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Q1 2018 Earnings Call Transcript

Published: 27 Apr 2018

[Operator:]

Good morning, ladies and gentlemen. And welcome to the Tenneco Inc. First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. At this time, I would now like to hand the conference over to Linae Golla, Vice President of Investor Relations. Please go ahead.

[Linae Golla:]

Thank you. Good morning. This morning, we released our first quarter earnings and related financial information. On our call today to take you through the results are Brian Kesseler, Chief Executive Officer; Ken Trammell, Chief Financial Officer; and Jason Hollar, Senior Vice President, Finance. The slides related to our prepared comments are available on the Investors section of our website. After our comments, we will open up the call for questions. Before we begin, please be aware that our discussion today will include information on non-GAAP financial measures, all of which are reconciled with GAAP measures in our press release attachments. The earnings release and attachments are available on our website. Additionally, some of our comments will include forward-looking statements. Please keep in mind that our actual results could differ materially from those projected in any of our forward-looking statements. And with that, I will turn the call over to Brian.

[Brian Kesseler:]

Thanks, Linae. Good morning, and thanks for joining our call. Before I get into our first quarter results, I want to mention our change in reporting segments to Clean Air, Ride Performance and in Aftermarket segment, which includes both Ride Performance and Clean Air aftermarket results. We structured our operations along product lines and recently made a change to include a global aftermarket organization. So these segments align with our current management structure. In addition, after our acquisition of Federal-Mogul, these reporting segments will help facilitate the separation into two new companies, since one will combine Aftermarket and Ride Performance, and the other will be powertrain focused. Turning now to the first quarter highlights on Slide 6, once again, we outpaced industry production by delivering strong organic revenue growth. Revenue was a first quarter record, up 6% in constant currency and up 4% on a value-add basis. Advanced suspension technologies drove growth in Ride Performance and double-digit growth in Commercial Truck & Off-Highway revenue, fueled both Clean Air and Ride Performance gains. We also delivered first quarter records for adjusted EBITDA, EBIT, net income and earnings per share, all on the strength of top-line growth that included higher revenue in all OE end-market applications. Finally, after the first quarter of - although, the first quarter is seasonally a quarter of great cash use, we improved on our cash flow performance by $31 million versus last year. We also continued returns to shareholders, by paying $13 million in dividends in the quarter. Taking a closer look at revenue on Slide 7, value add revenue was up 4%, outpacing industry production by 5 percentage points, with gains in Clean Air and Ride Performance. The global aftermarket was down 3%, due to a couple of major retail customers in North America, realigning their inventory positions and a very strong fourth quarter sales in Europe that affected buying levels in the first quarter. Our balance portfolio including end-market applications continue to work in our favor, with strong revenue growth in light vehicle, commercial truck and off-highway. For the quarter, you can see the contributions to value-add revenue by product application. And we expect this portfolio diversification to continue. Turning to earnings on Slide 8, adjusted EBIT was even with last year, driven by higher light vehicle and CTOH revenues, and stronger incremental margins on Clean Air revenue. These positive drivers were countered by three items in the quarter. First, as we discussed at the beginning of the year, higher tariff driven steel costs from last year had an impact on this quarter's margins. As expected, we're making progress on recovery mechanisms, so the impact was less than previous quarters, and we expect that improvement trend to continue through the end of the year. Second, we had higher Ride Performance costs related to relocating our production for a major truck program launch and ramp up in the second half of this year. As we said last quarter, these planned investments improve our competitiveness and position Tenneco to capture future opportunities. Third, despite double-digit aftermarket growth in China, India and South America, the lower overall global aftermarket sales had a 30 basis point margin impact. Before I turn the call over to Jason, I want to thank our global team for the work they do every day to meet our customers' expectations and execute on our growth and improvement plans. While there is a lot of excitement about Tenneco's future with the Federal-Mogul acquisition and eventual split into two new purpose-built organizations. I'm proud of the team's unwavering focus on our 2018 plan and determination to deliver on the goals we set for this year. With that, I'll turn the call over to Jason.

