreement with Ford.

Capital spending at $198 million was up $17 million from a year ago and as we said previously, we expect capital spending to be up this year because of IT spending and the completion of our southeast Michigan office consolidation in the Visteon Village, which will open in August.

At the quarter, cash and marketable securities totaled $1.2 billion compared with $956 million at year end 2003.

In March, we successfully completed a bond offering issuing $450 million of ten-year notes at a coupon rate of 7%.

This was a spread of 295 basis points over the ten-year treasury bond.

As of March 31, capital total $4.1 billion in our debt-to-capital ratio is 55%.

Now, we did complete our tender offer in early April which reduced debt in cash by about $250 million.

With this action, debt was reduced below $2 billion and debt to capital was reduced to about 52%.

We have over $1.3 billion of commercial credit lines available for use.

Now, here are some of our major launches this year and the major content we have on each vehicle.

Among those new cars are the 2005 Mustang, and the 500 in the Freestyle.

We'll supply cockpit modules and interior door panels for each of these as well as front end cooling modules, front and rear lamps on the 500 and the Freestyle.

For Nissan, we'll be providing cockpit modules including our own HVAC system, for Pathfinder, Frontier and Xterra, which go into production later this year.

We're especially pleased to deliver two first to market products for Daimler Chrysler, the Boston Acoustics audio system and the slip in tube prop shift.

This year's Grand Cherokee marks the third vehicle for Daimler Chrysler to launch with a branded audio system in the first quarter.

And finally, we're pleased with our role in the launch of the Peugeot 407.

This European luxury sedan has high quality expectations in the marketplace and we'll be supplying interior components and climate control.

Asia continues to play a major role in our growth plans.

First quarter revenue was up 20% year over year.

And this is on top of 25% growth in 2003 over 2002.

Key product areas include cockpits, electronics and climate.

Very little of the revenue in the Asia Pacific region is with Ford.

Two new facilities in China further support our expanding business in the region.

Visteon's joint venture with automaker Don Fong [ph] has resulted in the opening of a new manufacturing facility in the economic development zone in the Wuhon [ph] area.

We are going to produce interior and exterior trim for several auto makers.

And in May of 2005, the new Visteon technical center will open in Shanghai.

This technical center will serve as Visteon's engineering hub for the region.

Once open, the center will house about 200 Visteon engineers and support staff along with 400 engineers from Don Fong [ph], Visteon's 50/50 joint venture with SAIC.

The second quarter 2004, we expect total revenue to come in between $4.7 billion and $4.8 billion.

This is up about 3% from second quarter 2003.

We're forecasting second quarter net income in the range of $13 million to $25 million or 10 cents to 20 cents per share.

And this is based on a Ford North American vehicle production of 955,000 units.

I would like to turn now to our 2004 guidance.

We expect revenue to be between $18.6 billion and $18.8 billion in 2004.

This improvement from 2003 reflects primarily new business expected to come into production during the year particularly in the second half and favorable currency changes.

We expect net income to total between $90 million and $140 million for the full year or 70 cents to $1.10 per share.

This reflects the positive impact of new business, lower special charges and the initiatives we've taken to improve our manufacturing and material efficiencies.

Finally, our assumptions continue to include an effective tax rate of 38%.

In summary, we're on track to deliver on our financial commitments for 2004.

The diversification of our customer base continues.

We're seeing growth with global automakers as well as with regional players in developing markets and we're making progress we expected and our actions are showing up on the bottom line.

We have revised our full year guidance upward to reflect the stronger performance we expect to have in 2004.

We had a solid first quarter and we're using this as a foundation to build upon for the rest of the year.

Now, I would like to open the call up to questions.

[Operator Instructions] We'll pause for just a moment to compile the Q&A roster.

Your first question is from Steve Girsky with Morgan Stanley.

Good morning.

Can you guys hear me?

Yes.

Couple of quick questions.

When I look at this warranty number, it looks like you had an extra $9 million.

I don't know if that was catch-up or what that was.

Are we going to see that extra piece all year or is that just this quarter?

That was just an adjustment this quarter, Steve.

We won't -- so, sort of what you see is what you get going forward, right?

Yeah.

