Visteon Corp (VC) 2006 Q1 法說會逐字稿

Good morning, welcome to Visteon's first quarter 2006 conference call. [OPERATOR INSTRUCTIONS] Before we begin this morning's conference call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995.

Forward-looking statements are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties thad could cause our actual results to differ materially from those expressed in these statements.

Please refer to the slide entitled "Forward-Looking Statements" for further information.

The presentation material for today's call was posted to the Company's Website this morning.

Please visit www.visteon.com/earnings to download the material if you have not already done so. [OPERATOR INSTRUCTIONS] I would now like to introduce your host for today's conference call, Mr. Derek Fiebig, Director of Investor Relations for Visteon Corporation.

Mr. Fiebig, you may begin.

Thanks and good morning, everyone.

Joining me on today's call are Mike Johnston, our Chairman and Chief Executive Officer, Donald Stebbins, our President and Chief Operating Officer, as well as James Palmer, our Chief Financial Officer.

After the call is done, we will open it up for Q&A.

And with that, I will kick things over to Mike.

Thanks, Derek and good morning, everyone.

A lot has transpired since is our first quarter call last year.

When we look back, we have accomplished quite a bit and we have a team that's making significant progress in improving the business.

We have greater control over our own destiny.

And although there remain numerous challenges in our path, we are making progress.

This first slide we have used in the past and you will likely continue to see it from us in our presentations.

We are shaping our future and have substantial improvement from the fourth quarter, which we indicated would be the case in our last call.

Our operations are improving and will continue to improve as we implement our plan.

We know in the end we need to continue to create value for our investors, customers and employees and all of our stakeholders.

And this is the first quarter of 12 that we're pleased with our progress.

Turning it to the first quarter highlights.

We significantly improved or financial performance when compared to the first quarter of last year and more importantly, when compared with the fourth quarter of last year.

Jim and Don will take you through more of the specifics.

We completed the closure of two facilities during the quarter.

We exited an unprofitable joint venture and are progressing our plans for additional facility actions.

We reached agreement on the German tariff agreements in January, which we expect to provide $20 million of annual savings.

We had solid new business wins in the quarter, highlighted by a significant 2009 model year light-truck program with Daimler Chrysler.

On the financing side, we closed our 18 month $350 million term loan in January.

This loan was significantly oversubscribed and we increased it from 300 million.

This weekend, General Motors named us as "Supplier of the Year" for our world-class climate, parts and services.

And we win an award from Toyota for the performance in our operations in India for 20 straight months of 0 PPM.

Based on improvements we have made and will continue to make, we're increasing our EBIT-R guidance for the full year, which I will cover in a moment.

For the first quarter, we reported net income of $3 million or $0.02 per share, even with significant taxes in the quarter.

Net income improved $166 million or $1.32 per share year-over-year.

Our EBIT-R for the quarter was 72 million, which is 177 million higher than the quarter of last year and about $200 million higher than the fourth quarter.

Free cash flow was a use of $117 million.

This performance was below the first quarter of 2005 but that quarter benefited from the Ford funding agreement and was better than the fourth quarter of 2005.

So as can you see, our financial results for the quarter provided both sequential and year-over-year improvement and we remain on track to deliver our commitments in our three-year plan.

On the next slide, as I said earlier, we have one quarter down in our three year plan.

We're looking at every opportunity to accelerate that plan.

As we presented in our release, we are raising our guidance for the full year EBIT-R from the range of $45 to $75 million to our new range of $120 million to $150 million.

And we are reaffirming our free cash flow guidance of $50 million for the full year.

We expect continued improvement in 2007 and beyond.

We have made solid progress.

We're pleased with the improvement in the first quarter.

There remains a large task ahead of us as we work to turn Visteon into the Company that it can be.

But we do have the team that is up to the task.

Now, I will turn the call over to Don who will update you on the operations.

Thanks, Mike and good morning.

As we mentioned on our last call, numerous actions have already been implemented and continue to be implemented since we completed the ACH transaction in October of last year.

In the fourth quarter of last year, we reduced head count by over 1,000 employees in the United States, Europe and Mexico.

We exited loss-making joint venture in Europe and we announced changes to our U.S. salary benefits, making us more competitive in the industry.

Additionally, we engaged some institutions to assist in the disposal of several non-strategic assets.

During the first quarter, two large plants transferred to Ford Motor Company, resulting in about 900 Visteon employees becoming Ford employees.

That's about 100 employees above our previous expectation.

We also reached agreement with our German labor unions to reduce both salary and hourly labor costs, effective January 1.

Also in January, we ceased production at two facilities.

And as part of our agreement with Ford in Europe, we transferred almost 200 employees to Ford, which, again is ahead of our expectation.

On slide seven.

Last month we announced that we would close a climate facility in Mexico and consolidate that production into another Visteon facility.