[Jason Hollar:]

Thanks, Brian. As we review the segment results, reminder that the revenue numbers are all value-add, with year-over-year performance calculated in constant currency. Beginning with Clean Air results in Slide 9, revenue was up 3% in the quarter. Some highlights for the quarter include

[Kenneth Trammell:]

Thanks, Jason. On Slide 13, I'll start with the adjustments affecting year-over-year comparability. We incurred costs related to the acquisition of $13 million in the quarter. In addition, we recorded restructuring in related expense of $12 million, including costs related to the accelerated move of our Beijing Ride Performance plant. We expect to complete the transition into the new facility by the end of 2018. Lastly, we recorded a charge of $5 million, related to a warranty issue in North America. Turning to Slide 14 before adjustments, first quarter tax expense was $31 million for an effective tax rate of 24% in the quarter that's at the midpoint of our full year effective tax rate guidance of 23% to 25%. Cash tax payments in the quarter were $25 million and for the full year, we still expect cash tax payments in the range of $105 million to $125 million. Now, turning to cash flow on Slide 15. We had relatively strong cash flow performance in the first quarter with cash from operations improving by $31 million compared to last year. I want to point out that the operating cash flow was presented differently this year in accordance with an FASB interpretation. $34 million of receivable collections are reported in investing cash flow and comparable number in 2017 of $22 million has been reclassified to investing as well. Including these receivable collections, our operating cash flow would have improved by $43 million year-over-year. Capital expenditures for the quarter were $80 million, and we still expect full year CapEx in the range of $380 million to $410 million. And as Brian said, we paid $0.25 dividend to shareholders this quarter totaling $13 million. Moving to Slide 16, at quarter end, net debt was $1,194 million and that's about even with last year. Interest expense was $20 million, it's up from last year, primarily due to higher interest rates on our floating rate debt. We continue to expect full year interest expense in the range of $75 million to $80 million. Our leverage ratio was 1.4 times even with ratio a year-ago. And with that, let me turn the call back to Brian.

[Brian Kesseler:]

Thanks, Ken. Starting now to Slide 17 on our outlook for the second quarter. We expect revenue growth of 13% or 8% in constant current. That growth will outpace forecasted global light vehicle industry production by 3%. We expect Clean Air to outpace industry by about 3% with pass-through revenue expected to increase at about the same rate as I did from first to second quarter last year. We anticipate Ride Performance revenue growth will outpace the industry by 9% and Global Aftermarket is expected to be roughly flat with last year. Regarding our margins in the second quarter, we expect sequential margin improvement from the first quarter, similar to the cadence with first and second quarter last year. Today, we are also reaffirming our full year 2018 revenue outlook with organic growth of 5% in constant currency, outpacing forecasted industry production by 3%. Our outpace moderates in the second half of this year, primarily due to the year-over-year comparison with last year's strong CTOH revenues. At the same time, we continue to build for the future with investments and advanced suspension technologies, new program launches, our position in the China aftermarket, and dedicated team and new products for the commercial truck and off-highway markets. With these investments and our anticipated revenue growth, we continue to expect margins for full year 2018 to remain roughly in line with last year. Turning now to a brief recap of our Federal-Mogul announcement two weeks ago beginning on Slide 19. Through this transformational acquisition and ultimate separation, we will create two focused purpose-built industry leaders in their respective markets. This unique strategic combination creates two strong businesses with greater scale and each with the strategic and financial flexibility to drive long-term value creation. Looking first at the Aftermarket and Ride Performance company on Slide 20, it will be one of the world's leading multiline Aftermarket companies with many of the most well known premier brands in the industry, including Fel-Pro, Monroe, MOOG, Wagner, and Walker, and behind those brands, our multiple product lines, broad coverage and strong distribution channels. These strengths and the companies enhanced channel development will elevate go-to-market capabilities in established markets, while concurrently putting it in outstanding position to capture the explosive growth in the China aftermarket, which is expected to be the world's largest by 2025. On Slide 21, you can see the complete around the around the wheel offering, these two strong businesses create. The OE side of the business, we'll have more major components of the suspension and braking architectures. It will have a portfolio of braking, steering and advanced suspension technologies that set a strong foundation for meeting changing performance requirements for ride comfort and safety. This foundation of capabilities will drive innovations that ultimately reinvent the ride of the future with new solutions for capturing growth from electrification, autonomous driving and ride differentiation trends. Switching gears on Slide 22. The Powertrain Technology company will be one of the largest pure-play powertrain suppliers globally with complementary portfolio that creates unique competitive position. Tenneco Clean Air and Federal-Mogul Powertrain are an excellent fit strategically, as the combined product offering will now address both criteria pollutants and greenhouse gases, as it is now well established in the industry. Criteria pollutants must be managed by optimizing both in-cylinder combustion processes and the after treatment. The combined company will have the capabilities and expertise to address both offering customers more options, and how to efficiently improve fuel economy and meet criteria pollutant regulations. Customers will benefit from system capabilities that enable powertrain efficiency at a lower total system cost. Before we open the call for questions, we thought it'd be helpful to answer some of the frequently ask questions from our investor meetings over the past two weeks on Slide 23 and 24. The first, I'll hand over to Jason.

