Thank you all for standing by. And welcome to the Fourth Quarter Earnings Call. All participants will be on a listen-only mode until the question-and-answer portion. [Operator Instructions] Today’s conference is being recorded. [Operator Instructions]. And I would now like to turn the call over to your host today, to Mr. Mark Oswald. Sir, you may begin.

Thank you, Melissa. Good morning and thank you for joining us as we review Adient’s results for the fourth quarter of fiscal 2018. The press release and presentation slides for the call today have been posted to the Investor section of our website at adient.com. This morning, I’m joined by Doug DelGrosso, Adient’s President and Chief Executive Officer, and Jeff Stafeil, our Executive Vice President and Chief Financial Officer. On today’s call, Doug will provide an update of the business, including his hundred day plan and initial observations since joining Adient in early October. Jeff will then review our financial results in greater detail. After our prepared remarks, we will open the call for your questions Before I turn the call over to Doug and Jeff, there are a few items I’d like to cover. First, today’s conference call will include forward-looking statements. These statements are based on the environment as we see it today, and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from the results made on the call. Please refer to Slide 2 of the presentation for a complete Safe Harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company’s operating performance. Reconciliations from these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. With that, I’ll now turn the call over to Doug.

Okay thanks, Mark, and thanks to the investors and analysts joining the call this morning to review our fourth quarter and full year results. I’m certainly excited to be here presenting this morning, and I look forward to working with you in the future. Before getting into my prepared remarks, I want to let you know there’s a few topics today that we’re not prepared to discuss -- or we’re choosing not to discuss and this is really primarily due to my short tenure here. I’ve only been on the job 40 days. I’m still in the early stages of the hundred day plan, and I thought it was premature to discuss some of the topics. So first, we will not discuss details or answer questions around our expectations for fiscal 2019, including specifics on the first quarter. Next, we will not make comments regarding the long-term structure of our business, including size, portfolio makeup, etcetera. And lastly, we will not provide details related to our customer’s commercial discussions. This is very consistent with our historical approach. I will say we’re deeply engaged on these issues, and you should expect that early next year, we’ll be prepared to have a much more detailed discussion on the future of our business. With that said, we have a lot of information to cover so let’s get started. I’ll move you to Slide 4, which gives you a brief overview of my professional experience. I’m not going to read through each and every one of those experiences. I will say the key point here is that I’ve been in the automotive supply business for 30 years plus. Most of that has been in operations, and most of my operating experience has been with seating-related products, so I’m coming into Adient with a pretty…

Thanks Doug. Good morning, everyone. Turning to our financial performance, as Doug stated in his remarks Adient’s fourth quarter results were significantly impacted by continued headwinds. Starting on Slide 8 and before jumping into the financials, I’d like to point out that there were a variety of onetime non-cash charges that significantly impacted Adient’s Q4 GAAP results. The biggest drivers were asset impairments. The impairments were driven by Adient’s ongoing performance issues that are expected to persist to some degree into the foreseeable future. For SS&M, our analysis resulted in an impairment charge to write down long lived assets that were in use as of September 30th, 2018 to the values reflected by their cash flow. Note that this analysis assesses program cash flows currently in production. The fair values were determined using discounted cash flows associated with the current capital asset base. The net loss impact in Q4 was $718 million for this impairment. Note that these write downs are on long lived assets and don’t impact working capital assets. For YFAI, given our ongoing performance issues, Adient assessed whether impairment existed for our investments in JV. As a result of the analysis Adient recorded an impairment charge of $358 million, which has been recorded in equity income. The after tax net loss impact is $322 million. Fair value was determined using discounted cash flows for the YFAI business. Regarding tax as you recall, we’ve mentioned throughout the year on our earnings calls that due to our lower level of profitability, we have increased pressure to utilize certain deferred tax assets that had been established. Based on the history of earnings in certain geographic regions and forecasted future earnings, it was determined the company would be unlikely to realize the benefit of certain deferred tax assets thus resulting in…

Yes, sir. The first question comes from Colin Langan, UBS. Your line is open.