We have kicked off discussions with our labor partners in the United Kingdom to address the competitiveness and viability of our operations there.

We have also initiated discussion to address underperforming facilities in France and Italy.

And yesterday, we closed on our acquisition of a lighting facility in Mexico that will improve our presence in lighting here in North America.

The acquisition expands our technology in lighting, diversifies our sales base and gives us additional manufacturing capabilities in Mexico.

The terms of the transaction are not disclosed.

But it was a very minimal investment and should result in a small second quarter gain.

So we look at the next slide.

Of the 11 restructuring targeted for completion in 2006, seven have been completed or announced and the remaining four actions are asset sales.

Three of these assets are being marketed by Deutsche Banc, while the remaining asset is one that we are selling.

We're on plan to complete all of these in 2006.

Operationally, we have shifted our focus to pulling ahead the restructuring actions of 2007 and 2008.

On slide nine.

We continue to focus on increasing our competitive engineering and manufacturing footprint, as we work to reduce our cost structure while increasing our focus on servicing our customers.

I remain confident that we'll achieve those goals.

On slide 10, as Jim will describe in further detail, there were a number of drivers in our year-over-year profit improvement.

First, the 23 facilities and the 18,000 master agreement UAW employees are no longer included in our results, which has led to overall labor costs.

And in addition to the ACH transaction, we have also taken steps to reduce our labor and salary costs.

Depreciation and amortization are lower, reflecting the ACH transaction and asset impairments taken in 2005.

Our OPEB and pension expenses have been reduced through our actions to change our plans.

Also, during the quarter, we benefited from both material and manufacturing efficiencies, as well as tighter controls on our spending for both SG&A and engineering.

Our team is focused on improving the operations and all levels of our organization are more engaged than ever.

Performance has improved.

But as Mike said, we're still not where we need to be and there is much work to be done in order to become the lean successful supplier that we all envision.

As we move forward, we expect to recognize incremental improvements in 2006 from our actions in Europe, reduced employee benefits in the United States and through the restructuring and other efficiencies.

With the completion of the ACH transaction, we have a very competitive global manufacturing and engineering footprint that will continue to improve through the implementation of our three-year plan, which focuses on improving all areas of our operations.

We are using simple messages to make it clear to the members of the Visteon team that everyone needs to own their part of the business and its results.

We have had substantial quality and safety improvements this year, as our PPM's in the first quarter have been reduced by more than 60% from our full-year 2005.

We continue to focus cash flow and capital allocation.

CapEx likely came in lower than many of you expected.

And while it's not appropriate to simply multiply the first quarter by 4 due to seasonality, it's certainly appropriate to assume that we will continue our focus on generating free cash flow from all of our operations.

I will now turn the call over to Jim who will present the financials.

Thanks, Don.

Good morning, ladies and gentlemen.

Product sales totaled 2.8 billion for the first quarter, a year-over-year decrease of 2.2 billion.

The decrease is explained by the elimination of about $2.2 billion of sales attributable to the ACH plants, for which about in round numbers, 2 billion were Ford sales and a little more than 200 million were non-ford sales.

Excluding the ACH plant sales, non-Ford sales were essentially flat year-over-year.

However, incremental new business wins were offset by negative currency of about $71 million, lower production on some key Nissan products in North America and about $25 million of sales formerly to Collins and Aikman in Europe that became Ford sales after CNA filed for bankruptcy in the second quarter of last year.

Although not shown, sales were up sequentially from the fourth quarter by about 115 million, as non-Ford sales rose 45 million and Ford sales rose 70 million.

The increases are largely attributable to normal OEA production trends.

Turning to the next slide.

First quarter 2006 gross margins were 8.6%, an improvement of about 600 basis points from the fourth quarter.

As we mentioned on our fourth quarter call, there were a number of items that depressed results in the quarter by about 130 basis points.

We stated that we did not expect them to recur in the first quarter and they did not.

The first quarter did benefit by about 150 basis points from commercial negotiations and OPEB relief from workers returning to Ford.

Volume and pricing essentially offset each other during the quarter with operational improvements, manufacturing, material, engineering, contributing the lion's share of the quarterly improvement in gross margins.

Turning to SG&A, $168 million for the quarter, down from 183 million in the previous quarter and $250 million a year ago.

Year-over-year, there was a $59 million decrease as a result of the ACH transaction and a $23 million decrease from net efficiencies, lower OPEB expense and favorable exchange.

As expected, we had a sequential reduction from the fourth quarter run rate of 183 million and reduced our SG&A as a percent of product sales by about 80 basis points to just 6%.

We do expect to realize additional savings from our announced benefit changes in Europe's -- in U.S., European infrastructure initiatives and other efficiencies.

And our long-term goal is to further reduce SG&A.

In the near-term, we're willing to spend in the current range to help support and grow our business with our global customers.