[Jason Hollar:]

I had a number of questions about the integration process and synergy potential of this transaction. We're off to a strong start with a dedicated integration team already in place. The integration management office will receive the process with key functional leads already identified in each business. The team is tasked with the work required to eventually reduce three corporate structures to two, when we separate the combined Tenneco and Federal-Mogul businesses to two standalone independent companies. A lot of work is underway and I would note that around 80% to 85% of employees are unaffected by this transaction, primarily those are manufacturing and application engineering due to the complementary nature of the product lines. We anticipate to achieving at least $200 million in earnings synergies and expect to be at 75% run rate by the end of 12 months after closing. We are also working on additional opportunities, including revenue and manufacturing best practice sharing synergies that are achievable more in the mid-term in the process. In the Aftermarket and Ride Performance company, we expect to achieve run rate synergies of $115 million, which will come through a combination of SG&A and supply chain synergies. The estimated cost to achieve these is around $80 million. For the Powertrain Technology business, we expect run rate synergies of $85 million. That will also come from SG&A and supply-chain synergies with a cost of about $70 million to achieve.

[Kenneth Trammell:]

We've also had a number of questions about the leverage with this transaction. First, there is significant synergy potential, including at least $250 million in onetime working capital synergies, which will go to reduced debt levels. Second, when we look at Tenneco's free cash flow conversion over the last three years, excluding any trust payments, it's averaged about 70%. I think it's important to point out that during this period we made investments that resulted in revenue growth that doubled underlying industry production. Also keep in mind that we used $607 million of free cash flow to buy back shares over the last three years. We're comfortable with our ability to generate cash flow and we expect to use our free cash flow going forward to quickly reduce the leverage.

[Brian Kesseler:]

And finally, we continue to get questions on electrification, and if anything changes due to this transaction. First, the Aftermarket and Ride Performance company will be powertrain agnostic and positioned to capture new content opportunities as powertrains evolve. The powertrain technology company will also continue to have opportunities with electrification, particularly with hybrid growth, leading electrification at least through 2030. As we said earlier, we are winning new hybrid programs and Federal-Mogul is doing the same, having already booked new business for the recently acquired innovative hybrid technology. By bringing these technologies and capabilities together, the new company will have cylinder content to improve fuel efficiency, after treatment content to meet regulations and the hybrid packaging requirements that are available from plug-in hybrids, also we'll have the ability to optimize combustion and after treatment to reduce system cost. Finally the new powertrain company's portfolio will be diversified across end applications with roughly 25% of its revenue expected to be from commercial truck, off-highway and industrial customers. This diversification, coupled with hybrid content growth will put the new company in a strong position to capitalize on industry trends. In closing, I believe the Tenneco team is focused and aligned around our strategies and they guide our work every day. We see the results of our growth plans. And we're working hard and working smart to improve profitability across the business. We see an exciting future ahead as we begin the integration work that will lay the foundation for the launch of two new industry-leading companies. With that, we'll take your questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question will be from David Tamberrino of Goldman Sachs. Please go ahead.

[David Tamberrino:]

Thank you. Good morning. Thanks for taking our questions. Just the first one is I think about your organic revenue guidance. I know you're talking about seeing some tail off in the back-half of the year. But it's been pretty strong so for the first and - for the first quarter, excuse me, and at least some of the underlying demand trends that we've been seeing should continue to push higher commercial truck and your off-highway end markets further. So just, is it a little bit of an abundance of caution, just because your organic growth looks strong in the first quarter and second quarter guide as well?