Hey, guys. Good morning. This is Gene Vladimirov on for Colin. Doug, thanks for all the color on the hundred-day plan. I know it's early days. Just wondering if you could give us some color on what would have been the biggest surprises for you thus far, and what gives you confidence in the competitiveness of the business?

Well, I went through a pretty detailed process before coming on board, so, many of the issues that were out there, I had a chance -- either talking with the board of directors or some of the management team on what the company was facing. I would say I haven't seen anything I'm particularly surprised by. I think what perhaps we've been struggling with is more the speed of corrective action and how fast we can implement it. I think that's been a reflection of some of our performance in the fact that we haven't been exactly spot on with guidance, which, quite frankly, is why we thought we thought it was inappropriate at this time to talk about the first quarter or the full year, because that's where I'm really spending my time, is to make sure we've got that locked down and we've got a plan that we can execute and that the team is absolutely committed to. With regard to competitiveness, when I say there's no glaring issue, I think about it in terms of -- you can start at a very macro level. Do we have a competitive footprint? Do we have operations in competitive, low-cost regions? You can think about it in terms of our customer base. Do we have a diverse mix of customers so there's not an over-concentration of that from a competitive standpoint? You can think about it in terms of the products that we're in. We don't necessarily have an over-concentration. We run JIT plants, we run urethane foam plants, we have trim operations that are competitive against the set. And, I think the key question then becomes the metals and mechanisms where, with the size of the business that we have, we should be much more competitive, and that's where I need to spend some really serious time understanding what we do in that business as we move forward. Certainly, the numbers would suggest that what we're doing today is not something we're interested in doing as we go forward. And so, I've spent a lot of time just understanding that, how fast we can redirect that business and get it back on track.

Got it, OK. Very helpful, thank you. And then, could you give us some color on what you guys are seeing in China? I think a lot of suppliers are calling out that as a source of pressure. Your numbers seem to be holding up OK. So, just curious what you're seeing in the business there, and anything you can give us on your view for the rest of the year and into '19.

Colin, I'm going to let Jeff answer that. Quite frankly, I've been spending my time in the U.S., Mexico, and Europe, as you would expect, based on our results. Jeff has been handling China and is much closer to it. Certainly, he's been here much longer, but I just haven't spent the time there, though I will say I'm spending time later this month to go meet with our partners and get a better understanding of what's happening.

Overall in the China market, there's certainly been a very soft end sales set of numbers recently. Production was a bit better. I'd caution probably all numbers in China right now just because inventory levels have built a bit. Production was down only 4%. With that being said, as we've always said, we have the ability to outperform the China market due to our footprint, customer concentration, and the base trajectory of our products. We're on good customers, we're on good programs. As those OEMs that we're on have generally helped market share, they generally increase content in Seats as well. All those have existed in the performance. So, we're still optimistic that we can outperform the market. As we look forward, I think a real correct -- what's going to happen on China inventory levels and China sales? If there's a stimulus, maybe that will help bring back the inventory in line. If there's not, there might be some soft production, maybe in Q2. I would expect the year to end reasonably well -- calendar year -- and we'll see what they do as far as stimulus goes, but at some point, they're going to have to address the inventory issue.

Got it, OK. Thanks for taking our questions.

Thank you.

Thank you. The next question comes from John Murphy, Bank of America Merrill Lynch. Your line is open.

Good morning, guys. This is Aileen Smith on for John. You cited in the press release that many of the issues you're facing across both your Seating and your SS&M businesses are related to launch inefficiencies. Given that you guys have worked diligently to try and regrow your backlog after the spin from JCI and that 2019 should mark an inflection point on this front -- at least, as you've discussed it -- how do you get confidence that you can rectify some of these launch issues, and they're not more structural in nature?

