Executives
Patrick R. Stobb - Director of IR
John C. Plant - President and CEO
Joseph Cantie - EVP and CFO
Analysts
Brett Hoselton - KeyBanc
Himanshu Patel - JP Morgan
Chris Ceraso - Credit Suisse
Douglas Karson - Banc of America Securities
Rod Lache - Deutsche Bank
Jonathan Steinmetz - Morgan Stanley
Patrick Archambault - Goldman Sachs
Derrick Wenger - Jefferies & Company
TRW Automotive Holdings Corp. (TRW) Q1 FY08 Earnings Call April 30, 2008 6:00 AM ET
Operator
Good morning, and welcome to the TRW Conference Call. All lines have been placed on listen-only mode, and as a reminder, this conference call is being recorded. Presentation material for today's call was posted to the company's website this morning at trw.com/results. Please download the material now, if you have not already done so. After the speakers' remarks, there will be a question-and-answer period. Due to today's limitation on time, the company requests that participants limit follow-up questions to one per caller. [Operator Instructions]
I would now like to introduce your host for today's conference call, Mr. Patrick Stobb, Director of Investor Relations. Mr. Stobb, you may begin.
Patrick R. Stobb - Director of Investor Relations
Thank you, Mandy, and I would like to welcome everyone to our first quarter 2008 conference call. Joining me are John Plant, our President and Chief Executive Officer; and Joe Cantie, our Chief Financial Officer. On today's call, John will provide an overview with the financial results and discuss other related business matters. After John's comments, Joe will provide an expanded review of the financial information, and then we will open the call to your questions.
There are few items I would like to cover before getting started. 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 will caution you that our actual results could differ materially from the forward-looking statements made on this call. Please refer to slide 3 of the presentation for our complete Safe Harbor statement. The Risk Factors section of our 2007 Form 10-K contains additional information about risks and uncertainties that could impact our business.
You can access our 2007 10-K and other SEC filings by visiting the investor information section of our website at trw.com or to the SEC's website at SEC.com. On a related matter, we expect to file our first quarter 10-Q within the next day or so. The next item, in addition to our GAAP results, we will be discussing non-GAAP information that we believe is useful and evaluated in the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials posted to the Investor Information section of our website this morning.
And finally, a replay of this call can be accessed via dial-in or through a webcast on our website. Replay instructions were included in our release this morning. We have not given our permission for any other recording of this call and do not approve or sanction any transcribing of the call. This concludes my comments. I will now turn the call over to John Plant.
John C. Plant - President and Chief Executive Officer
Thank you, Pat, and good morning everyone. We are pleased to report another quarter of solid financial results. The continued demand for increased safety content and TRW's industry-leading diversification are providing good momentum for us and have helped the company overcome consecutive years of difficult industry conditions in North America relating to both high commodity inflation and lower production volumes.
Despite this difficult environment, we have consistently pursued business strategies that have improved the long-term competitiveness of the Company. These strategies focus efforts on developing TRW's market position in safety, in pioneering innovation and implementing operations programs to optimize cost and quality. TRW is a results oriented organization with a passion for continuous improvement and drive for efficiency. I believe that the efforts and commitments of these strategies are paying off, and have provided an environment of success in the company.
Turning now to a full review of the results, beginning with a look at the first quarter production environment. Other than the impact of supplier-related strikes, impact in General Motors in North America, there were no major surprises in the quarter. In fact, production in Europe was stable, while Asia and South America experienced good growth. Vehicle production in North America was down almost 9%, hitting a level we've not seen since the early 1990s.
Our sales in the first quarter totaled $4.1 billion which represents an increase of 16%, compared to the previous year. We experienced growth in the major markets where TRW conducts business, including North America where sales increased to 15%, primarily due to an increase in module sales. Sales in China and South America which are the primaries in our rest of the world category grew approximately 49% in the quarter.