We always review any exposure, experience we're having throughout the year.

We would make any adjustments that were appropriate, but at this point in time, that was an adjustment that we felt we needed for the year.

Now, Mike, you also said that the cost saves get better as we move throughout the year, right?

That's correct.

So, the second quarter guidance, even though Ford's volume is down a little bit, it does seem a little -- I don't want to say conservative but it seems conservative.

Well, you know, we gave a range for guidance, as you know, for the year and for each of the quarters.

And at this point, you know, we really expect to maintain those ranges.

We don't expect to sharpen it up a lot in the second quarter, we also have the expense of about $11 million.

It results to the bond issuing and so that's a little bit of a difference in the second quarter from the first quarter.

As well as the reduction in the Ford volumes.

So that bond number is in the guidance.

That's correct.

Okay.

And, this may be minutia but there is this prepaid expense line that seemed to have gone up a lot.

I don't know if you guys, if Derek wants to get back to me on it, but it was up a lot from the quarter, from the year-end.

Is there anything going on in there?

No.

But we'll have Derek get back to you on that.

Okay.

Thanks a lot.

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

Good morning.

Thanks.

Good morning.

Can you guys just go through where is the $100 million payment to Ford you said you made on the cash flow statement?

Right.

If you look at the working capital, we had an infusion of cash that came in because of the payment term changes based on the Ford agreement.

And we had previously communicated that number was about $200 million.

And immediately offsetting that was $100 million going back to Ford which was part of the $150 million pricing agreement to settle 2003.

So, from a cash outflow standpoint, we did $50 million in '03 and $100 million in the first quarter of '04.

Okay, I have a $200 million benefit that all came in the first quarter?

That's correct.

And then in terms of just the price reductions, not asking for the number, but in this quarter, did you accrue price reductions to Ford at the agreed level?

Yes.

The pricing arrangement with Ford would be effective January 1 of each year.

So, those prices went into effect at that point in time.

Okay.

And then just finally, on currency, I don't know if you went through this, but can you give us an idea of currency impact on the bottom line?

Yeah, we can do that.

In the first quarter, bottom line impact was just about $10 million.

On the net line.

On the net line.

Okay.

And for the year, did you guys -- you said you revised up your currency expectations?

No.

We expect the impact from currency for the year to be about $30 million.

Okay.

Thanks a lot.

Your next question is from Chris Veroso [ph] with Credit Suisse First Boston.

Thanks.

Good morning.

Quick follow-up on that.

Maybe I missed this.

What exchange rate is that $30 million, Mike?

What Euro or Peso, or what are you assuming there?

Okay, we're using 1.26 in the first quarter.

And slightly down from that for the balance of the year.

Somewhere around 1.2.

Okay.

Is the change in your guidance for the year mostly on -- maybe you could talk about -- you had a comment in the release that some of the upside in the first quarter owed to lower OPEB cost.

Is that the Medicare part D and is that what's driving the increase to your full-year guidance?

It is more than the Medicare part D. There is also a reduction when we get into the details on the OPEB expense that we expect to incur so there was a combined benefit of somewhere around $15 million for those two items.

And what we did for the full year guidance was to roll through the benefit that we experienced in the first quarter.

So, basically, we performed at the very high end of the guidance range we gave.

We had a little favorable news in the OPEB and Medicare area.

And we're letting that flow through for the year.

Now, we maintained a fairly wide range for the second quarter and also for the balance of the year.

Because that's what we're comfortable with.

But we wanted to communicate that we were not seeing any reason not to flow the gain in the first quarter over the guidance that we had given for the balance of the year.

So, we took up the full year.

Okay, last question on the tax rate.

It is high relative to your peers, I understand you had evaluation allowance.

How long before maybe you can start releasing that or said another way, when would you expect your tax rate to start to come down to something in the low 30% range?

You do have a fair amount of business in low tax regions in Asia, et cetera.

Yeah, I think, Chris, we're probably looking out a couple of years before that comes down into that range.

We review that obviously on a quarterly basis and it will move a little bit based on profitability in different parts of the world, but the answer to your question is a couple of years from now we would expect it to be down in that range.

Okay.

Thanks, Mike.