Net income for the quarter was $3 million after the $4 million cumulative effect of adopting the new stock option accounting requirements that many of you are seeing, most companies adopt here in the first quarter.

Quarter-over-quarter improvements are driven by the first quarter 2006 operational improvements that I have talked about on the couple prior slides on cost-of-sales and G&A.

In November of last year, we published our estimated pro forma adjustments to income for the transfer of the ACH facilities.

Those pro forma adjustments totaled $224 million for the first nine months of 2005.

A little over 50% of this amount relates to the first quarter of 2005 results.

And the largest amount of the pro forma adjustments occurred in the fourth quarter.

As that quarter included depreciation and amortization on the full amount of the ACH assets, which, as you know, were subsequently written down to estimated fair value of June 30 last year.

And furthermore, the first quarter 2005 only included one month of the lower labor reimbursements as provided in the Ford funding agreement.

On the next slide, we take a look at EBIT-R.

As many of you know, in addition to the traditional GAAP measures, we are measuring ourselves using the non-GAAP measure of EBIT-R due to the significant amount of restructuring that we anticipate over the next three years.

EBIT-R was $72 million positive for the first quarter of 2006, compared to $102 million negative in the fourth quarter of 2005 or an improvement of $174 million.

This reflects the operational improvement that O talked about for the first quarter, as well as lower D&A.

Depreciation and amortization was lower than the forth quarter and a year ago due to the asset impairments recognized during 2005.

The reduction in D&A was greater than originally anticipated, as certain of the assets impaired were being depreciated on an accelerated basis.

We expect D&A to be about 420 million for the full-year of 2006, reduced from our earlier estimate of about 475.

And then although not specifically shown on this slide, EBITDA is the calculation or the method that is used in our bank financial covenant.

And obviously, is improved significantly versus a year ago.

The calculation of the financial covenant provides for a number of adjustments.

But clearly, these results provide for additional headroom under the existing covenant.

Free cash flow was a use, as Mike mentioned, of $117 million for the first quarter, reflecting $85 million of capital expenditures and the use of $32 million of cash from operations during a seasonal quarter, which normally uses the cash from operations.

Although the year over year reported performance in cash flow from operations deteriorated by $210 million, that change can be more than explained be two events.

As you all recall, the Ford funding agreement was implemented in the first quarter of 2005, resulting in an acceleration of receivable payments by about $120 million.

Although DSO's are improved in this year's first quarter, the two day improvement is far less than the acceleration that occurred in the first quarter 2005.

And then secondly, we had changes in the amount of receivables sold in the securitization programs in both quarters.

They declined in the first quarter of 2006 by $53 million, while increasing by 79 million in the first quarter of 2005.

Accounting for $132 million swing on a quarter-over-quarter comparison.

Combined, these two items, the Ford funding agreement and changes in the receivable securitization, really mask our working capital improvement that we're experiencing.

Capital expenditures, as I mentioned, were $85 million for the quarter and about $100 million lower than the fourth quarter of 2005.

In early January, as Mike mentioned, we did close on a $350 million, 18-month term loan to replace the $300 million revolver that expired in December.

That facility was substantially oversubscribed.

And we purposely made that facility to be terminus and contain the same covenants as our remaining bank facilities, so that they all could be refinanced at once.

First quarter earnings and cash flow provide us with significant headroom under our existing financial covenants.

Nonetheless, we are actively working on our refinancing alternatives and anticipate completing the refinancing of all the facilities that expired in June 2007 some time during midsummer this year.

Turning the guidance.

We're increasing our full-year EBIT-R guidance to 120 -- to $150 million from the previous guidance of $45 to $75 million guidance.

Reflecting our expectations for improved 2006 results and our revised estimate of depreciation and amortization.

In revising our guidance, there are a number of factors that have caused us to be cautious in our outlook for the balance of the year.

As you know, the automotive sector is working to address a number of issues that could have an impact on production levels.

Oil prices remain high, affecting both consumer demand on a worldwide basis for vehicles and the price of resins used in our products.

Domestically, the major OE's are working on restructuring their operations to reduce cost.

All of these factors, combined with raw material prices, notably aluminum and oil based resin contribute to an uncertain environment for production levels. product mix and raw material cost.

We're off to a good start on our restructuring activities.

But we also recognize that we're one quarter into a 12-quarter plan.

There is a lot of hard work that needs to be accomplished, including successfully completing the activities that we have already announced.

We must continue to diligently pursue these activities.

Ultimately, the timing of these activities and us this the savings in some case, are dependent upon negotiations with third parties.

And finally, we are working very hard to ensure that the culture of Visteon financially driven as well as customer and product driven.

And we're exceeding expectations as supported and expected.

And then finally, we're maintaining our free cash flow guidance of $50 million, as most of the increase in EBIT-R, as this point, reflects non-cash D&A.