[Brian Kesseler:]

I think overall, David, the comps versus in the second half of the year are - it was a good CTOH growth last year. We had some good launches that came in on the third quarter, particularly in Europe. And so it's - we balance what we hear in the marketplace, plus what we hear from our customers. And with the CTOH comp in that second half, we see that kind of equally now going forward. We've got some transitions that happened in the light vehicle due to launches that ramps down and ramp up as they replace. So that's why we see that second half kind of moderating a bit.

[David Tamberrino:]

Got it. And then, can you give us an update on where you are from the steel commodity headwinds? It looks like it again impacted the quarter. The guidance calls for flat margins for the entire year. But it looks like there is a nice ramp implied towards the back-half? Is there incremental recoveries coming? What are you seeing that's giving you the confidence that this shouldn't be - continue to be a headwind throughout the remainder of the year? And then what is your kind of updated guidance for the full year headwind from commodities?

[Brian Kesseler:]

Yeah, so similar, or very similar to what we talked about at the beginning of the year, we saw headwinds about half of what we saw last year. So in the $20 million range, we still see that. We've locked in about 85% of our steel buy for the year. And so we still got some 15% running through what we're seeing in the overall steel marketplace. From a recovery standpoint, we're making the progress as we expected. We mentioned we'll be about 50% kind of indexed or agreed through this year. Actually, we've got about two customers left between North America and Europe. But once we get negotiations completed with them, we will be in a very reasonable range, not a 100%, but close enough to be managed year to year. So I think we're making the right progress. We'll start lapping some of that year-over-year increase in the second half of the year. The other thing that we'll start from a margin standpoint, the launch costs we're incurring for this relocation of major truck platform, our relocation from a production standpoint, starts launching in the second half of the year also and it ramps through the year.

[David Tamberrino:]

Okay. And then just lastly if I may, on the synergies that you've outlined for the proposed transaction, now, is there upside to that level? Obviously, the businesses had to be put together. I think then you might have an opportunity to identify some. I'm just trying to understand the level of conservatism you may have baked into those figures.

[Brian Kesseler:]

Yeah, we - what we put in the $200 million in earnings synergies and the $250 million in working capital synergies or things that have worked very confident in delivering in that 24 month timeframe and getting them into the run rate on the earnings side at about 75% run rate, 12 months after close. As Jason mentioned kind of in the commentary, we're now actively looking at additional synergy potential, primarily through revenue synergies that we really didn't include inside the initial look that we communicated and also manufacturing best practice sharing that we think also will generate some opportunities. And those will - but those would come more in the midterm of the process and potentially long-term. So we're still unpacking and just continue to work - we'll make sure we're as cost competitive as possible, of course.

[David Tamberrino:]

Got it. Thank you for taking the questions.

[Brian Kesseler:]

Thanks, David.

[Operator:]

The next question will be from Rich Kwas of Wells Fargo Securities. Please go ahead.

[Richard Kwas:]

Hi, good morning, everyone.

[Kenneth Trammell:]

Good morning.

[Brian Kesseler:]

Good morning, Rich.

[Richard Kwas:]

On Aftermarket, so down 3%, what's the trajectory as we think over the course of the year? Is the inventory adjustments largely complete at this point or are they complete at this point? And when you look at China, any meaningful contribution over the course of this year in general? Thanks.

[Kenneth Trammell:]

Yeah, for - let me grab the aftermarket one, as we kind of got a tale of two stories here in North America. Our whole distribution channel seems to be holding up pretty well and making gains, really it's the couple of retailers in North America that are adjusting. One of which we thought would have gotten fully adjusted already, but we saw it's still over in the first quarter. As we mentioned, the overall aftermarket we see being flattish in Q2 going forward. From a China perspective, good growth, you can see - we mentioned 10% market presence growth from a distributor and installer perspective. But that market will really start materializing meaningfully in the beginning of the 2020 decade going forward. Now, remember, we're also pretty much taking all of the money that we're generating there and putting it back into distribution, brands, product coverage, all that. So from a margin perspective, we won't see contribution from there for a while. But from revenue and the margins we are getting before we reinvest it back, we're satisfied with it.