Foreign currency translation provided significant benefits to our sales. Absent the impact of foreign currency, sales increased approximately 6%. Net earnings in the quarter were $0.92 per share. This compares favorably with the prior year's adjusted results of $0.60 per share which excludes charges of $147 million related to the debt recapitalization that we carried out in the first quarter of 2007.
The higher level of earnings in the 2008 quarter can be attributed to lower expenses related to interest and taxes, together with higher product volumes and the non-recurrence of certain expenses that negatively impacted the 2007 period.
In summary, the progress made has strengthened the business and will serve us well in the future. Although, significant challenges remain for 2008, including a high level of economic uncertainty, the company is off to a good start and we are focused on achieving the business objectives for the year. With that said, we are setting the bar for success higher than ever, especially with regard to innovation.
Earlier this year, we introduced our vision of Cognitive Safety Systems, which embodies a goal of helping to keep drivers and passengers safer by making vehicles smarter, thus raising the intelligence of safety. Cognitive Safety represents the culmination of new and better technology that increasingly uses advanced electronics and proprietary algorithms to sense, analyze, anticipate, and respond to ever changing conditions.
Each year, we invest large amounts in engineering. This number has increased significantly over the past several years, and this investment is critical to any new programs. For TRW, winning through technology is more important than winning on price. With the new developments TRW has undertaken, for example, radar systems, electrically powered steering, electronic park brakes, advanced airbags and vehicle stability control to name a few, we have successfully positioned the company and our products for the future.
The common threat amongst these technologies is the increasing and evolving use of electronics which is helping to drive the future of the vehicle. Our level of sales relates to electronics, significantly exceeds $1 billion per year.
In summary, Cognitive Safety focuses attention on TRW's innovation and ingenuity, and underscores our role as an intellectual partner to our customers. Given the sorry... given the company's position as one of the world's preeminent safety providers, Cognitive Safety helps differentiae TRW in the market place.
Moving forward to quarterly business developments, we have been winning new business at a rate that supports our expectation of sales growth of approximately 4% compounded. In addition to this growth, the new business scheduled to be launched over the next few years will help improve our sales mix with customers that are presently underrepresented in our portfolio.
Regarding quality, we have been placed among the leading quality magazine's 2008 quality leadership rankings, which measures quality effectiveness of more than 800 manufacturing companies from a broad group of industries. TRW's inclusion in the top 10% is an accomplishment and reflects our commitment and dedication and tireless efforts to improve quality.
TRW's Electronics facility in Peterlee, UK, has received the 2008 Queen's Award for Enterprise under the category of International Trade. This prestigious award recognizes outstanding achievement for excellent growth during the last three years from sales of airbag control units, crash sensors and active seatbelt control units. TRW's engineered fasteners and components business in Queretaro, Mexico received the Honda of Mexico Excellence Award for the second straight year. This was achieved with zero parts per million quality defect, 100% on time delivery and meeting Honda's cost targets.
As mentioned earlier, commodity inflation presented a significant challenge in the quarter. Cost pressures continued to intensify, related primarily to increase the market prices for steel and other metals. Commodity pressures are expected to continue at a high level for the remainder of the year. We now anticipate another year where the gross full-year impact will be approximately $100 million, or higher of which approximately $20 million can be attributed to the first quarter.
Due to recent spikes and the current forecast for the price of steel, which is our largest exposure, we expect to incur significant increases for the remainder of 2008. Additionally, as a result of high commodity costs and record low production volumes in North America, we have a growing concern that the supply base will weaken further, increasing pressure throughout the region.
Switching subjects, so far in 2008, there have been a number of labor-related issues that have impacted vehicle production in North America. The most prominent strike is at American Axle, which is now in its third month and continues to hamper vehicle production at General Motors. The impact of this strike at TRW through the first quarter has not been material, but has cost us approximately $55 million in lost sales.