So, in conclusion, why Visteon?

We know we have a lot of hard work to do.

There is absolutely no question about that.

We are off to a good start in total.

And we recognize that there are parts of our Company that are not performing at all near the level that is necessary for those operations to sustain themselves.

So, there is a lot of hard work yet to be accomplished, as I said before.

We're one quarter into a multi-quarter plan but we are not shying away from the work that needs to be done.

In a nutshell, we have to clearly focus restructuring plan, we've got funds in an escrow account to achieve it.

We have leading market positions in our core products and a global manufacturing and engineering footprint that is second to none.

In addition, we've got an increasingly diverse customer base, a focused team that's driving change throughout the Company and we're focused on cash flow.

Our annual incentives are completely aligned to achieving our goals.

So, Derek with that, I think we will turn it over for questions.

If you could remind the callers how to get in line for questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll take our first question from the line of Joseph Amaturo with Calyon Securities.

Good morning, gentlemen.

Congratulations on the quarter.

A quick question, just breaking this down.

It looked look your EBIT-R guidance goes from 45 to 75 to 120 to 150.

I'm backing out.

It looks like 55 million of the improvement is D&A related and 20 million is better than expected operating performance.

Is that directionally correct?

Correct.

Okay.

And then secondly, could you just address maybe some revenue growth expectations by your core business segments?

Sure.

It's Don, Joe.

As you know, we update the backlog once a year.

In the first quarter, we had significant business wins, highlighted by the Ram truck program that is worth over $250 million to us.

If you break that down by product groups, interiors make up about 70% to 75% of the new business wins in the first quarter.

Climate, 15 to 20.

And electronics 5 to 10.

And the by geography because of the Ram truck program is so heavily weighted, it's predominantly North America-based due to that.

Okay. and just lastly, as you exited the first quarter, what -- where did your revenue parts per million stand?

I am not sure I want to go there but, we had a 63% improvement year-over-year, we're well under 100.

Our target for the year is 25.

It's an extremely aggressive target.

I'm not sure we'll get there but we're doing everything we can and continue to show great progress.

The guys are working extremely hard throughout the business to achieve it.

Okay.

Well, congratulations on a good quarter.

Your next question comes from Michael Bruynesteyn with Prudential Equity Group.

Morning, guys.

Could you just take me through how the operating cash flow didn't follow the improvement on EBIT-R on a sequential basis?

Correct me if I'm wrong, but it looks like you've got an EBIT-R improvement of almost 200 million an only $100 million improvement in sales.

Operating cash flow if you adjust for working capital, back that out, is about flat.

So, there seems to be 175 million or so that I'm having trouble understanding.

Of improvement.

Well, part of that operating cash flow -- part of the improvement is obviously obviously, non-cash-related items, OPEB for example.

How much?

How much was the pension OPEB improvement?

Sorry.

Did you catch that?

I didn't.

I'm sorry, how much was that a contributor, the pension OPEB improvement sequentially?

I don't have fourth quarter number here, but for the first quarter, OPEB is a small negative amount.

We also have D&A lower as well, Mike.

Right, we saw that, 20 million or something, right?

Right.

Okay.

We're looking for like 170 -- we're looking for a big number to explain why the cash didn't follow the EBIT-R, and -- .

So, as I mentioned in my comments that DSO's were down a couple of days.

But actually BPO's were up three days, quarter-over-quarter, the fourth quarter to first quarter.

And inventory turnover, again reflecting the seasonal nature of the quarter, was actually less as well.

A BPO, we're at a point where a caption DSO, a BPO and one-time turn in inventory are both, or all three worth anywhere from $25 to $30 million each.

So three days of BPO's is roughly $90 million and a one-time on inventory turns is that kind of amount as well.

Right, but -- sorry.

I don't want to pound this.

Maybe we need to come back with Derek.

But, I said, the operating cash flow is about flat if you back out the change in working capital.

You're still missing about $175 million to get to the nearly 200 --.

Are you comparing fourth quarter or first quarter?

Yes.

Fourth to first.

Well, again.

So again, remember, fourth quarter we had the unwind of the ACH business.

Yes?

But when the business was -- when we did the ACH transaction, we retained the receivables and payables.

And we had strong cash -- much stronger cash flow than anyone had anticipated in the fourth quarter.

We were a few hundred million dollars ahead, I would venture to say, than what many of you thought we would be.

Reflecting again, our concentrated effort on working capital as well as the unwind of those receivables and payables.

But I'll have Derek go through the details with you.

Okay, great.

Appreciate it.

Thank you.

Your next question comes from Darren Kimball with Lehman Brothers.

Good morning, nice quarter.

I just wanted to pick up on Mike's question on the OPEB.

Did you say OPEB was a negative as in ta credit in the quarter?

Can you just remind us what your OPEB and pension expectations are for the year?