[Richard Kwas:]

Brian, on that coverage comment, what is - what's the current coverage in China, and I assume it's not huge? But is there a percentage or a recovery…?

[Brian Kesseler:]

We're in between 70 and 75 now, but by the end of 2019, we expect to be at 90-plus.

[Richard Kwas:]

Okay, all right. So lot of the heavy lifting here is happening over the next - year or so, 18 months.

[Brian Kesseler:]

Yes.

[Richard Kwas:]

Okay. And then just a bigger picture question, once the deal is closed, Federal-Mogul separations made, in between here, between now and then, are you able to bid on programs as a consolidated system and go to market to customers with combined systems. It would seem to me that you probably can do that for the interim for the next year or so until the deal closures. But what's the process, how should we think about this in terms of the content opportunities, when that would start to really emerge?

[Brian Kesseler:]

Well, actually, once we closed, which we're expecting second half of this year, we can go-to-market right away. And we'll be operating the business in that manner. It will have the Motorparts, Federal-Mogul portion, combined with our Ride Performance and Aftermarket portion of Tenneco will be going to market right away on that, that's a lot of the work we're doing right now from a strategic standpoint, as where we're going to line up from go-to-market and aftermarket. And projects, we already - we can't do some projects investigations on opportunities in between our Powertrain businesses. But we're - call it six to eight months away from being able to get out in front of the customer base.

[Richard Kwas:]

So, it's the way to think about this from a program timing standpoint is 2022 timeframe is, when you would starting to see programs going to protection on a system basis, combined basis, is that kind of the right timeframe, we should think about it?

[Brian Kesseler:]

I think, that's about right for brand new programs, 2019 is usually would be where the awards are being made for 2021, 2022 launch. However, we do believe, there's opportunities mid-cycle for some VA/VE and/or repositioning, if it helps our customers from a fuel efficiency or after treatment system costs perspective. We're in covering more and more opportunities from lower overall system costs. So we might be able to be in between there, probably, nothing meaningful from a revenue gain, but more of opportunities for both the customer and the combined company to benefit.

[Richard Kwas:]

Okay, great. Thanks for the color.

[Brian Kesseler:]

No problem.

[Operator:]

The next question will be from Colin Langan of UBS. Please go ahead.

[Colin Langan:]

Great. Thanks for taking my question. On the Federal-Mogul deal, one of the questions I've gotten is, Federal-Mogul's growth rate, at least from the history is a bit lower. Any color there, because you - I think, in the initial presentation, you said it would be similar to your overall growth rate. Is there a reason, why it's so low? And then also, in particular, I think, there is questions on whether the iconstructure [ph] owning Pep Boys the complex [ph], so maybe that creates an opportunity in aftermarket. Is there is less of a competitor complex there? Any color there?

[Kenneth Trammell:]

Let me - yeah, maybe cover that in two. On the OE side, in the Powertrain - Federal-Mogul Powertrain and our Clean Air, we've always talked about kind of that 2%, 3%, 4% outpace growth and it's - we see from secured programs from the Powertrain side and Federal-Mogul. They're in the same zip code as we are looking out over the next three years. Same thing from a Ride Performance side, from a chassis side, they're making really strong gains on brakes in the OE side, primarily in Asia, as they get growth there. From an Aftermarket side, there is definitely a perceived channel conflict there, and we think, that's maybe an opportunity as we bring more product lines and more brands to bring more value to both the wholesale channel and the retail channel in aftermarket and position. To remember, one of the big opportunities we have is optimizing the entire distribution network to serve faster and to serve at a lower cost.

[Colin Langan:]

Got it. On Slide 10, just want to make sure I understand with that. The $35 to $45 in content, is that value-added content? I thought in the past, you've indicated like Euro 6d would be more or like $70 or something in that range. Wasn't sure what's little different.

[Kenneth Trammell:]

That's our value-add content.

[Colin Langan:]

Okay. So it'd be like $70 all-in, but value-add would be future show there.

[Brian Kesseler:]

I want to make sure I understand the question, Colin. So if I pick a 2015 baseline up in the upper right hand part of the graph, so value - all-in value-add content high-end - hot-end and cold-end between $110 and $120 in 2015. And then you can see it, it moving on those five-year increments, in that 2020 projection of about $155 to $165 a content.