Your next question is from Gary Lapidus with Goldman Sachs.

Good morning.

Good morning, Gary.

Following up on the OPEB, if the -- if the full year effect is about 29 cents, is it fair to just characterize this as the old guidance was 50 cents to $1.

Add the OPEB, that's 79 cents to $1.29.

You're just sort of narrowing and tightening and maybe pushing the original expectation down a little bit.

Again, assuming all else equal just adding the 29 cents.

And given that you did perform so well, to your point, Mike, you hit the 15 cents because 15 plus 8 is your 23, which I guess is what you reported.

So you hit the top end of your Q1 guidance although you appear to be tugging down the full year.

Is there anything that you're seeing out there that makes you a little less comfortable?

Not, excluding the OPEB benefit?

No.

There's nothing out there that makes us less comfortable.

I think there is the normal ups and downs we always see in the industry and you know, I would say we had a good first quarter relative to our expectations and at this point, we're comfortable keeping the range of guidance out there that we've given.

And you know, it is early in the year.

We'll take a look at it at the end of the second quarter.

Okay.

There is a lot of concern out there about Nissan's Canton facility and I know you guys have a lot of business there.

If some of those vehicles start falling short, is that something we ought to be focused on or is it too small to really matter in the overall scheme?

Well, it is not that it's too small but again, we've given an estimate on our full year non-Ford revenue and we've said it would be above $5 billion.

And so we're comfortable with that -- with that information that we put out there and I think if there's some falloff, then at Canton, we're already -- we've already got that covered when we say we'll be above $5 billion.

I wouldn't expect we would fall below that number.

Would you care to share what sort of unit volume you expect out of Canton?

No.

We would rely on the customer to give us that.

Yeah, oh, okay.

Thanks.

Your next question comes from Michael Bruynesteyn with Prudential Securities.

Hi, guys.

Good quarter.

Thank you.

Could you clarify -- I guess on the cash generation side was good.

But it looks like you're still using debt.

At what point are you going to be cash-flow positive here or am I reading that correctly?

No, you're okay on the read.

We said that we would be positive cash flow this year from operations.

So, early in the year, we've got some expenses related to IT and the Village consolidation that are a little bit unusual, and then that tapers off as we go into the year.

We're maintaining at this point that we'll be cash flow positive for the year.

Okay.

And then could you quantify these new business wins your announcing and indicate when they are going to hit -- when ther're going to impact revenue?

Well, first of all, most of the impact on revenue on new business wins is typically three years out.

So, we would expect that to start in 2007.

What we've communicated last year was that we weren't going to report a net new business win number because you know, people want to make it linear and it's not and so what we wanted to communicate this morning, with Pete's comments, is that we've targeted these new business wins, knowing when they are, at least thinking when they are going to be awarded by the customer.

And based on the numbers we set out for our customer units this year, in the first quarter, we're running both ahead of what we had targeted and that number is running ahead of last year and I'll just tell you that the total targeted number for the year is also ahead of last year.

So, we feel comfortable telling you that we're running ahead of our own targets and we're running ahead of last year.

But we don't want to quantify it beyond that.

Okay, great.

Then finally, in the past, Visteon struggled a bit when Ford North American production is significantly off in that particular quarter.

Looking at the second quarter down 5%, how should we think about that?

Well, you know, we've lowered the production expectation for the second quarter from the first so we're down about 50,000 units, but we also have that ramp up of non-Ford revenue that is significant this year in a way that is -- on a much greater scale than any prior years.

So, I think the actions we took over the last few years have positioned us to better withstand fluctuations in the Ford volume.

So, again, we're comfortable with the guidance that we have out there.

All right.

Thank you.

Your next question is from Darren Kimball with Lehman Brothers.

Hi, how you doing?

Good.

First on the affiliated net income, can you talk about why it was down year over year?

First of all, on the affiliates, it is really not down very much.

I mean we're -- it is almost a rounding error.

And if you -- I mean would just categorize it that way.

It is not down in any significant way whatsoever.

I'm looking at note two.

It shows -- again, this is 100% of it but it shows it down about 30% year over year.

I guess Lextron is now consolidated so it is not in there, but I don't know if anything in terms of your new business is in there or what exactly that is.