We actually had a small credit in the quarter and we're expecting for the year a small credit as well.

On OPEB.

And on pension?

On pension, pension expense on a quarter basis is -- well, on an annual basis, pension expense is pretty much consistent with what it's been in -- everywhere except the U.S.

And then down in the U.S.

So, on a year-over-year basis -- or on a full-year bases for '06 versus '05, we're down about $60 million in pension.

Okay.

And then I was wondering if we could come back to the 4Q to 1Q walk.

I think you had mentioned that the walk benefited from the non-recurrence of 130 bases points of costs in the fourth quarter, which I calculated about $37 million.

And then you mentioned that you had improvements in the first quarter related to commercial negotiations?

I was not sure what you were referring to there.

And then you made mention of volume and price.

And I was just wondering if provide anymore of a detailed walk sequentially?

Darren, what I did say was that the fourth quarter had about 130 basis points of one-time items that we had talked about in our fourth quarter of the call.

You're correct in your calculation on what that equates to in round numbers.

I said the first quarter had about 150 basis points of one-time type actions related to commercial negotiations and some OPEB relief.

And then I, in addition, mentioned that volume and pricing for the quarter essentially offset themselves.

With the majority of the improvement in operating margin coming from manufacturing, purchasing and engineering.

Right, and I think your -- is your volume and pricing comment a year-over-year comment?

It's quarter-over-quarter.

Fourth quarter to first quarter.

So, it was first quarter.

And so volume was positive and you're saying pricing was negative.

Okay, the 150 basis points on the commercial on negotiations, are you saying that's a positive?

That you had some positive benefits there?

Yes.

It was the two items, not the one item.

Okay, and so in commercial negotiations sounds like pricing to me.

And I think you were saying that pricing was negative.

So, if you could clarify that.

Where -- and obviously we're not going to get into individual customer negotiations or -- but we had some commercial negotiations that were slightly favorable.

Okay, and lastly if you could just speak to the commodity cost environment in terms of unrecovered commodity costs and maybe troubled supplier cost.

How did you fare there versus the fourth quarter?

And may be just a comment about the expectation?

Thank you.

Commodity prices were up slightly in the quarter.

The biggest increase that we saw was actually in aluminum.

On a first quarter over fourth quarter, aluminum prices were up about 10% to 15%.

They are up again since then.

So at this point in time, as we look forward, our biggest exposure looks to be in aluminum prices.

Oil, although high on a quarter over quarter biases, again, maybe about a 10% increase so we continue to have high oil prices being reflected in our resin prices.

But in terms of a change, quarter-over-quarter, there isn't that much change in terms of resins.

So, as we look forward again, the big issues that we're dealing with are essentially oil based resins, as well as aluminum prices.

And obviously, we work with all of our customers to recover every single o cent of increased cost.

That is an ongoing process.

We did not recover all of our raw material costs, surcharge costs or increased costs in the first quarter and so that is reflected as a negative in the quarter.

your next question comes from the line of Chris Ceraso with Credit Suisse.

Thanks, good morning.

Jim, how much of this commercial settlement in other that helped you in the first quarter will unwind throughout the rest of the year, if at all?

And do you expect kind of like we had in '05, maybe a negative effect from [inaudible] toward the end of the year?

Chris, if I understood your question, it was do we have a benefit in the first quarter that is going to reverse or unwind in the balance of the year?

And the answer is no.

Okay.

How much of the improvement here in the quarter, it doesn't sound like very much, is the result of the kind of pulling ahead some of the restructuring plans?

So for example, if the game plan, the three-year plan was 60 million of benefit from restructuring this year, 90 million next year, 80 million the year after that, is it now 130 this year and 20 next year?

Or is it still 60 million this year but you're benefiting from other cost actions for the base business?

Chris, what I would say is we had a small benefit from the actions that we have taken so far.

Frankly we announced a number of actions in the fourth quarter and then as you know, more in the first quarter.

But many of the actions, there are some that are completed, many of the actions are underway.

We have not completed them yet.

So, in terms of benefits, we have seen some.

I would say it's very small at this point in time and the benefits are still ahead of us.

Chris, this is Mike.

I would add to that that we are, obviously, trying to accelerate any actions on the restructuring plan that we can.

And some of those will move from one quarter into another based on things like capacity ramp-ups or negotiations with third parties as Jim talked about.

And we are looking at what are the things that we think we couldn't get done until the very first part of 2007 and seeing what we can pull of those up into 2006 and so on.

So, we're being looking at accelerating everything on there.

One quarter into yet, it's pretty hard for us to be able to predict at this point what the impact in any given quarter or even what the impact in '06 will be versus '07.

It will depend a lot on our success in negotiation.

So, it's -- I can just assure you that we're trying to make this not a 12-quarter plan but at this point it is and we're one quarter into it.

I guess the question is, Mike, you have kind of raised the bar here for 2006.

