Mark Oswald - Head of Investor Relations Bruce McDonald - Chairman and Chief Executive Officer Jeffrey Stafeil - Executive Vice President and Chief Financial Officer.

Aileen Smith - Bank of America Merrill Lynch Colin Langan - UBS Samik Chatterjee - JPMorgan.

Welcome, and thank you for standing by. At this time, all participants will be on a listen-only mode until the question-and-answer session of today’s conference. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. May I introduce your speaker for today, Mark Oswald. Please go ahead..

Good morning, and thank you for joining us as we review Adient’s results for the Fourth Quarter of Fiscal Year 2017. The press release and presentation slides for our call today have been posted to the Investor section of our website at website at adient.com.

This morning, I’m joined by Bruce McDonald, our Chairman and Chief Executive Officer; and Jeff Stafeil, our Executive Vice President and Chief Financial Officer. On today’s call, Bruce will provide a few opening remarks, followed by Jeff, who will review the financial results in greater detail.

At the conclusion of Jeff’s comments, we will open the call to your questions. Before I turn the call over to Bruce, there are few items that 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 these forward-looking statements 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 of these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. This concludes my comments.

I will now turn the call over to Bruce McDonald.

Bruce?.

Thank you, Mark, and good morning, everybody. We do have quite a bit to go through this morning with our fourth quarter and full-year results, as well as we are going to be providing some information of our backlog and our guidance for 2018 since this is our fiscal year-end.

It’s hard to believe it’s been a year since we first formatted as an independent company. And I’m happy to report our fourth quarter results released this morning solidified a very successful year for us.

Equally important to executing a successful year one, our results for this year laid a firm foundation for delivering on our midterm financial commitment, and I’m proud to say we’re solidly on track. If you flip to Slides 4 and 5, I’d like to talk about a number of accomplishments, especially during the fourth quarter.

Starting off with our financial performance, let me first touch on a few of the key metrics, and obviously, Jeff will get into this in a little more detail in his section. First of all, Q4 adjusted EBIT of $296 million was up about 3% year-over-year, with the corresponding margin of 7.4%, which was up 10 basis points year-over-year.

For the full-year, we demonstrated solid execution against our commitment to grow our earnings, and with revenues being down, adjusted EBIT and corresponding margins were up about 8% and 80 basis points year-over-year, respectively. We’re well on our way to achieve 200 basis points of margin expansion that we’ve committed to achieve.

As you would expect, the operating performance dropped down to the bottom line and our EPS, which benefited from our rate dropping in line with the planning initiatives that Jeff laid out last quarter, EPS decreased 9% here in the fourth quarter at $2.34 a share.

In addition to the positive accomplishments impacting the income statement, our balance sheet showed exceptional strength here at the year-end and we’re really pleased with the cash performance of the company. Looking at our cash balance here at September 30, which totaled $709 million.

I mean, this is a great outcome, especially when you consider this includes the outflow of $350 million approximately associated with the acquisition of Futuris, which we completed on September 25.

If you look at our leverage, our net debt and net leverage of $2.77 billion and 1.73 times, respectively, at the year-end, they also reflect the positive accomplishments that we achieved during the year.

I would like to just spend a couple of minutes on Futuris and just highlight a strategic rationale, which we outlined as part of our August investor call when we announced this transaction.

Geographic benefits first and foremost is really significant for us, especially in North America, where it helps fill up our surplus capacity and outside North America exposes us to some faster-growing markets, Thailand, which is nice market for us, very profitable, and further diversification in China where Futuris had exposure to some of the Chinese local brands.

Also, this acquisition improves our customer diversification, and we talk primarily through the presence that – the increased presence that picks up out of the West Coast.

And equally importantly, on the cost side of the equation, we see the acquisition of folding Futuris, which is obviously a much smaller company in the Adient into our existing infrastructure and being able to take advantage of our scale and our manufacturing prowess here.

We think there’s a lot of low-risk synergies on the cost side that we can deliver fairly quickly. Despite the deal closing just over a month ago, our integration teams have already made excellent progress integrating the business into Adient. Moving on to Slide 5, I guess, the comment on the Frankfurt Auto Show here that was in late September.

Here at the show, we demonstrated our AI18 vehicle and I know a lot of people on the call were at our booth in Frankfurt, thanks for attending. But this really highlight about 21 new innovations.

And I think the important thing is the demonstrator vehicle that we highlighted in Frankfurt really showed kind of our thinking and some of the thinking that we’re getting back to talking to consumers and customers and some of our OEs in terms of what future cars are going to look like when they’re fully autonomous and geared towards a shared experience.

And so we got great customer feedback from our traditional customers and our West Coast customers.

And this has demonstrated a vehicle that we intend to take out on road shows to our customers really to get their input and start engaging with them on a strategic level in terms of long-term trends that we see happening in the interior, as these car bodies migrate to being more of a living room on wheels than obviously a driving machine.

Another important accomplishment in the quarter, and I would want to highlight this one is, we have a number of joint ventures in China 2017 in the seating side.

During the quarter, we were able to amend the rights agreement to an entity that we owned 52% of, but previously we didn’t have the language in our joint venture agreement governance structure to enable us to consolidate the joint venture.

We were able to renegotiate the terms of that joint venture, which is 52% owned, and as a result, consolidate that here in the fourth quarter. So that’s something that’s important to us to bring more of our China growth on – into our consolidated operations.

So I wouldn’t hold your breath that there will be a lot more of those, but we’re chipping away at trying to improve the transparency of our communications around our joint ventures in China and clearly bring them onto our consolidated full house.