I think about it in a couple ways. So, I think the company's been pretty open and direct. There's a process in place, and they follow through the two years of development on a new business launch, and to a certain degree, with a couple of these key programs, we've deviated outside that process, and that's impacted us as we've gone into launch. The point I was trying to make in the hundred-day plan is on those programs that have not launched yet, immediately getting engaged on those, and addressing those issues, and then working upstream on launches that are further out to get us that kind of traction. So, the mantra of "back to basics" -- we've had a number of communications with the team -- is let's get those problems exposed early so we can focus on them. It's not impossible to have good launches. I've done it many times throughout my career. It's really just exposing what those issues are well in advance of starting production so you're not fixing them when you're in volume production, you're addressing them well before you launch. The second part is some of the expense that we're incurring associated with launches is outside of our control because our customer is having a hard time launching their products. In the case of a just-in-time seat supplier, if they're not making late with vehicle production, there's still an expectation that you're manned to build at the contractual rate. That drives a lot of inefficiencies in our plant. I call that launch-related. Or, they have a lot of volatility in their build rate, so they don't build exactly what they forecast to build, and that can be on a daily basis. When that happens, it creates a lot of disruption in our system that equates to our standard labor cost, that can equate to premium freight to get alternative product in place that wasn't in their initial release, and that also drives over time. And, many of our customers are working six-day or seven-day weeks to get to their volume projections that they have committed to their marketing groups. That's launch-related, but it's also promotion related, so I imagine some of the conversations I've had with customers is to say, "This needs to be addressed. We cannot sustain that inefficiency in our operation." And, again, some of the plans that have been in place that we would get that addressed pretty quickly with our customers -- that's taken much longer to get done, and since coming here, I've just made that a much higher priority to drive that, personally meeting with the customers, personally communicating that message, and demanding a timeline to get some of that fixed.

Great. Thank you very much for the color. Second question around commodity costs that you guys continue to cite as a headwind. Can you remind us what of your raw materials complex ultimately gets passed through to your customers with some lag and what you are on the hook for in terms of price changes? And, the commodity headwinds that you're seeing right now -- are they more so on the metals side or on the resin side?

Great question. Just going in reverse order, most of what we've experienced recently has been more in the steel. When the tariffs were put in place earlier this year on steel, even though we don't import much of our steel so the tariff doesn't directly impact as much, it drove up the cost of domestic steel pretty dramatically. The way our contracts went in, a lot of that hit us over the summer as far as the increases. From a recovery -- and, I say the chemical side is a little bit more of a mixed bag. Some of the chemicals we have -- there's one particular one called TDI, which is a chemical we use in our foam process. We had mentioned a reactor that had gone offline a couple years ago and came back online this summer, and TDI prices have adjusted downward, and that's been helpful to us. But meanwhile, oil prices have driven up some of the other chemicals directly linked to petro prices, and that's hardest, so I'd say maybe a little bit of tailwind, but probably more neutral on the chemical side. As it relates to recoveries, we generally expect to get as close to 100% as we can. We have a fair amount of our recoveries that are mechanical, and then, some that have to be negotiated on an annual basis or on a regular basis with our customers, but we would generally expect to receive most of that back, but definitely with a time delay. We have a portion of our customers that take a year or re-measure that every year -- some that do it automatically, some that are every quarter, and some that are every two. So, what we typically say is we have about a six-month lag on average. It can be a little bit longer. Especially if prices have as much volatility as they've had recently, it can take a little bit longer at times.

Great. And, last question, on the suspension of the dividend, longer down the line, what would you need to see with respect to financial performance or leverage in order to reinstate the dividend? Should we be thinking about a net leverage target level after which you'll reinstate it, or alternatively, is it really just a function of the business finding its footing again and results in your various segments improving?

Great question. As the board looks at the dividend, it's obviously not an easy thing to make that decision. We felt that it was prudent given the performance, given the current market we think we're entering into, to suspend it. We don't have a specific mark of when we'd reinstate it, but clearly, one of the criteria is to get our footing back operationally as Doug executes his plan, as we have -- we would expect to turn around this business. We still have... The business fundamentals are still there. The cash flow fundamentals of what we believe the Seating business represents are still there for this to be a cash-making, quite profitable enterprise as we move forward and get past some of these current issues that have plagued us, and as we complete that cycle, we definitely will revisit the dividend question.