Should we still expect an incremental 90 million of operating improvement next year?

Or has some of that been taken up already this year?

I would indicate that we would expect similar year-over-year improvements.

Just because we pull something forward in '07 and if we'rable to do that doesn't mean we wouldn't be able to pull something from '08 into '07.

And so we would expect to see the same kind of improvements we have talked about on a cumulative basis over the three-year plan.

Okay.

Thank you.

Your next question comes from Brett Hoselton with KeyBanc Capital Markets.

Hi, this is [Brandon Farrelin] in for Brett Hoselton.

Could you guys kind of talk about regionally or globally how your performance kind of played out in the quarter?

Could you talk about Halla and some of the business with the Koreans versus North America maybe?

What I would say is, essentially North America was better than last year, excluding the ACH facilities.

Asia continues to be better -- or perform better than it did a year ago.

Europe was actually down a little bit year-over-year.

Okay.

Something that I would add is that all product groups performed better year-over-year.

So, I think the shift to the global product group organization is clearly gaining traction, moving ahead.

It's allowed us to focus on the issues and solve the issues fairly quickly, so we know what they are and what we need to do.

Okay.

And then the EBIT-R guidance for the year of 120 to 150.

You guys kind of ate up a lot of that in the first quarter and that may imply some weakness in the back half of the year.

What is contributing to that weakness potentially and how do you see the remainder of the year playing out?

I think you're may be misinterpreting our comments.

What we did try to say is we're being cautious.

We have not changed our estimate of production volumes at this point in time.

And frankly, if we see production volumes hold, I haven't heard what Ford's sales call was today or will be today in terms of April volumes.

But if volumes hold t then possibly there are some upside in the past -- in the back half of the year.

At this point in time, we're holding to our original 3,150 estimate of Ford North America production volumes.

We'll see where all of this goes.

As I said, there is the industry is dealing with pressures on oil as an effecting consumer demand.

And the next few months will actually give us a better perspective on what will happen to volumes during the year.

Okay.

Did you quantify the aluminum impact in the quarter?

We did not quantify the dollar impact.

No.

All right.

We did say that we had about a 10% to 15% increase.

Okay, do you guys have a number for that?

Well, sure.

Could you share it?

Next question.

Thank you.

The next question comes from the line of Rod Lache with Deutsche Bank.

Good morning, everybody.

A couple of questions.

Do you guys have available a pro forma revenue EBIT-R and EBITDA for the last year?

I think the numbers you gave us were the actual.

The numbers we gave you are actuals.

Essentially, we're going to be -- we're in this kind of unusual situation, where we're going to be reporting actual numbers for this year, obviously, compared to actuals last year.

That's going to be the reported numbers.

So you won't be able to provide -- you had provided nine month pro formas in your filings last year.

We're going to be providing first quarter pro forma here when we file our Q. We've provided the pro forma information that we were required to and I -- in my comments, I tried to give you a sense or a flavor of removing ACH sales what, impact that had and -- .

Okay.

And can you clarify your comment about this 150 basis point, it sounds like a one-time positive in Q1.

Is that correct?

Was there an OPEB or a pension gain recognized in the quarter as part of that or anything?

Any other color that you can provide on that one-timer?

Well, again, what I said was commercial negotiations and relief or reduction of OPEB related cost.

Okay.

But did you characterize that as a one-timer in Q1?

I said the first quarter benefited from those items and, yes.

But not necessarily's a non-recurring benefit.

Is that correct?

Yes.

One-time or non-recurring, I don't understand what you're trying to --.

I just want to clarify.

Is it a one-timer?

Or is it -- or is this an ongoing improvement?

It's a one-timer.

Okay.

And if we go from Q4 to Q1, between the one-timer and this non-recurrence of costs from Q4, this 280 basis-point improvement, that's like $75 million.

And you have a $20 million improvement in D&A.

So the remaining 110 or so, is that something that can you break down,?

I think you mentioned that a big chunk of that was pension.

No, what I said was volume and pricing, fourth quarter over first quarter were offsetting each other.

Essentially volume increases offset pricing decreases.

Right.

And that the remaining improvements were driven by manufacturing, material and engineering improvements.

Okay.

And do you have what pension did on a sequential basis?

On a sequential basis, pension is up at a push.

Okay.

Fourth quarter, first quarter.

All right.

And if you just -- just one last thing -- you provided a useful guide to the '05 to '06 EBIT-R improvement in your last conference call.

Obviously, you're modifying the D&A here.

Is there a -- is the only any other change you that would expect here on the net operational?

In other words, are you maintaining your expectation that pension and OPEB is about $40 million plus year-over-year and the German labor cost savings and product warranty is roughly the same as what you would previously expected?

A lot of puts and takes but essentially, it's operational improvement in D&A, as we said in the comments earlier.

Right.

Okay.