This consolidation, which we achieved at the beginning of fourth quarter added about $65 million in terms of our top line sales. And then lastly here, I would like to note that during the quarter and Jeff will talk about some of the adjustments here in the fourth quarter. But we did take a restructuring charge to achieve some headcount action.

And in aggregate, we’re looking to take out about 550 people, 10% our executive ranks. And that was really designed to get us the additional 40 or 50 basis points that we need to deliver to get the 150 basis point reduction SG&A costs that we committed to as part of the separation from Johnson Controls. Turning to Slide 6.

I’m real proud of our launches here in the second quarter. And we expect these really demonstrate our new products and the leading market position that we have. Just a few comments and I’m not going to touch on all these, but a few comments you see there’s a high concentration here of trucks, CUVs and SUVs and luxury vehicles across the world.

We like that – these trends, because obviously, there is a significantly higher vehicle content in these vehicles versus passenger cars, and we expect this trend to continue going forward.

If you look at some of these launches there’s a good mix of replacement business with things like the Buick Enclave, the Pathfinder at Nissan, and the Land Rover Discovery Sport, and those will be replacement type programs. And in terms of new for us would be the BMW X5, the Porsche Cayenne and VW T-Roc.

So a real nice mix of replacement and new business. I would also point out that on the BMW and the Porsche launches, those included our seat structures and mechanisms. And as you know, growing and improving the results for metals operations is key to us going forward.

We did, however, in this quarter, we’re seeing the big ramp up in launches in our seat structures and mechanisms. And we did experience some launch challenges in the quarter that we expect to continue on here in the beginning of 2018, and I’ll expand on that in a little bit of – in a couple of slides forward here.

Shifting gears and turning to Slide 7, I would like to talk about our backlog. And this, I think, is another great is – story for the company. The numbers here that we’re showing on Slide 7 reflect Adient only, so these numbers do not include any backlog impact from Futuris.

We expect to have a little bit of tick up from Futuris, but those aren’t in these numbers.

And while these typically given our backlog guidance in the – at the Deutsche Bank Conference in January, we think it’s important to put them out here, because it sets the context for some of the investment spending that we have to do as we enter 2018 and is implicit in the guidance that Jeff is going through in a little bit more detail later on.

But as you can see, I mean, a few takeaways here, I think, the company has been very successful reigniting our growth engine, our backlog at just under $3 billion is up 22% year-over-year. And I think, there’s a few key points that are really salient to consider here.

First of all, consistent with previous years and in line with new business wins in 2016 and 2017, our organic business – our consolidated business continues to see organic growth. When we think about last year, when we separated from Johnson Controls, our consolidated backlog was slightly negative zero to slightly negative.

And this year, you can see we made great progress in booking business in 2019 in 2020, and our consolidated backlog is about $1.5 billion, which is 51% of the total. So a huge shift from being no consolidated top line growth to $1.5 billion here in the next couple of years.

I think that reflects the fact that our industry-leading customer diversification and the strength that we have in terms of our complete product portfolio, including our mechanisms portfolio.

There are and there always will be shifts in terms of the movements in terms of what’s in and out of any specific year, and maybe just give a few examples of that. So if you think about our consolidated business, a perfect example would have been the Ford Focus, which we had in our consolidated backlog in 2019 [ph] last year.

Throughout this year, we lost that business when Ford made a production change to a facility in Mexico that wasn’t supported by Adient, and ultimately came back to us in 2020 as unconsolidated backlog of that, but vehicles now scheduled to be built at a facility that we have in China. So those are kind of things that we see all the time.

Similarly, if you look at our unconsolidated business, we saw a pull ahead of couple of big programs, the VW and BMW launches that were scheduled for 2018, that were pulled forward into 2017. So again, back – there’s a lot of obviously detail in these numbers.

But I think the sort of key takeaway is, we’re back in the growth fold, our consolidated business is growing again, and we continue to win share in the marketplace. Turning to Slide 8. I think, this is just a good reminder of some of the inorganic and adjacent growth opportunities that we have.

And I’ve already touched on the Futuris acquisition, so I’m not going to spend any – anymore time on that. As it relates to our collaboration agreement with Boeing, our excitement levels continues to climb as we advance our several new seating concepts.

We have a – we’re really positive and pumped up in terms of some of the opportunities that we’re seeing in the aircraft space. And you should expect us to announce some exciting news as the quarter progresses here in terms of the – our outlook for aircraft seating business and the opportunities that we have.

We’re not in a position to comment on those at the time of this call, but we will be in a position later on, certainly towards the back-end of the quarter. Then finally, we announced as part of – at the Frankfurt Auto Show that we’re collaborating with Autoliv.

And this, I think, is a real important initiative, because as we think about the interior of autonomous vehicles, in particular, drivers and passengers are going to be spending more of their time in non-driving activities and not sitting in the traditional places where they sit in the vehicle today.

And that’s going to have profound implications on HVC, on the human machine interfaces that are in the center stack of steering wheels, those are going to have to change as the occupant becomes more distant from that.

And the delivery of safety, when the occupant isn’t sitting in a set location, how we deliver a safe environment to our – to the passenger is going to become critical.

And so between our leadership on the seating space, our leadership on the interior side through our joint venture with YFAI, and Autoliv’s leadership position in the seating – in the seatbelt and airbag side, we’re pretty excited about putting our combined resources together. It’s really how to shape the safety systems of vehicles in the future.