Great. That's very helpful. Thanks for taking the questions.

You're welcome.

Thank you. The next question is from Brian Johnson, Barclays. Your line is open.

Hi. Welcome, Doug. I just want to follow up and drill down on that last comment, particularly around the process deviation and those five critical launches. What part of the process -- two questions. What specifically deviated, and second, when you look at those problem areas, how much is remediable in terms of the dollar headwind from manufacturing, supply chain, cost save, self-help -- that is, efficiencies, things you can control in the four walls of your factory and supply chain -- versus how much were the contracts coming in and/or change orders as they piled up, just fundamentally underpriced, and you're going to be stuck, absent charity from OEMs?

Fair question, complicated answer, so I'll have to split it into two pieces. So, some of the problems are emanating from our "complete seat" side of the business. When Jeff spoke about Seating America, that's more complete seat. And then, obviously, we've talked about SS&M in the past, and I'll have to say that's got some different characteristics. What is common between them is from award to start of production, I think what's inherent to Seating and Mechanisms is the product is constantly evolving. What you quote and what you launch at SOP is typically different than what it was envisioned to be. So, you have a lot of changes, and there's a lot of negotiation throughout that process of who's responsible for the change. In Seating, it's -- in complete seats, it's pretty grey because Seating tends to be less objective in what is good and bad, and in SS&M, it's more objective, it's more quantifiable, and so, the discussion is a little bit more direct. As you go through that process, there's certain times that are reflection points, like "I'm about ready to release tools," "I'm about ready to release capital," and I would say at those points in time, you have a very sobering conversation with your customer and you have to have a very good idea of what your profitability projection looks like. Those are the times that you decide whether you're prepared to go forward or not, and if you're not, what needs to happen. I would say on the commercial side -- and, where I think the program derails a little bit -- is much of that discussion was left to be had during start of production, and that's the worst time to have the conversation with the customer because at that time, the…

Okay. And, just two follow-ons around that. First, over the last quarter or so -- and, certainly, the 39-ish days you've been there -- do you have enough confidence that the operations -- whether it's SS&M or Seating -- are delivering, whether they're making money or not to the customer's satisfaction, hence your nod at risk of business holds? Or, certainly, you have a very aggressive set of competitors out there -- one I know you're quite familiar with -- who smell blood in the water and are going to go hard at you. So, are you comfortable with the basic OEM relationships you're delivering to hold on to the existing and grow the new business?

At this stage, I'm not uncomfortable. I've been in situations in the past -- and, that's not a reflection here -- where the company with every single one of its customers was on new business hold. That can change over time. I would say, though, that there's a bit of an indifference that we have addressing our most critical issues first. We're telling the customer, "Look, these issues need to get fixed, and new business is not necessarily a commodity for the negotiation. We want to fix the business we have first. We'll talk about new business aside from that." And, I would say that is the case for some customers that are severely distressed. We have many customers that we like a lot, we like the products they make, they like the products we make, where business is pretty stable, and we've got a stable team that has a mature relationship that's managing that business day in and day out. It doesn't require a lot of oversight by someone like myself. That's done in a different way, and we're on solid ground there, so we don't see our clients vulnerable from the competition.

Okay. And then, when you looked at the processes for these deviations, you identified who or how the decisions were poorly made, and then either replaced the people or redesigned the process to get the right people involved?

On a process side, what we've done short-term is tightened the leadership's engagement on those decisions. So, from a...delegation of authority, we've temporarily lowered that so guys like myself and Jeff are much more actively engaged in some of those decisions. It's fairly early on. So, we're overcorrecting right now just to make sure we get back on track. As far as the people go, I would say the one thing I'm not doing is coming in and making a lot of organization structure changes. I don't see that as a good thing to do at this time. I've never seen it particularly helpful in the midst of challenging issues, so we're leaving the organization as is, we've put some corrective action in to make sure we're getting more eyes on some of those key decisions, and I'd also say we're bringing in some folks to bolster the organization. Just prior to my arrival, two key individuals -- one for North America, one for Europe -- were brought in to help the organization. They happen to be people that I've worked with in the past. One came out of Lear, the other one came out of TRW. We just brought in a new head from Norlock to run our purchasing organization. He came out of that after he ran global purchasing there. Most recently, he was at Aftails running North American operations. Not announced yet, but will be soon. We'll bring another key individual in to help us with your European business, came out of Zataftiardofteyu, that I've worked with in the past. So, kind of a combination of some short-term actions and longer-term.