Thank you.

Your next question comes from Ron Tadross with Bank of America Securities.

Hi, this is [Geno Nathan] for Ron.

In the fourth quarter '05 slides, you mentioned that pension and OPEB was a year over year positive of 40 million.

Now given the D&A, pension and [onus] down 60 million and OPEB is a negative, it looks like -- so is that the balance of the $75 million improvement in EBIT-R?

You're comparing numbers toa fourth quarter number.

So, you've got apples and oranges.

I'm looking at the pro forma EBIT-R, the walk that you said for the annuals.

The $60 million number that I talked about on pension was an annual total '05 to total '06.

And you're trying to walk, I believe, from fourth quarter pro forma EBIT--R.

No, actually, I'm trying to walk through the annual EBIT-R guidance.

Okay.

And in the last call, you had 25 million in D&A and 40 million in pension and OPEB.

Now, it looks like the 25 has gone to 75 in D&A and the pension, OPEB has gone up from 40.

Right?

Because you said pension alone is 60.

So part of that pension was already included in the -- essentially most of that was included in the number.

And as I -- had not updated this chart.

But as I indicated to Rod on the prior comment that there were -- there is movements up and down on this chart.

But most of it comes into the D&A number and in the operational improvement number.

Okay.

And as far as the JV's and plants that you closed and the German do you -- when do you expect to see that?

The German labor savings were being implemented as of the beginning of the year and the JV that we exited or closed was also exited in the beginning of the year.

Okay.

So -- okay.

All right.

Thanks.

Your next question comes from Scott Merlis with Thomas Weisel Partners.

Good morning, you have been making good progress despite the headwind of inflation.

But to think of inflation in other areas is the [COLA] on your labor force meaningful?

And then are there other material costs that are not being reimbursed?

And the way you think about it is, do you need to accelerate your restructuring just to keep on plan, essentially?

Scott most of -- if you think about COLA in the traditional sense, then most of that was transfer when we transferred all the hourly workers back to ACH.

So minimal impact there.

And I think if you're asking a general question about inflation around the world versus our guidance on EBIT-R, things like that.

We plugged in numbers that we anticipate for inflation.

We've plugged in numbers on currency.

And all of that would be embraced in the guidance numbers that were given you.

And the -- under aluminum, do you have some automatic pass-throughs at all or is it all -- does it all have to be negotiated?

We've said in the past and our answer on that has to be, it varies by customer, literally around the world.

Everyone os dealing with raw material increases in a different way and so -- and I don't want to -- I'm not going to go into it in a public form but it varies by customer.

And again, we've factored that into our guidance.

So -- and then I have a bigger-picture question.

We have been hearing a lot from your customers on how the role of the supplier is restructured.

Ford has the strategic supplier.

Chrysler has a similar program announced.

Is your role really changing much?

Are you getting more involved in early product development?

Does it really matter?

Can you do more VA?

Is it going to help you do more VA to really cut your costs?

Actually I believe it has.

I think all of the OE's have looked at the, maybe the past traditional model of price-downs and costs-up and we have seen a number of very visible incidents where that model failed.

And so, I think the model in general is being addressed in pretty comprehensive ways around the world.

And one of the ways you attack real waste is by the early involvement of design and engineering by reducing, frankly, the number of suppliers involved.

So that you get scale by committing to multi-year platform wins or committing up front to a certain level of volumes.

And as soon as you do that, then the supply base can better ;an capacity utilization and investments and so on.

Reuse of tooling and equipment and commoditization of various components.

Yes, there is a definite trend to actually walk the talk that you're hearing and reading about.

And I think that can only be good for both the OE's and the supply base in general.

So, when you link that to your three-year restructuring plan, is some of the VA that comes out of product development or -- you have ever quantified what percent of your total cost-downs can come from engineering, re-engineering, VA, VAE, which is really taking out design costs and taking out manufacturing costs.

In other words,not attributable to head count reductions, not attributable to plant closings.

Is it meaningful?

Yes, I believe it is meaningful.

And it also varies by customers.

If you think about it, to the degree that OEs haven't practiced or followed the practice, then there is potentially more opportunity for savings at those customers.

Because maybe they have multiple variations of a part or system where they only need one or two or whatever.

So, to the degree people haven't practiced that in the past, there is better opportunity for save by cooperation with a supply base.

So, their numbers are real light.

And they would vary again by customer and by commodity, by system.

But they are very real numbers.

And that's going to be, frankly, one of keys to the success of the industry is the ability to design and implement innovation and design in cost saves.

Because we are still with rising commodity prices and there is no way that the supply base can absorb those.

We have seen that doesn't work.

That's an important issue.

And the final question is did you specify what exactly you won on the Ram, pressure --?

No, actually at our customers' request, we don't divulge the exact makeup of the win.

It's a nice chunk of business.

Congratulations.