I’d like now to spend a little bit of time upfront and sort of being transparent here in terms of our seat trackers – seat structures and mechanisms business on Slide 9.

And I guess, I would just like to really start by grounding folks in terms of where the sort of initiatives that are underpinning our confidence in our ability to improve the margins here by a couple of hundred basis points.

So first of all, we have a number of restructuring initiatives that we at a handful of plants largely in Western Europe that we need to close down. Those plans are in good shape. We’ve agreed with works councils program closure dates. We’ve got program end dates negotiated with the customers.

So we have a very good line of sight in terms of planned closures for a handful of facilities that will happen in 2019 and 2020. We’ve always said the restructuring part of the metals turnaround in the 2019 and 2020 story with very good sight of visibility.

And we – and the headcount and the losses that those facilities have, we’re highly confident we’re going to put behind us.

Secondly, is making sure that our investments in China payoff, and we sort of set ourselves an objective to double the equity income from our metals operations in China, which are expected to grow from 50 million to 100 million by 2020. And there I would tell you, we’re solidly on track.

For those analysts that were able to attend our Shanghai Investor Day, you were able to see the – one of our new facilities over there. Our Chinese business, we have high teens margins. We’re adding our largest mechanism facility in the world over 900,000 square foot facilities under construction right now.

And right now, we’re tracking on pace to take our equity income from 50 to 150 by 2022. So we feel real good about getting from the 50 million to 100 million by 2020, with another 50 million of equity income growth lined up here between 2020 and 2022. So that element, I’d say, is flashing green.

Then lastly, on the launch side and growth, there are two big initiatives. One is, we’re changing over a product portfolio in terms of recliners and tracks. We call our T3000 recliner and T3000 track.

We have brand-new products that are ramping up right now, which offer significant improvement in cost, weight, package size, especially versus our previous product and their best-in-class versus the competition. Just to put those in perspective, we made 60 to 80 million recliners and tracks per year.

So we’re in the middle of a four, five years phase right now. We’re launching – this year, we launched our track 3000 changeovers that will ramp up here over the next three to four years. And in 2018, we’ll be the launching the first T3000 recliner production here in North America. So those initiatives are on track.

We’re having some, I’d say, some glitches here ramping up T3000 recliner, which is really around the fact that if you look at the volume growth that we have around CUVs and SUVs, we’re facing much higher demand from the market in terms of recliners, which would be in the second row of that sector of the market.

So we’re incurring some premium cost and labor inefficiencies as we try to ramp up to reflect this unprecedented market demand for our product. Unfortunately, we’re also looking to grow our structures business.

And here, we’re having – we have a couple of big structures programs that were launched here in the fourth quarter that are causing us some problems.

And these would be problems associated with manufacturing issues, supply chain interruptions caused by the Mexico hurricane, sorry, Mexican earthquake and hurricane and are just creating pretty big launch inefficiencies and problems in our manufacturing operations.

In the fourth quarter, these totaled about $19 million, of which $13 million of that was premium freight, so we had the air freight product to our customer to minimize the impact of our problems on their assembly.

Unfortunately for us, these launch challenges are going to continue into the first quarter or two of 2018, as we cycled through our launch curve and we get some of these issues behind us. In addition to some of these launch challenges, and Jeff will take you through our bridges in terms of fourth quarter numbers.

We do have some shorter-term, normal course type headwinds associated with highest steel prices. And we talked about some of the one-time events with the flooding, things like that, we’ll get those behind us.

And as just a reminder to the listeners, we do have arrangements in place to recover higher commodity costs, but those work in areas, and so in a time when we’re in a rising environment like we are now, it takes a little bit of time for us to get those through.

So we feel pretty good about our ability to get that, but it’s going to take us a little bit of time. Turning to Slide 10. I mean, I just would – at the bottom here, I would like to talk about some of the actions that we’re taking – I’m sorry, talk about some of the actions that we’re taking here to address our challenges.

First of all, we reassigned about 100 resources from elsewhere in Adient to work on some of our key issues and key launches here. We’ve also gone through and started taking a look at the launches that we have coming up in front of us here in 2018.

So that we can get in front of any issues and start working with our customers to better manage some of these late changes in terms of the design of the products. So that we can avoid get having these difficulties, as we head into production. And then lastly, just a comment, I’m sorry, on the current operating environment.

I think, if you look at some of the positive things that we’re seeing, we continue to see higher seating content per vehicle, which is driving our revenue up.

In terms of, if you look at the production environment in North America, we expect it to be fairly flat with some continued shift softness in passenger car being offset by higher demand on the CUV and SUV side and pickup trucks. China, for the year, we expect to be relatively flat.

We do think there will be some choppiness, particularly here in the first quarter. And as you’ll recall, last year, in the quarter that we’re in right now with exceptionally strong production environment and as there was some pull-forward demand associated with the expiration of some tax credits, we’ll have to see how that sort of shapes out.

It wouldn’t surprise me, if we see some softness here in Q1 for us. But nevertheless, I mean, we’re long-term bulls on the region. We’re doing great in China, and that’s a key area in terms of where we want to make investment going forward.

In terms of Europe, we see the production environment increasing modestly as the region sort of gets back to its pre-recession levels, albeit fairly slowly. We continue to see in a flat environment strong growth in our equity income, and Jeff will sort of talk about that later on.

For next year, we’re expecting our equity income to go up over about just over 10% to $435 million. We’re making great progress on our growth initiative, both our core business, our consolidated and non-consolidated seating business and really excited about the opportunities that are adjacent markets. Our backlog is growing.