Thank you.

And, with that, can we move to our last question, please?

Yes. The final question is from Joe Spak, RBC. Your line is open.

Thanks. I guess the first question is -- if we think about SS&M more sequentially, where it sort of took a step back, would you attribute that more toward the macro factor, as you mentioned, or did something else take a step back operationally as well?

Joe, I would say a couple of things. Macro factors didn't help -- things like the steel prices I mentioned, tariffs, and the like. But, I would say as they entered into launch season -- and, our fourth quarter is really launch season -- some of the expectations that the group had on the performance of it were a bit optimistic or proved to be a bit optimistic based on the experiences they had. So, I'd say it was more launch-related and season of launches as they went into some fairly difficult ones, primarily in Europe this time.

Okay. And then, Jeff, on the credit amendment, I understand getting more balance sheet flexibility. I was wondering, though, if you could comment -- is the covenant something you think you are in danger of crossing, or is this really a function of you're not quite sure of the depth yet, so you just want to give yourselves a little more cushion?

Well, Joe, given the performance of the business over the course of the last year, while we had all the revenue, which is usually one of the better barometers to forecast in the automotive business, the operational issues have really driven down market. So, there was an element of making sure from financial flexibility we were strong. I mentioned that the bank's leverage calculation was a shade over 3x. Our previous covenant was 3.5x. We thought it was prudent to move it up to 4.5x and give ourselves extra room considering the environment that we've been on a micro basis in our business, and then, as you start to factor in some of the other macro factors -- what happens in China, what happens with commodity prices, what happens with production, what happens with our turnaround efforts individually. So, all of that factored in to say that was a prudent thing to do to adjust the covenant level.

And then, maybe finally, housekeeping -- I know you're not talking about '19, but is there any indication you could at least help us understand where the tax rate goes to? Does it go to something north of 20%, or is it still too early to figure that as well?

Let me come back to that one. I guess I would just focus -- our effective tax rate will be less meaningful because as you look at it, we've put a lot of valuation allowances in place, so it will definitely drive up our book tax rate. I would say our cash tax rate, though -- like I said, it won't impact. We'll give some more guidance on that as we -- I need the full-year plan before I can really give you a full-year tax rate.

Fair enough. Thanks.

Thanks, Joe.

Thank you. And, for final remarks, I'm turning the call back over to Doug.

Okay, thank you. Just in closing, I just want to make a couple comments. First, I appreciate everyone's participation today. I do personally look forward to working with you in the future. I want to be clear: We're driving a very strong message in the company. It's not intended to be a tag line, but I think "back to basics" really is a good summary, and I think it resonates with the team here because this company has had a lot of success historically, and it's a lot of the same people that have had that success that are here today, so when we say, "Let's get back to basics, let's focus on the task at hand, let's prioritize, isolate our problems, we'll fix them," all the feedback I've got is that that's been well received and people are excited about approaching our situation that way. And then, the other message that we are really driving here is this expectation that everything we do and everything that the team does is driven around getting our financial performance back in line, and if you're doing something that's not focused on that, you're probably not working on the right thing. Back to the question "Is there anything that surprised me?", to date, I have not seen anything that's happening in some of our tougher situations that I haven't seen before and I haven't been involved in addressing and fixing, and I'm fully confident that's the situation here. It's a function of time, and determining what that timeline is when we'll be back to you and provide you a lot more transparency in how we see our future. Thank you.

Thanks, everyone.

Thank you.

Thank you. And, this does conclude today's conference. You may now disconnect.