I would think your Asia JVs if they're in there would be strong.

The Asian JVs are very strong.

So, that's up significantly.

If you look at equity and net income of affiliates, it is down about $4 million, year over year.

Okay.

Let me move on to something else.

Could you maybe talk to the pieces of the increase in the guidance.

You didn't comment on Gary's number but I mean, was 29 cents right as far as how you guys are looking at the incremental change in OPEB expense now versus what you thought it was going to be?

There were some other adjustments in there as well.

There were some calculation adjustments beyond just what we said.

But there is a benefit for -- from OPEB and Medicare that flows through this year.

And that was a little bit better than what we had expected.

What we decided to do was allow the first quarter actual results to flow through and increase our guidance based on that.

Because we have a wide range out there in the guidance that we've given, and I would say because we're one quarter into a year of beating our number and achieving the results we wanted.

We elected to just -- to close the gap on our guidance and allow the improvement in the first quarter to flow through.

But we didn't yet feel comfortable that we should do a multiple of four times the first quarter benefits and just add it on.

We know there's some things that will happen that will go the other way during the year.

We don't know what they are, but there are always some usual unusual events that occur and so at this point in time, we feel comfortable leaving the guidance where it is.

Okay.

Thanks.

Your next question comes from Brett Hoselton [ph] with Key Bank Capital Markets.

Good morning, gentlemen.

Good morning.

The European plan for growth, I think you said you were going wrap that up by the end of the first quarter here.

Is that completed?

Then secondly, I think you also said, previously, we were going to see the full impact of that in the first quarter or should we expect that to continue to improve going for the remainder of the year?

We had said we'll see the full impact of that in the year, '04.

Not in the first quarter.

And what we found is that we're able to continue to make additional improvements on that plan.

And as we kind of noted in the -- in what we put out there, there were additional charges that we took in the first quarter of '04 that weren't within the guidance we had given.

And those were predominantly related to additional actions being taken in Europe.

So, as you would expect, when you roll out a major plan like this, which was very significant for us in Europe, and does have $100 million benefit, is the folks got into that, they saw opportunities to improve on that that required some additional small restructuring.

So, what I would -- I guess how I would sum it up is that the original European plan for growth as communicated is complete in terms of its design and execution, some of the cash flow going out related to that plan still occurs in '04.

But on top of that plan, I don't want to call it like European plan for growth two, but I would say there are the normal restructuring activities that I would expect us to incur as part of our regular operating -- running the business, that are occurring in Europe.

They are going to have the same kind of payback that the original European plan for growth have.

Those things tend to be a real fast payback.

And we said that that expected to incur maybe -- around $50 million of these type of events and activities included in our guidance in the year 2004.

So, I think you'll see continued activity in this area, but it won't be an unusual event.

It will just be the normal running of the business.

So, as I think about the $25 million kind of quarterly after tax savings and it is after taxes if I understand this correct, should I think about that full $25 million benefitting your first quarter or is it a portion of that and we should see an incremental benefit moving into the second quarter, plus these additional actions?

No.

It will be an incremental and it will continue to grow throughout the year.

As far as your attrition rate assumptions, flow back assumptions and so forth versus what you've seen through the first quarter, would you say that you're ahead of pace, behind pace, what are your thoughts there?

Well, on our -- let's say our attrition rates are running about the same as what we've seen in the past.

Our UAW attrition was somewhere around 200 people in the first quarter of '04.

That would be at the run rate that we've seen historically so I think that's continuing.

We had no flow back of people as we had discussed in the first quarter.

We indicated that we would expect to see some flow back, but from our planning purposes, we put it out late in the year of '04.

Then finally, just on commodity costs, any thoughts on the impact of commodity costs in the quarter and then going forward?

Yeah, in the quarter, the commodity costs were very negligible.

It was a push.

We had some benefit on some of the actions we had taken previously and the energy area, obviously everybody's negotiating on surcharges and I'll just tell you in the first quarter, the impact of that was nothing.

And then going forward, I would just comment that we have that -- we feel we have any exposure there covered in the guidance that we've given.

Okay.

Excellent.

Thank you very much, Mike.

Great quarter, guys.