And as we detailed a few minutes ago, I just feel really good about the prospects that we’re facing in terms of our aircraft business. As you can see, in conclusion here, as you can see from our financial results for the year, I think, we’ve made great progress in terms of demonstrating our commitment and our ability to expand our margins.

We’re aligned with our guidance. SG&A this year has been the primary driver and we expect to see some more progress on that last year as our headcount initiatives take hold. And on metals, we’re going to work through some short-term issues.

We think we’re going to be back on track in the middle of 2018 and beyond for us to get the improvements that we quite rightly expect from that business. Commodities is a focus for us right now. We do expect them to be a headwind, especially in the first-half of 2018.

And our exposure – and our commodity exposure be not only in steel, which we talked about previously, but also in some chemical prices as well. After looking at the various headwinds and tailwinds. I mean, I still netted out to us a net positive here in a favorable environment. We’ve got – and we continue to have solid execution plan.

And our ability to grow our earnings is entirely dependent on self-help initiatives. Any gains that we get from the market we’ll take them. But right now, just like we were going into 2017, our ability to improve the margins in our business is entirely within our own control.

So just before I turn it over to Jeff, I just say, I’m pretty pleased with the accomplishments that we’ve delivered here in 2018. I’m excited about the opportunities that we face as we go into 2018.

And we feel really good in terms of the results that we delivered this year, both in terms of earnings and cash, and also the value that we’ve created for our shareholders. And Jeff, with that, I’ll turn it over to you to go through the numbers in a little bit more detail..

Thanks, Bruce. Good morning, everyone. A lot to cover, so I’ll go kind of quickly, but certainly a lot to cover in our financials today. Turning to our financial, hopefully, you’ve had a chance to actually review the presentation that we posted earlier.

And as Bruce stated in his remarks, Adient’s fourth quarter financial solidified a very successful year one. We mentioned on our third quarter call that we intended to finish the year strong and considering the headwinds that we faced during Q4, I’d say, the team did a good job delivering on our 2017 financial commitments.

Before jumping into the numbers, let me make a quick point on our Futuris acquisition. Although we closed on September 22, the impact was negligible in the quarterly earnings, but the balance sheet reflects the full transaction price. I’ll call out the details on the impact shortly.

As you can see on Slide 13, we had a good quarter in many fronts, including our continued execution on driving earnings growth and margin expansion. Adhering to our typical format, the page is formatted with reported results in the left and our adjusted results on the right side.

While the reported results show roughly $420 million increase in EBIT and over $13 per share of EPS growth, we will focus our commentary on the adjusted numbers. These adjusted numbers exclude various items that we view as either one-time in nature, or otherwise skew important trends in the underlying performance.

For the quarter, these items included $151 million gain related to our China joint venture consolidation; the $40 million restructuring charge, Bruce referenced, primarily relating to SG&A, headcount reductions; and $45 million mark-to-market gain related to our pension and post-retirement plans.

On a side note and speaking of pensions, as a result of higher discount rates and the company contributions, the company’s unfunded pension and OPEC totaled $110 million at the end of fiscal 2017, compared with the $184 million a year earlier.

Moving on, adjusted EBIT improved 3% to $10 million versus last year, which represented a 10 basis point improvement. Meanwhile, adjusted equity income for the quarter was $103 million, up 5% compared to the same period last year.

You’ll notice in our results posted today, Adient’s equity income in prior period was revised due to an accounting adjustment. As background, during the fourth quarter, it was determined one of Adient’s unconsolidated JVs applied in adjustment to their U.S. GAAP financial statements, which capitalized certain engineering costs.

Adient’s policy in line with U.S. GAAP is to capitalize engineering cost only when there is a legally enforceable contractual guarantee of recovery. Although, the JV is fully recovered, all such engineering costs to date contractual guarantees are not in place to ensure recovery.

As a result, the JVs engineering expenses were understated in the periods in which the engineering costs were incurred, causing an overstatement of the affiliates net income. The impact to our fiscal 2017 results was approximately $12 million, all of which incurred – occurred in the first three quarters.

The impact for fiscal 2016 was $13 million, and for fiscal 2015, it was $15 million. The impact of the revisions are included in the prior period results page contained in our slide deck. Important to note this does not impact the previously discussed trends, for example, growth rates for cash conversion of the company’s equity income.

Finally, adjusted net income was up 8% year-over-year at $219 million. EPS increased 9% to $2.34 per share. Slide 14 provides a quick summary of our full-year 2017 financial metrics. Adjusted EBIT improved 8%, or $88 million versus last year, which represented an 80 basis point improvement. Equity income was up just over 8% over the last year.

Adjusting for FX, equity income was up 12%. Important to note, the 12% increase in equity income outpaced our total unconsolidated sales growth, which was up about a 11% on the same basis. A great result, which demonstrates our commitment to maintaining our strong margins in the region.

And finally, adjusted net income and EPS were both up 10% year-over-year at $878 million and $9.35, respectively. No doubt, very strong performance for the year as we delivered on our commitment to grow earnings and improve the margin profile of the business.

Focusing back at the quarter, let’s breakdown our fourth quarter revenue in more detail on Slide 15. We reported consolidated sales of just under $4 billion, an increase of $47 million compared to the same period a year ago.

As Bruce mentioned, revisions to our rights agreement, one of our seating bankers in China resulted in our ability to consolidate their financial results. Positive impact for revenue in Q4 was $64 million. In addition, foreign exchange had a positive impact on our sales this quarter compared to the same period last year by approximately $49 million.