[Colin Langan:]

Got it. Okay. Because I just - I think in the past, you've talked about $70 type of concept, but I think that's with some of the…

[Brian Kesseler:]

I think that might have just been one of the, either the hot-end or cold-end that might have been discussing at that point in time.

[Colin Langan:]

Got it.

[Jason Hollar:]

And probably total revenue, probably included the value-add - included the non-value-add platinum metals content, which is one of the opportunities that we have, obviously with this acquisition in combination with Powertrain.

[Brian Kesseler:]

Yeah, Colin, I think, would you might be referring to is the EPS - EPA estimate.

[Colin Langan:]

Yeah. I thought you've said in the past something similar to the euro. That's right. Thought that is the benchmark.

[Brian Kesseler:]

Yeah, that was kind of overall, including ICE. This is very specific to the hybrids.

[Jason Hollar:]

Yeah, and that was obviously total content, that was estimated by the EPA and what it would take to meet the regulations, which clearly would include both substrate content as well as value-add content.

[Brian Kesseler:]

And overall system content, all the way up in the engine activity, which is again another great opportunity for the Powertrain Technology business.

[Colin Langan:]

Got it. And just lastly the plant relocation issues. What is the timing of those sort of finishing and then actually being a benefit, that second half we should see?

[Brian Kesseler:]

Yeah, that program launch - begins launching at the very beginning to Q3, and then has kind of steps in different programs that come in throughout the second half. So the cost in the launch - the relocation and launch cost will go away at the launch. I mean, we're basically going from the plant that used to supply to two new plants as we repositioned for better total delivered cost for the system. And we also had to put in two new paint systems with new corrosion requirements. And so paint systems can get a little tricky, tuning them in, for those that are familiar with it. And so that's what will be doing - that's what we did in the first quarter, we'll be doing through, obviously, through this quarter two and then be ready for starting production.

[Colin Langan:]

Got it. Thank you for taking my question.

[Brian Kesseler:]

Yeah, thank you.

[Operator:]

The next question will be from John Sykes of Nomura. Please go ahead.

[John Sykes:]

Yeah, hi, good morning.

[Brian Kesseler:]

Good morning.

[John Sykes:]

Question for you. Looking back at Slide 10, what - if we take that from hybridization to full electrification. Does that entire piece come out?

[Brian Kesseler:]

When you get to full electrification, there is no after treatment required at all. So that from a content per vehicle would come out of the entire vehicle. But if you look at where the growth is, and I think, if you look at the end of the last slide with the projections through 2030. You can see that - or that's 2025. But in a previous discussion, we had primarily to the - at the Federal-Mogul acquisition announcement, through 2038, only 13% of the vehicles built around the globe are forecasted to be full battery electric vehicle. So if you kind of just do the growth rate, there's still more light vehicle powertrains that are hybrids and ICE than that are being built today.

[John Sykes:]

Right. I realized it's a long way off. But everybody thinks long-term in terms of what the business would look like, if we get to a point where electrification is 50%. But I suppose the flip argument is the installed base, right. Because the aftermarket is…

[Brian Kesseler:]

For sure.

[John Sykes:]

Yeah, okay.

[Brian Kesseler:]

For sure. The other thing, we have done in the past, now this is specific to the Clean Air business side, even out of 50% full install rate by 2030. The Clean Air business will outgrow like vehicle production, and what's driving that is, one, the content obviously on the ICEs and hybrids that are - that remain in the other 50%. But also don't forget - the commercial truck off-highway business has huge growth coming between now and that time with new powertrain is coming under regulations specifically in the APAC region. And in the new company 25% of the revenue today already is not related to light vehicle. So a lot of great opportunity in the combined perspective for the Powertrain Technology business to go - get even more of their revenue and earnings often non-light vehicle.

[John Sykes:]

Right. Let me ask this. Is - if you took the - just taking the installed base, and let's just say government regulations changed - to the point, where they wanted the installed base to be more emissions efficient. Is - do you have a product like that could be put on the car to achieve that, on the cars that are already out there that basically are pretty emissions inefficient?