Thank you.

Your next question is fro Dominick Motolatte [ph] with Bear Stearns.

Good morning.

Good morning.

I just want to follow up on the whole guidance issue.

Many of us are a little confused there.

You guys have come out with an estimate on Ford North America production.

You gave a range of where you expect non-Ford business.

So, help us understand what the key variables are in the range because I feel you also have a grasp on your health care.

Are you basically planning for the unforeseen contingency for the balance of the year or I mean what are the key variables that allow you to have that type of range on the guidance?

Dominick, let me just back up a little bit.

You know, this is the first year we've given guidance for more than a year.

And we want to be out there with some numbers that we feel comfortable that we can hit.

We also feel that frankly, we need a wider range out there.

We expect to tighten it up as we go forward in the year and in future years as well.

But after one quarter's experience, you know, we don't feel it is prudent to start tightening up a lot right now.

We'll see what happens in the second quarter.

There are some things that occur as you kind of walk throughout the year.

We do have Ford volume going down.

We do have continued savings from SG&A, things we communicated in the past.

The continued savings on the European plan for growth.

We communicated earlier that we believe that we will be able to have our costs down and material efficiencies be greater than our price downs.

We do see that, you know, as I mentioned, our price downs in our Ford agreement took effect January 1 and so those are in our numbers.

Our cost saves occur throughout the year and often are retroactive back to the first of the year, so that's something else that we factor in as we look at it.

We also see increased revenues coming throughout the year.

Our launches in '04 are heavily weighted in the first and third quarters.

So, as you get into the second half, we have an increase in revenue there.

So, as you start to try to bridge from our first quarter and our first quarter plus guidance, you would have to consider those things looking out into the second half of the year.

And then also you know, we do have the unusual event of the cost related to the bond issue, that occurred in the first half that wouldn't be in the second half.

So, those would be the kinds of things that we look at as we put our guidance together for the balance of the year.

So, is it safe to say that, I guess, some of the variables that are probably the widest in that group would be the launch program the second half, not quite knowing how those will go and also perhaps the ability to deliver on cost savings?

You know, but again, I think at the start of the year, we indicated that we were significantly ahead from a timing standpoint in terms of having the cost saves identified in the actions already started to be implemented.

So, we feel more confident about our cost down projections this year than we have in the past and frankly, that's why we felt comfortable giving guidance this year where we didn't feel comfortable doing that in the past.

Ok.

Thank you.

Your next question is from Rod Lache with Deutsche Banc.

Good morning, everybody.

Good morning.

I guess a couple of things.

I'm still just a bit puzzled by the improvement second half versus first half.

Can you maybe just broadly say whether you're thinking revenue for the company in the second half would actually be higher than the first half?

I mean usually your are seasonably weaker, right, with the production, but because of these launches you're expecting, are you thinking that you guys would not have the normal seasonality from a topline perspective?

Well, we will still have seasonality because still heavy dependence on Ford.

So, when you look at the Ford production and you just add the numbers we gave, on average, Ford will be down somewhere from to about 870,000 units or so per quarter in the second half using our numbers, not their numbers.

So, we do get that seasonality, but we do have significant ramp up of new business.

And I think we've indicated we have somewhere north of 500 launches this year.

And a lot of those are in the third quarter.

So, as I mention, what we've been able to do is to certainly mitigate some of the dependence on one customer by having the significant non-Ford revenue ramp up throughout the year and again, particularly in the third quarter.

So, that helps us offset quite a bit, the decline in the Ford revenue.

Offsets part of it, but not all?

That's right.

On the top line.

Right.

Then, see, you guys are also anticipating acceleration of cost savings I would imagine in the second half versus the first half.

Can you speak to what you're thinking on that front?

And are there any assumptions for flow backs in the second half?

Is that part of the improvement?

Yeah, there is -- there are some assumptions for flow backs, as I mentioned, and they're late in the year so more in the fourth quarter than frankly anywhere else.

As we've also stated in the past, Rod, we have our negotiations with our own supply base occur, not all effective in December or in January.

As we negotiate throughout the year, we reach agreement.

A lot of those are retroactive to the first of the year.