The primary driver was the euro, as the euro to USD rate averaged 1.18 in Q4 of this year versus 1.12 in Q4 of 2016. Partially offsetting these positive benefits was a modest reduction in volume as we cycle pass the negative impact related to our prior period capital constraint.

As Bruce mentioned earlier though, the acquisition of Futuris will particularly help our North American business, as this region had the hardest hit by those capital constraints in the past. Moving on with regard to Adient’s unconsolidated revenue, growth remains strong.

Unconsolidated seating revenue driven primarily through our strategic JV network in China grew 13% year-on-year. FX did not have an impact in the most recent quarter. Broadly speaking, this outcome significantly outpaced vehicle production in the region, which was relatively flat.

Adient continues to capture the benefit of our position in the market plus in improving vehicle mix, namely the switch from passenger cars to SUVs and CUVs and added content. For the year, unconsolidated seating revenue increased to just under $8.7 billion, up 14% when adjusting for FX, and no doubt a great outcome.

Unconsolidated interiors recognized through our 30% ownership stake in Yanfeng Automotive Interiors, also grew at a strong pace compared to last year. Excluding the lower margin cockpit sales for both periods, interiors sales were up approximately 5% in Q4 versus a year ago.

If you recall, about 50% of our unconsolidated interior sales are generated outside of China. So the results when adjusting to the low margin cockpit sales are quite impressive. Moving to Slide 16. Adjusted EBIT expanded to $296 million, an increase of approximately 3% versus the same period last year.

By segment, our seating adjusted EBIT increased 5% year-over-year to $274 million. Within that $274 million, Adient’s unconsolidated seating business contributed $81 million, which was up just over 9% compared to last year.

The consolidation of the China JV provided a net benefit of $5 million to our EBIT, despite equity income being adversely impacted by between $3 million and $4 million year-over-year.

Adjusted EBIT for interiors was $22 million for the quarter, down $2 million compared to last year, primarily driven by various growth and standup investments, such as IT infrastructure. The corresponding margin related to the $296 million of adjusted EBIT was 7.4%, up 10 basis points versus Q4 last year.

The primary drivers contributing to the year-over-year margin improvement include SG&A savings, which contributed approximately $58 million of improvement year-over-year, excluding engineering; improved operational performance contributed approximately $9 million; and finally, a higher level of equity income, which as I mentioned a moment ago, was up about $5 million year-over-year.

However, we did have roughly $65 million of offsets to those items, namely material economics, which totaled just under $40 million, lower volumes of about $6 million and launch-related headwinds related to our metal operations of about $19 million, $13 million of which related to premium freight.

With regard to material economics, steel pricing, although down from its high point earlier in the year showed a recent upward momentum and continues to be elevated versus last year. And as Bruce mentioned, chemical prices continuing to – continue to rise during the quarter.

Recoveries based on index agreements with our customers offset price increases are providing a partial offset. However, it’s important to remember or remind you of approximate two quarter lag that exists until our price adjust in a rising price environment.

And as Bruce mentioned earlier, challenges associated with certain of the launches within our metals operation created unexpected headwinds in Q4, the most significant was the need for premium freight.

Of course, the unexpected headwinds to premium freight and launching efficiencies were on top of the ongoing operating challenges the team worked through such as rising steel price.

Although our team remains confident in the plans to significantly improve the margins of the business versus the June 2016 LTM results, we do expect certain of these headwinds, such as premium freight, elevated launch costs and an elevated steel prices to be with us as we progress through 2018.

I’ll have more on fiscal 2018 expectations in just a minute. Important to note, the progression to our 200 basis point improvement in margins remains on track. On Slide 17, we provide status of how each of those buckets, such as SG&A, metals and the offsetting growth investments are progressing.

Adient’s September 2017 LTM margin, excluding equity income of 5.24% is up 76 basis points, compared to the June 2016 LTM results, which is the starting point from where we are being measured. We’ve also included the progression of our EBITDA margin for the same period.

Giving the amount – given the amount of growth investment to capital expenditures planned in the coming years and the resulting difficulty of predicting the exact timing of depreciation, we view EBITDA as a more meaningful measurement for our margin expansion.

From an EBITDA perspective, you can see that our margin has increased 103 basis points since June 2016.

Focusing on the lower portion of the chart, SG&A, which we indicated, would be the primary contributor of margin expansion in fiscal 2017 and fiscal 2018, drove the improved results and is now running at just under 4% of sales, compared to the starting point of just under 5%. Call it, 105 basis points improvement through September 2017.

At a constant sales, the improvement would be about 125 basis points. In late September, the company took additional actions to reduce headcount as we’re committed to be at our lower – at our targeted level of SG&A exiting fiscal 2018. The latest actions are broad based, as we expect to exit 550 employees, including 10% of our executive level.

On top of these actions, we expect the integration of Futuris will provide additional SG&A benefits. Partially offsetting SG&A performance have been headwinds associated with higher commodity and material costs, and more recently, the impact of our significant launches in metals.

Through fiscal 2017, our metal operations have negatively impacted margins by approximately 45 basis points, or $70 million. Essentially, all of these year-over-year headwinds were experienced in the back-half of the year. The third bucket, growth investments, have been fairly benign to date consistent with previous guidance.

I’ll mention these investments will accelerate as we progress through fiscal 2018, but represented approximately 50 basis points of headwinds to date. Improved operating performance for certain of our businesses outside of metals, for example, our South American operations accounts for the remainder of the 76 basis points improvement in margin.