[Brian Kesseler:]

Well, I mean, technically, you could take our Euro 6 and Tier 3 content, and retrofit it. I mean, that would be an outstanding event, if it happened.

[Jason Hollar:]

Having said, John, that the engineering and the resulting performance characteristics of the vehicle would probably not work. In fact, if there is a desire to - I'm going to call it cleanup older versions of after treatment, the more efficiently to do it would be for governments to incent scrappage programs or something to get the older vehicles off the market as opposed to trying to do a retrofit.

[John Sykes:]

Okay, I got it, because the retrofit would be just…

[Kenneth Trammell:]

It would be pretty expensive.

[John Sykes:]

It would be too expensive.

[Brian Kesseler:]

Yeah.

[John Sykes:]

The other question I had, just with the Ford announcement, does that have any impact on you guys or Federal-Mogul?

[Brian Kesseler:]

We have a pretty limited - more of our North America business is tilted towards SUVs, CUVs and trucks. So we're balanced over 80% that way. And that the Ford business represents something very similar. The Focus is remaining, and the Mustang is remaining. And we've got good relationships with them on the truck and SUV platform, so minimal impact to us.

[John Sykes:]

Okay, Great. Thank you very much. I appreciate it.

[Brian Kesseler:]

Thank you.

[Operator:]

The next question will be from Armintas Sinkevicius of Morgan Stanley.

[Armintas Sinkevicius:]

Good morning. Thank you for taking the question.

[Brian Kesseler:]

Good morning.

[Armintas Sinkevicius:]

When we think about the entity as it will look like after the close of the transaction, assuming all goes well, what - any sense on how Federal-Mogul performed in the first quarter? Just that will make up more than half of the company and I'm just trying to get a sense of how the company is - looks in aggregate at the moment.

[Kenneth Trammell:]

Yeah, so they're still a private company. And so obviously don't have good visibility into what their results look like. And certainly don't have anything that we can talk about or release on now. That being said, obviously, we're looking forward to the opportunity that combine them, looks, as we see a lot of opportunity with the synergies, with the other things that we've talked about on our call today to improve their performance and to - in combining with us to improve the combined performance. So we're really more focused on the future.

[Armintas Sinkevicius:]

Okay. And then, can you provide an update on how much remains for anti-trust?

[Kenneth Trammell:]

So I think there was, it's about the same as what we said at the end of the fourth quarter. There was probably around $90 million left, and what we recorded for the reserve in the second quarter of last year. We did say that we anticipate it being able to get that complete by the end of this year. Obviously, we're not anxious to poke folks who haven't asked us yet. But we'll continue to work on the ones that - and that, again, can work with to try and get things resolved.

[Armintas Sinkevicius:]

Got it. Okay. Thank you very much.

[Brian Kesseler:]

Thank you.

[Operator:]

The next question will be from Brian Sponheimer of Gabelli & Company. Please go ahead.

[Brian Sponheimer:]

Hi, good morning, everyone.

[Brian Kesseler:]

Good morning, Brian.

[Kenneth Trammell:]

Good morning.

[Brian Sponheimer:]

First question, I know it might have been 2.5 weeks. Any idea about management teams for the particular businesses and where that will be primarily coming from?

[Brian Kesseler:]

Yeah, our goal, Brian, is that we're going to put a line on the end of Q3 to have that fully bettered and driven out. So that's still kind of a work in process.

[Brian Sponheimer:]

Okay. And then, just on the operations, you got the major truck changeover. Is there any change in incremental content for vehicle going to the new platform?

[Brian Kesseler:]

I don't think a lot on that particular platform.

[Brian Sponheimer:]

Okay, and I guess, last one is that, if - granted it's obviously only one platform. But given that you have the chance to kind of launch it from scratch, would you think that the profitability of this platform would be better just because of you're able to design in your own manufacturing operations little bit better?

[Brian Kesseler:]

Yes. And we're putting the programs as better situated and this particular platform is indexed already for the steel commodity.

[Brian Sponheimer:]

All right, terrific. Thank you very much.

[Brian Kesseler:]

Thank you.

[Kenneth Trammell:]

Thanks, Brian.

[Operator:]

The next question will come from Tom Bandurowski of Brown Advisory. Please go ahead.