We get a cost benefit that ramps up throughout the year, where our own price downs are pretty much fixed at the beginning of the year and already in place.

So, we do get a -- an increasing benefit from our cost downs as the year progresses.

Ok.

Can you put parameters around the flow backs or no?

No.

We wouldn't do that at this point.

We mentioned we've surveyed all our people so we know how many people are looking to flow back.

We have the supply and Ford has the demand and that's the gate.

Lastly, the Medicare D and other OPEB improvement versus your prior expectation of $15 million that you talked about.

That's a pretax number, correct?

That was pretax.

Is there a tax effect on this or is there some kind of -- is it the corporate tax rate that you would apply on this or is this not a taxable benefit?

At this point, the tax rate on that is pretty small.

This is basically close to the net benefit, too?

Yeah, it is.

Because some of that benefit goes to Ford on the OPEB side of it and we're talking about something under a million bucks for the quarter.

Ok.

All right.

And the amortization of the gain on the transfer of the health care liability to Ford, that has not changed, right?

That was set at the end of last year.

This is the only change on the OPEB expense, correct?

Um, no.

There's actually a little bit of a change up, but it is not significant.

Okay.

We were previously looking for a 37 cent per year benefit from the amortization.

Can you quantify what the new expectation is on a pretax or on an earnings benefit level?

Yeah.

It is going to be about $20 million PBT.

Maybe a little bit greater than that.

$20 million PBT in the year with a corporate tax rate, effect on that, right?

That is correct.

Okay.

Great.

Thank you.

Your next question is from John Murphy with Merrill Lynch.

Good morning.

You've answered most of my questions.

But, I just have two quick ones.

Can you just remind me or state what you're using in cash for your restructuring this year and then the second question is if you can speak just to the IT, implementation and ramp up, so far this year, where it is going.

Okay Let me start with the second question.

The cloning of the IT project from Ford is right now, literally right at the very end of the second wave of cloning.

So, this is all the operating systems.

And we expect that to be cut over at the end of this month.

So, the finance systems were cut over, I think, September beginning of October last year.

The operating systems get cut over this month and then the -- I would say the support systems, things like HR and so on, that happens in the middle of the summer.

So, all of that is occurring actually on schedule.

On budget and we're just real pleased.

That's gone well so far.

As far as the cash impact of the restructuring, it was about just under $70 million for the quarter.

Right around $67 million in the first quarter.

And it will be about $128 [million] for the fiscal year.

And that's pretax.

Thanks.

Your next question is from Kirk Ludky with J.P. Morgan.

Morgan.

Good morning.

Good morning.

Couple of questions.

One is does the delay in the UAW agreement have any impact on the guidance?

No.

Not at all.

It will all be positive when it comes, but we've not booked any of it at this point.

Okay.

Again, it also flows from the businesses as we go forward so these are reduced labor rates that are achieved over time.

Okay.

And just to summarize the conversation on OPEB, you're expecting OPEB expense in 2004 to be $50 million less than what you expected earlier?

In round numbers.

That's about correct.

Okay.

And does the cash funding change as well?

No.

Not at all.

Okay.

So that would stay where it was previously?

That's correct.

Yeah, they're not connected.

Okay.

And does your expectation on pension expense change with any of this?

No.

There's no change in expectations on pension.

Okay.

I know that you're not going to update your net new business, but did you -- could you give us a little color about new business wins in the quarter?

I think we pretty much have done that in showing earlier charts. [inaudible] business Chrysler and PSA.

Those were all in the quarter.

Yeah.

Ok.

Great.

Thanks.

And second quarter charges, you know, I guess you're talking about 50 for the year.

Do you have a sense for what you're going to take in the second quarter?

I would just say they're spread out pretty much evenly throughout the year.

And they're being put in place as the operating people see the opportunity in analyzing and planning for it.

It is not like it is going to be the balance of it comes in one month.

It is really part of the normal way of running our business.

We expect it to be spread out throughout this year and going forward, also.

Then lastly, this Ford 500 Freestyle is a big launch for you.

Do you have any color as to timing and volumes?

Are they stable?

Well, the -- again, we would let our customer give the volumes.

The Ford Freestyle is actually a July launch.