If you step back and you look at the cadence of the expected margin expansion over the four-year period, we say that we’re a bit better than planned despite an initial 5% reduction in sales from our 2016 LTM results. Additionally, it’s important to remember, the 200 basis points of improvement is on our consolidated business.

Our unconsolidated business shown through our equity income and accounting for roughly 45% of our net income in 2017 continues to experience strong growth. In fact, the margin expansion associated with our equity income represents an additional 44 basis points of margin improvement.

Combining the margin improvements from the consolidated and unconsolidated parts of the business yielded total company improvement of 120 basis points since our June 2016 LTM. Now let’s turn to Slide 18 and talk about our equity income and related cash dividends.

Spent a lot of time talking about our progression on the 200 basis points of improvement from our consolidated business, but perhaps it’s even more important to talk about what we’re doing on unconsolidated operations. As you can see, the CAGR for equity income is about 17% since 2015, while cash dividends are growing slightly faster, call it, 20%.

It’s also important to note the progression of the dividend, cash conversion rate, which is on an upward trajectory. We expect this positive momentum and strong growth to continue as fiscal 2018 equity income is expected to increase 10% year-over-year to $435 million with cash dividends converting at approximately 70%.

Let me now shift to our cash and capital structure on Slide 19. On the left side of the page, we break our cash flow. Adjusted free cash flow defined as operating cash flow less CapEx was a positive $286 million for the quarter.

Consistent with our cash planning and our comments from the last call, the planned dividends from our equity affiliates were paid as scheduled during the quarter. Capital expenditures for the quarter were $160 million compared with $125 million last year. The increase in spending supports the company’s future growth.

For the full-year, capital expenditures totaled $577 million in line with the expectations provided to you on our Q3 earnings call. Free cash flow in fiscal 2017 totaled $484 million. No doubt a great outcome versus our original guidance to start the year of $250 million and our updated guidance of $400 million.

Versus our most recent guide of $400 million, we are slightly better operationally, call it, about $40 million, while the remaining improvements related to working capital slip that slightly – that will slightly reduce our 2018 guidance and I’ll talk to it in a moment. On the right-hand side of the page, we detail our cash and leverage position.

At September 30, 2017, we ended the quarter with $709 million in cash and cash equivalents. As Bruce mentioned, the $709 million is a remarkable outcome, especially when you consider the balance includes the cash outlay associated with Futuris acquisition.

I remind you that we ended the third quarter with approximately $670 million of cash, and we funded the acquisition of Futuris with no new debt and approximately $350 million of cash.

We’re especially pleased that our cash generation in 2017, driven by our strong operating performance enabled the company to enhance shareholder value through the year via our quarterly dividends, which totaled $52 million this past year; share repurchases, which totaled $40 million; prepayments of debt, which totaled $120 million; and as I just mentioned, $350 million net cash outlay related to the acquisition of Futuris.

All of this and we ended the year with a bit more cash in the bank than when we began it. We expect this balanced approach to capital allocation will continue to benefit each of our stakeholders going forward. Moving on to debt – gross debt and net debt totaled $3,478 billion and $2,759 billion, respectively, at September 30, 2017.

As a result of our cash balance, debt level and operating performance, Adient’s net leverage ratio at September 30, 2017 was 1.73 times, down about 12% from September 30, 2016. If you adjust for the Futuris acquisition, the net leverage ratio would have been approximately 1.50 times.

One additional point to keep in mind as you think about our net debt and leverage, for the full-year, FX had a negative impact on our leverage as some of our debt is denominated in euros. The impact of FX served to increase our net debt by approximately $70 million and $90 million for the quarter and the year, respectively.

Turning to Slide 20, let me wrap up with thoughts on 2018. One point as you refer to Slide 17, the guidance provided today excludes the impact of our aircraft investments. We’re currently finalizing plans and expect to brief you on developments associated with that business in the coming months.

Okay, starting with revenue, our current projection for consolidated revenue is between $17.0 billion and $17.2 billion. The acquisition of Futuris, the primary year-over-year driver is adding about $500 million to our top line after eliminating for inter-company sales.

Currency, primarily the euro will also benefit fiscal 2018 versus last year by about $350 million. The euro to USD rate assumed in our guidance is about 1.16. Although our three-year backlog continues to show tremendous strength, the impact on our 2018 consolidated results will be relatively small, which is consistent with previous disclosures.

As Bruce mentioned, the overall production environments supporting our revenue forecast is fairly stable. As you would expect, we will continue to monitor production in each of the regions as fiscal 2018 progresses and update our revenue assumption as appropriate.

With regard to adjusted EBIT, we’re expecting fiscal 2018 will grow and settle into a range between $1.28 billion and $1.33 billion. Including that – included in that estimate, we forecast our equity income will increase by approximately 10% year-over-year to about $435 million.

A very good outcome considering the relatively flat production from the China region. As we talk about EBIT, it’s important to note that the higher euro mentioned earlier will have a negative impact on our margin of approximately 15 to 20 basis points.

After adjust – adjusting for this FX impact, the midpoint to the adjusted EBIT margin guidance, excluding equity income will be approximately equal to fiscal 2017.

While we continue to generate savings from our remaining SG&A GAAP closure, this improvement will be largely offset by increased growth investments and headwinds associated with the heavy launch cadence in our metals group.

In general, we would expect our EBIT, excluding equity income and corresponding margin to be down year-over-year in Q1 and Q2, as we work through our launch issues and metals and absorb a higher level of engineering growth investment.