[Tom Bandurowski:]

Hi, thanks. Any more discussion on what the pro forma cap structures would look like for the separate entities? Would you align some of the longer dated assets with some of the longer dated liabilities, anything along those lines?

[Kenneth Trammell:]

Yeah, I mean, so Tom, normally, I guess, when you announce a spin, you've owned assets for a longer period of time than we have. So you've been able to have a little bit of time to do the planning. We've given - when we talked about it on the call here couple of weeks ago, we've given some information just - I'm going to call it, it's a 30,000 foot level of what we're anticipating. The business cycle, if you think about it or the Aftermarket Ride Performance business is a bit more stable, because of the significant aftermarket revenue that it will generate. So we said that that will probably be leveraged a bit higher. And the Powertrain Technology business, which obviously has mostly originally equipment or essentially all of the original equipment content, and has a little bit more of a cyclical nature to it. So that's about as far as we have gone. I mean, obviously, we'll look very closely at total liabilities to make sure that we do a very good job of setting both companies up to be successful on a go-forward basis. And as we get more information about it, as we're able to be more specific, we'll certainly start getting that information out.

[Tom Bandurowski:]

Great. Thanks.

[Kenneth Trammell:]

Thank you.

[Operator:]

The next question will come from Joe Spak of RBC Capital Markets. Please go ahead.

[Joseph Spak:]

Thank you. Good morning.

[Brian Kesseler:]

Hi, Joe.

[Joseph Spak:]

With just, I guess, sort of more of a technical question or anything. But with the change in segments, was there also a change in sort of how you allocated some of the costs, because if I look at sort of the - like the left over sort of other, it seems like it was higher year-over-year and then it looks like, maybe the first quarter was restated. So I just want to understand was there something going on there or what - or otherwise why was sort of the corporate allocation so high?

[Jason Hollar:]

Yeah, there were some small differences in changes with how we allocated some of the corporate overhead. Certainly, when the Q comes out you will see the more detailed changes in different cost assumptions that that can be overlaid so we can answer more of those questions.

[Joseph Spak:]

Okay. And then just as we think about the pending combination, and then with the sort of realignment in these segments, so on remain co that will be the new global OE Clean Air business plus the powertrain stuff that comes from Fed-Mogul. And then the other two segments go to spin co, plus the Fed-Mogul aftermarket. Are you going to sort of keep this sort of reporting or should we expect another sort of change in how you're going to report in a couple of months?

[Brian Kesseler:]

Yeah, at combination our intent is to keep Clean Air, when it's in merge co, Clean Air and then Powertrain separated. And then we'll have the two segments that we're now talking about, Ride Performance and Aftermarket with their motor parts. Eventually, for sure I think on the motor parts side there will be some realignment, because the motor parts business in Federal-Mogul also has a weak content in it. And so, we got to work through exactly what the right way to look at and manage that businesses. And that obviously that drives how we'll report out to the public on those parts of the business.

[Joseph Spak:]

Okay. And then just last one. I know it's still sort of early days. But on the initial call you sort of highlighted that Fed-Mogul had some underperforming aftermarket areas or products. Were you able to like learn any more, also provide any more sort of disclosure there or sort of what's some opportunities for - to get those products up to maybe sort of your aftermarket levels are?

[Brian Kesseler:]

Yeah, I think as with any businesses it's got multiple products lines. There are some that do pretty well and there are some others that are underperforming. As we're identifying where those are, as we kind of dig in a little bit deeper, we'll obviously be looking for the opportunities to get those - get the profitability on those back where you'd love or we like seeing it. And also, if there are some that just aren't very well positioned from a portfolio perspective, all options are open. So that's what we go to go take a look at.

[Joseph Spak:]

Okay. Thank you.

[Brian Kesseler:]

Thank you.

[Operator:]

[Operator Instructions] And I'm showing no additional questions. We will conclude the question-and-answer session. I would like to hand the conference back to Linae Golla for any closing remarks.

[Linae Golla:]

Thank you. This concludes our call. An audio replay will be available on our website in about an hour. You can also access a recording of this call by telephone. The playback information is available in our press release. Thank you for joining us today.

[Operator:]

Thank you. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.