So, that's one that I mentioned most of our launches, non-Ford come in the third quarter.

The Ford 500 and Freestyle come in July and the Mustang comes in September.

Are they tracking timing-wise?

Yeah.

At this point.

Great.

Thank you very much.

[Operator Instructions]

Our next question is from Lauren Holland with Lehman Brothers.

Hi.

I just had a question around your working capital.

Just wanted to kind of understand, get some color on how you're managing that and how you were able to do so much better on working capital this year, and then in line with that, does that include any use under your AR securitizations programs for the quarter.

Ok.

There is no use on the securitization in the quarter at all.

Okay.

And the bulk -- don't forget, the bulk of the gain comes from the fact that Ford also, in their agreement with us, provided about $200 million of cash flow in and then we turned around paid $100 million back to them for the 2003 pricing, so that was an unusual event that occurred.

But if you get into the numbers behind that, you'll see that things like inventory turns continue to improve year over year.

They have each year of our independence.

I think there is a pretty good focus on -- in the plants and throughout the organization on working capital improvement.

But the big single item would have been the change in the Ford agreement and the net change of $100 million with them.

And then the continued focus on the normal day to day working capital improvement.

Right.

That $200 million that's a result of the accelerated payment program that you have with them, right?

That's correct.

I think you said before that you expect that to improve your AR days by total [of 10 ] for the end of the year [inaudible] end of the year?

Well, it may be ten with them.

But we also -- net benefit reverts back to Ford over time.

That was a one-time event that occurred knowing that we were going to be paying them back cash and really it reflects the cooperative agreement we have with Ford and they helped us out early and then as you get out a couple of years, it reverts back to a more normal set of terms.

And the benefit, in fact, was about ten days.

Okay.

Thank you.

Your next question is from Mike Kinder with Citigroup.

I was wondering about you had talked about the target completion dates for the IT migration and I was wondering if you could tell us, just roughly, how much from a cost standpoint, how much of that flowed through first quarter versus what your expectation is for the year.

Just trying to get a sense for how front-ended that is.

Yeah, for the first quarter, we were up about $30 million in IT.

And as you get out into the -- toward the end of the year, we would expect that -- that number obviously comes down.

There was a ramp up that started in the second half of '03 and it kind of continues at a level through the first half of '04 and then, for example, as this operations clone completes, then that starts to walk down a little bit and then as you get through the -- what we call our cluster three, then it drops back to levels that would be more in line of what we would expect and in fact, a little less than what we had been experiencing before we started the whole process of cloning and moving off the system.

So, in the second half, is it fair to assume that it actually should be a benefit year over year of $10 million to $20 million a quarter?

Is that reasonable?

Yeah, that's correct.

Okay, and on steel you said -- steel and other raw materials, said minimal impact in first quarters.

Is it reasonable to assume minimal impact, impact on second quarter?

Well, the steel negotiations are ongoing as you would imagine.

We probably have 20, 25 suppliers that are either direct steel suppliers or suppliers of components with high steel content.

And you know, it runs the gamut from where we've done things like get injunctions against people to make sure they honor their agreement to having some really, I would say, collaborative planning on how to deal with the issue the industry has.

At the same time, we discuss with our customers what we might do together to mitigate all of these.

So, going forward, it is more in a state of flux.

And I would say it is kind of part of the usual unusual events that occur.

The first quarter as I said was negligible and what we would expect to see for the balance of the year, as I mentioned, is covered in the guidance that we've given.

Thank you.

Your next question is from Fritz Von Karb [ph] with Sage Asset Management.

It's been answered.

Thank you.

Next question is from Phillip [Acinapuro] with Scottsco Capital.

Schaefer [ph], I'm not sure I understand the accounts receivable Ford and affiliates on your balance sheet.

During the quarter went up by about 25% or $301 million.

Could you talk about that?

In general, the seasonality of the ramp up of production, the first quarter production in the industry is always strong and so it is really driven by volume and in fact, March volume is strong within the quarter.

So, I would say it is a normal seasonality that we always see.

Nothing unusual.

The terms under which you pay for it have not changed.

That's correct.

Thank you.

Your next question is from Chris Veroso with Credit Suisse First Boston.