Specifically, for Q1, our adjusted EBIT is expected to fall year-over-year by about $60 million versus last year’s first quarter, as the benefits associated with higher sales will be more than offset by the launch headwinds in our metals operation, as well as the increased growth investment.

As we progress through the year, we expect sequential margin improvement, ultimately resulting in our expectations of roughly equal margin year-over-year. That said, we should exit the year on a strong improvement pace and thus setting up a solid improvement in 2019. Adjusted EBITDA is expected to range between $1.70 billion and $1.75 billion.

The implied margin at the midpoint, excluding equity income and adjusting for the impact of FX will be up about 20 basis points versus fiscal 2017. For modeling purposes, given our increased growth investments, depreciation will track higher in fiscal 2018, call it, about $385 million. For interest expense expect approximately $135 million.

Moving on to taxes, as we discussed throughout fiscal 2017, the company executed a number of tax planning initiatives. These initiatives, along with the expected geographic composition of our fiscal 2018 earnings and the integration of Futuris is expected to result in an effective tax rate of approximately 11% for the year.

As a reminder, the 11% rate includes taxes at just under 20% on our consolidated operations, as our joint venture equity income as shown on our financial statements, net of tax, thus driving down our consolidated tax rate. At the bottom line, the range of our adjusted net income is expected to range between $940 million and $980 million.

At the midpoint, net income will be up about 9% year-over-year as the company continues to demonstrate its commitment to growing earnings. Capital expenditures are expected to be at a similar level compared to 2017, call it, between $575 million and $600 million.

And finally, with regard to free cash flow based on the outperformance in fiscal 2017 and certain expenditures shifting between years, as mentioned earlier, we would expect free cash flow to be approximately $525 million for the year.

Creating value for our shareholders is the top priority for the company and our fiscal 2018 financial goals are aligned with this commitment. In closing, 2017 was a very successful year one. However, the team has already turned the page and is laser-focused on achieving our 2018 commitments.

And with that, let’s move on to the question-and-answer portion of the call.

Operator, first question?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from John Murphy. Your line is now open..

Good morning, guys. This is Aileen Smith on for John. Your 2018 CapEx outlook of $575 million to $600 million, presumably you are not going to have the standup IT and facility capital costs that you did in 2017.

So is it fair to assume that the higher CapEx is driven largely by a greater expected top line for 2018 and beyond, or CapEx related to recent acquisitions, or is there an item in the CapEx budget that we should be thinking about?.

No, that’s not the exactly. It’s the Futuris – the CapEx associated with Futuris and the CapEx to start to build up our backlog..

Yes. As we get closer to a lot of that backlog coming on, Aileen, more of that capital will have to go out. So it’s a bit of a reallocation to some of that capital towards some of those growth programs..

Okay, great. And then, thanks for the commentary earlier on the margin improvement plan and the restructuring actions underway. So far, your data appears that the margin improvement has been largely driven by SG&A.

Do you think it’s fair to assume that in addition to the benefits of restructuring you mentioned, your gross margins would improve next year, as you get some revenue growth that might drive operating leverage in the business?.

Yes, I mean, our operating leverage won’t move too much in 2018 for a couple of reasons.

But in 2018, as we mentioned, we definitely, at least, in the first-half of the year will have to work through some of these metals launch issues, where we have a number of launches that are certainly stressing the company today, which has resulted in a lot of that premium freight and the excess cost we talked about, which will be particularly acute in the first quarter, which will drive some of that margin down.

But as we exit the year, definitely those things will start to come into play. And as new revenue comes in, that should also help improve our margin as we move forward on it..

Great. Thank you. That’s very helpful..

And integrating Futuris will definitely help as well..

Operator, do we have the next question, please?.

Yes. Our next question comes from Colin Langan. Your line is now open..

Oh, great. Thanks for taking my question. I guess, start off with maybe a minor question. You highlighted you were able to consolidate or change to a joint venture..

Yes..

Did that impact the – I mean, does that impact, what is the sort of the consolidation impact on sales? I mean, is that part of the year-over-year sales growth?.

Yes. So….

And also does it affect the backlog in the China joint venture, too?.

Yes. So, Colin, two parts there. So first of all, the sales in the joint venture in Q4 added about $65 million, so that’s a quarter. So think about next year it adds just below $200 million, so of our growth about $200 million will be the year-over-year impact of the consolidation, and we’ll get that obviously in Q1, two and three only.

And then secondly, the fact that the – I don’t have at the tip of my fingertips what the impact was like pulling that out of the unconsolidated into the consolidated, but it would be very minor?.

Okay. And when I look at the trade show, the backlog was for 2018 like $1.25 billion and now at $800,000 million.

I mean, what would have lowered it?.

For unconsolidated, you’re talking?.

Yes, for unconsolidated, sorry?.

Yes, and maybe I missed that in my lengthy comments. But we did have a couple. There was a BMW and a Volkswagen program that we had in 2018 that actually was pulled forward and launched in 2017. So when you look at our 14% growth that we had this year, we benefited kind of from pulling that into 2017 at the expense of the 2018 backlog..

Got it..

Okay..

And then in terms of the metals business, so I think it’s fair to say you originally break-even-ish starting this year, slight loss, now you’re losing money again?.

Losing a little more money, yes..

A little more money. And then when does it inflects in the second-half? Is that when the plants actually close that are in the high cost regions? Is that a pretty….

The biggest issue we have right now is not related to those plants. Those plants will close.