Yes, it is, what is it '08?

It actually is '09 model year.

So, you'll see a little bit of that shipment in '08 but the bulk of it will be in '09.

Congratulations.

Thank you.

The next question comes from Adam [Prislener] with Credit Suisse.

Good morning.

I just want to be clear.

We all talked about this one-timer and the commercial settlements that have been knocked about the quarter.

But are we going to hear the word commercial settlement at all, for a variance explanation for a remainder of the year?

Not that we can predict at this point in time.

And again, we don't disclose.

If you remember last year in the fourth quarter, we had a -- we talked about a negative in the quarter and people were saying, "well what was that all about?"

And we said, "well, it's a negotiation."

And so now there is positives in '06 and may be you can connect those two comments.

Were they your different set of customers?

I know in Q4 it was non-Ford customers.

This is a completely different set of customers?

No, I wouldn't break that out.

All I'm saying is commercial negotiations can span multiple years and periods.

And so I -- we will never get into disclosing details of those negotiations.

But it is negotiation and there is always a give and a take.

And so to the degree that there is a variance from expectations in one period is another you may hear a comment from us.

But it's not a big topic that we're going to I would say, go into a lot of detail or disclosure on them.

Okay.

When we talk about your actual, let's call it plant level P&L, do you have plant level P&L at this point?

If you were to talk about Q1's operational improvements, could you talk about whether those would be defined to the underperforming or non-strategic plans or were they sort of across the board?

We do have information on a plant-by-plant level.

I would say that there is, for the most part generally speaking, there has been improvement across the board.

That it's not in one specific area, or one specific product group and one specific region.

A number of the facilities around the world have posted better than expected results.

So, it's not necessarily tied to the actions on the focus facilities.

It's just across the board accountabilities.

Certainly, one of the facilities in 2006 or one of the 11 items was to fix one facility.

That has been done.

The improvements are real there.

And so that is on track.

And there are other items that are in, let's say in 2007 that have fix next to them as well.

And we have already started on those as well.

I would say that those probably haven't shown the results yet.

But that was a reason for why we put them into 2007, that some of the changes were going to be the changes to make.

But those are underway as well.

Okay.

And then in terms of your opportunity to accelerate the restructuring plan, is there anything we should be thinking about in particular that would move the cash spending estimates that you have dramatically one way or another?

In other words, are you considering anything dramatic like large buyout plans that would front load some large cash spending in sort of the near-term or things that are at a smaller scale?

I don't think there is anything that would dramatically change the cash flow.

Great.

Thanks, guys.

Ladies and gentlemen, we have time for one more question and we'll take that final question from Douglas Carson with Bank of America.

Sure, thanks, guys.

A quick question on the bank lines and the term loan.

One page 18 of the slide deck and it states -- and the thoughts about refinancing that.

And if you can give us a little more color?

You had said on the call that you maybe looked to finance all three of those lines.

And what is the idea of doing that a year early?

And if can you give us an update on, do you have any leverage targets or goals around your balance sheet?

We -- all of those -- there are essentially three facilities.

Two revolving facilities and an 18-month term loan.

All of them have -- or all of them are co-terminus June '07.

Obviously, at the end of June '06 they -- any amounts drawn on them, so the term loan and any amounts drawn on the revolver would be current.

We want to have those facilities refinanced, as I said, kind of the mid-summer timeframe is what we're working on.

We are actively working that today in conversations with a number of institutions about alternatives.

And I think pretty well down the path to finding a way forward on what we want to do.

And as I said, we're not wanting -- we're purposely not waiting until June '07.

We're working on those activities right now and anticipate getting them completed midsummer this year.

The revolver that expires in June of '07, that was a five-year, are you looking to revisit that with another five year?

Or looking just to extend it?

We're looking at a number of alternatives.

And, again, have proposals from institutions and actively working with them to come up with the best solution.

Okay, another quick one.

In January when you presented the restructuring actions, it looked like they were going to be approximately 180 million in annual spending in '06.

And I'm looking on the cash list statement here.

It looks like the reimbursing from the escrow account was only 9 million.

Right.

Is the restructuring spending, very back end loaded, I'm assuming?

Well, actually, we pulled ahead some of the restructuring savings into the fourth quarter.

There was about $50 million that was incurred or eligible for reimbursement in the fourth quarter.

Okay.

When we did the plan, frankly, we had it just beginning on January 1.

And so we have actually pulled ahead in terms of the plan.

Some of those activities from what was in the plan.

So, as Mike and Don and everyone has, I think, said on the call, we're looking for every possibility or every opportunity to move forward our activities.

And I would tell you at this point in time, that $180 million is the best number we have.

Okay.

Well, great.

Great quarter.

Thank you.

All right.

All right, well, thank you for participating in the call.

I'll be around all day to answer your questions.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation and you may disconnect at this time.

Good day.