Hey, thanks.

I was hoping to get a quick follow-up in here.

Pete, one of the comments you made in your earlier remarks, seemed to maybe imply that it is going to take a little bit longer or going to be a little bit more complicated to get the two tier wage structure in place and earlier comments seemed to make that deal sound like it was almost a foregone conclusion.

Is that at risk at all or should we still be expecting that at some point, you'll have some kind of a two-tier wage structure in place?

I'm confident there will be a two-tier wage structure in place.

There is complexity.

Again, the Union has been attempting to coordinate a Delphi agreement with the Visteon agreement.

So, they've probably introduced more of the complexity than we have.

But from what I've seen as it's gone forward, it is not materially different from any other negotiations.

Ok, great.

Thanks, Pete.

Sure.

Your next question is from Darren Kimball with Lehman Brothers.

Hi.

I ran out of good questions.

I'm going to ask this one.

And you guys have this coming to you because you were so specific in your filing.

I mean you have $6 million separation cost for 50 people and then $5 million for 220 people.

One set of people is a cost of $120 a head.

The other is $22,000 a head.

Why is it so expensive to get out those 50 people?

Not a bad question, Darren.

It varies by country and when we talk about our separation cost, it is global.

So, in some parts of the world, it is more expensive than others.

In some cases, it is -- you know, maybe short time salary people.

And that would be a different settlement than if it were a long-term employee.

I think the fact that the numbers are -- at this point, are smaller like the European plan for growth was about 1,300 people.

But that occurred in prior periods.

So, now you're in the smaller numbers and you may see fluctuation even going forward depending on the category of folks that are separating.

Or social policies of the countries, which are sometimes subsidizing.

Okay, thanks.

Your next question is from Gary Lapidus with Goldman Sachs.

Hi.

I'll ask an even worse one than Darren.

The -- just as a follow-up, a couple of years ago, I guess you guys were trying to sell glass but one of the issues was I guess the labor and it wasn't profitable and now it seems to be doing quite well, thank you.

In fact, you know, more profitable than automotive. 6.5% EBIT margin in the quarter.

I mean, is this going to make it possible to start looking at divesting this operation again?

Well, Gary, the first thing was to get it on its feet.

We did that with the cooperation of the UAW so we still have some problems with glass.

But they're manageable.

There is some new technology coming in glass.

We've really not had much.

So, there is always an opportunity at least for a technological partner if not for a divestiture.

We have to keep our eye on it.

It is not hemorrhaging and is not a problem for us.

It looks pretty good.

Just one other follow-up from earlier.

To the extent that your understanding or expectation of how the Ford agreement was going to affect your OPEB expense, I mean it is pretty clear that it's changed from what you originally thought versus what you think today.

I mean there is also the Medicare D thing, but let's put that aside.

What has changed to cause -- there was it just a mechanical calculation issue or is there something about the agreement that's changed which changes the timing of some payments or but what is it that's caused your expectation of how that affects the FAS 106 expense to come down?

First of all, there's been no change in the agreement with Ford at all.

And really, it just came in around we did an estimate at the beginning of -- at the end of last year and you know, we did our best ballparking and estimating and came up with a number and when we get into the final calculations and we ran the actuarials, that's really what drove the change.

Just accounting actuarial stuff.

At the time of the agreement.

It shifted us to a more conventional funding format.

Yeah.

But that hasn't changed.

You knew that.

Nothing sort of -- nothing that's changed in the agreement the way you execute it.

The cash flows, it is just what you're calculating on a FAS 106 basis that's changed.

That's correct.

Ok.

Thank you.

Your last question is from Michael Bruynesteyn with Prudential Securities.

Another detailed question.

Can you give the R&D spend in the quarter please?

Ok.

Hold on.

We can.

It is a matter of if we can do it today.

By the end of the second quarter, we'll have the first quarter answer.

We've got it.

No.

Are you looking for the R&D spend or the product development spend?

I was looking specifically for the R&D spend.

I'll get it to you, Mike.

All right, thanks.

Okay, bye.

Okay.

That concludes our call.

If you have any follow-ups, you can get Chris Collins or myself on-line and thanks for participating.

Have a good day.