The biggest one will close into the tail end of 2019, but it’s the launches relating to the next-generation mechanisms and some of these large global structure programs that were – that we’ve launched, Colin, both of which we struggle to get up to the jobs per hour and delivery on them and has just required a lot of excess cost, a lot of excess freight and then just all that activity has reflected in our financial statements.

So we have gone, as you mentioned, about 45 basis points negative from where we started in that metals business. As we look forward, we think those are relatively short-term hurdles, although they will be acute for a couple of quarters that we will get through.

And there is a lot of those improvements we’ve talked about structurally to improve the business that plan we still have a lot of confidence in is just going. That’s always – the improvements always been more of a 2019 and 2020 and beyond, but there is a little bit of noise with all the launch activities in the business today..

Yes, I’d say, Colin, as the sort of margin expansion story shifts from being SG&A and metals that sort of a just our structures and mechanisms turn on.

I think, when we get together here in – at the Deutsche Bank Conference, we’ll be a little bit more clear in terms of, let’s dissect our profitability of our seats – of our metals business by the plants that are sort of like long-term keepers, the ones that are winding down in the launch costs.

So you can – and the equity income, so you can see it in the four buckets..

Got it. And then just lastly on cash flow. I know in the past, you’ve given color on sort of restructuring cost, one-time Adient cost.

I mean, are there any of those costs that are impacting cash flow guidance for 2018?.

Yes. I think it’s about $175 million roughly….

Yes..

…between restructuring and the finishing up of some of the IT separation, right?.

Yes, there’s definitely a fair amount. I don’t have the exact number on me, Colin. We’ll make sure to put that out, and we have a couple of 8-Ks that we’ll do attached to a couple of equity conferences we’re going to do in a couple of weeks. So we’ll make sure that’s out there..

Great. Thank you so much..

Operator? Great. Thanks, Colin.

Operator, can we have one last question, please?.

Yes, thank you. Our next question comes from Ryan Brinkman. Your line is now open..

Hi, good morning. This is Samik on behalf of Ryan. Just wanted to firstly start off with the full-year guidance for 2018 of – for our fiscal 2018, I think, in your prepared remarks you mentioned that the when we exclude equity income, the margins for the consolidation [Multiple Speakers] roughly flat year-over-year.

And in your prepared – I think, you mentioned SG&A is going to be a benefit and you sort of get 40 to 50 basis points of benefit there.

So just trying to sort of directionally get some sizing about what the headwinds look like from the launches, as well as sort of the growth investments in 2018 in terms of what the relative sizes will be?.

The – I’m sorry, of the growth investments – some of the headwinds, I guess, there is two names, big ones. The big ones are going to be metals. And we mentioned, first quarter is expected to be down year-over-year. We said $60 million.

You can assume that’s pretty much all on a net basis is really related to the metals business and the launch commentary that we talked through. We also are putting in some growth investment. Our order book growing as fast as it has. We’ve also put a little bit more money into innovation and engineering resources to support those launches.

Those things have a net counter as well. Metals should start to improve in the back-half of the year and it should start to have year-over-year improvements.

But those things, essentially the SG&A benefits, the reductions or the improvements we’re making in our other operations in the total year will be offset pretty much exactly we think from a margin perspective with the metals and some of those growth investments, I just mentioned..

Okay..

Did that help you, or did you want some....

No, that helps.

So it seems like in terms of size, the metals one of the bigger and growth investment is slightly smaller?.

For sure it’s bigger and it’s also more short-term. It’s going to be weighing on our first-half and particularly on our first quarter more..

Got it. And then on – just as a follow-up to that, we understand sort of the SG&A part of the margin plan was sort of front-loaded and the growth investment sort of back-end loaded here.

I’m sorry, the metals improvement is sort of the back-end loaded, but whether the growth part fit in here, which is what I was trying to get in terms of the cadence there, there’s some amount in FY 2018, but where is the junk of that going to sit?.

You’re talking about for metals or for the growth investment..

Yes, for growth..

Yes, the growth investment, oh, I’m sorry. So the growth investment was we mentioned about 15 basis points in 2017, it’s going to accelerate. I’d say, think about more on the 40-ish to 50 basis points of investment in 2018 and that’s reflected in those numbers I gave you..

Great..

So in total versus our LTM 2016, that would be about 60-ish basis points of growth investment versus that time, which we factored into that margin expansion..

Great. Thanks, Samik..

Thank you. Right now, I would like to turn the call over to Bruce McDonald for the closing remarks..

Yes. Thank you, everyone. And I know, we had a lot to cover and we didn’t have much time for questions. So Mark and the team here will be available for follow-up questions, we apologize for that. But just before we wrap up, I think, the takeaways here, we had a great year one.

We really very feel good about the foundation that we’ve laid here to deliver our midterm commitment and we’re solidly on track. We’re pleased with our results. We got a lot of hard work ahead of us, and we intend to build on the positive momentum here that we’ve established to further position Adient for the long-term success.

We’ve clearly recognized that we have some short-term challenges in our seat structures and mechanisms business. We tend to think these are short-lived. They will be issues that we got to get behind us here in the first and second quarters this year.

But once we do, we will start to see in the back-half of 2018 and 2019 and beyond, the solid margin expansion story that we’ve talked so long about here. And then just in closing, I would like to thank all of our employees around the world for their hard work and dedication in serving our customer in delivering value for our shareholders.

We’ve had a lot of change here in Adient in the last year, and I just couldn’t be more pleased in terms of the accomplishments of our global team. So thank you, and thank you, everybody..

Great. Thank you..

Thank you. That concludes today’s conference. Thank you for your participation. You may now disconnect..