We are monitoring the situation closely and are developing contingency plans to address extended downtime at GM, if this strike continues, or begins to have a more widespread impact. We've had a busy launch schedule during the first quarter, with 85 new product programs successfully launched. Among these launches, was the new Dodge Journey platform, which is equipped with TRW's front and rear brake calipers, side-impact airbags, seat belt retractors, steering column control modules and angle sensor, as well Chassis modules and certain HVAC controls.
We launched the VW Jetta in China with the driver airbag assembly, brake rotors, rear calipers, steering wheel and Chassis modules. Other significant launches include in the Citroen Berlingo and Peugeot Partner. We have an extensive product line up on these vehicles including a wide array of active and passive safety products.
I would now like to turn to our assumptions and outlook for the remainder of the year. For North America, we are lowering our production estimates by 300,000 units to approximately $14.2 million vehicles for the year. Within these estimates, we lowered our Big Three production estimates to approximately 8.6 million vehicles. Looking to Europe, we have raised our production estimate for the year to 22.3 million units reflecting higher volumes in Eastern Europe.
Our estimate for Western Europe of 15.6 million vehicles is unchanged. Production in South America, India, and China is expected to grow at a solid pace. Consistent with our remarks during the prior earnings call, we expect the impact of total industry production will be a negative factor for us this year, primarily due to another sharp decline in Big Three North American production.
With respect to foreign currency, we have revised our euro exchange rate assumption upwards which is reflected in the higher sales guidance we are providing today. Considering the strength of the first quarter results, and the benefits derived from our new content growth, the lower borrowing costs and good operating efficiency we have elected to increase our earnings guidance for the year.
For 2008, we now expect sales in the range of $16.2 billion to $16.6 billion. Considering the negative industry vehicle production impact I just mentioned, customer pricing pressures, we expect bunch of the revenue growth to come from currency translation and new business contract and new business contract awards. We increased our expectation for earnings per share to be in the range of $2.30 to $2.60 per share. Our estimate for pre-tax restructuring, expenses has been revised upward to $55 million, and we expect capital spending to be approximately 3.5% of sales.
And finally, we are holding the expected full year effective tax rate in the range of 38% to 42%. We are optimistic about the future and the growth prospects for safety. We believe TRW's leading customer and geographic diversity, coupled with a track record of steady performance during difficult conditions, have helped us grow stronger and well equipped to achieve our business objectives.
With that I will now hand over the call to Joe, to discuss our financial results in more detail.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Thank you John, and good morning to everyone. As you can see from our financial results we posted this morning, the company performed very well in the quarter and is off to a good start for the year. The results were at the high end of our expectations due to a number of factors, including better than expected growth overseas, lower interest costs and lower effective tax rate which is below the full year expected rate.
Considering the first quarter results in combination with improved fundamentals at some of our business and another factors we've raised our guidance for the full year. Based on our current assumptions for production in commodities, which are subject to change and carry significant downside risk. We believe we are in a good position to deliver another solid year which is reflected in our revised guidance.
Moving now to a detailed review of our results. For the first quarter, we reported sales of $4.1 billion, an increase of $577 million, or 16.2% when compared to last year. Currency translation benefited the year-to-year sales comparison by approximately $358 million. The euro, our most significant translation exposure averaged 1.5 against the dollar, which was about 15% higher than the average exchange rate we experienced in the prior year. In general, we are using the first quarter euro to dollar rate of 1.5 as our assumption for the remainder of the year, which is the driving factor behind our increased sales guidance today.
Excluding the effects of currency translation, sales improved by about 6% compared to the previous year. This increase resulted primarily from higher module volumes and industry growth in China and South America. These positive factors were partially offset by price reductions provided to customers and the continued decline in North America vehicle production, including as John mentioned, the supplier-related strike now impacting General Motors.
Module sales which have lower margins due to a significant level of pass-through content increased by $285 million in our first quarter compared to the 2007 result. At our segments, sales growth was solid across Chassis, Occupant Safety, and the Components Group. The only notable comment I have here, is that the sales growth favored the Chassis Group, primarily due to the increase in module sales.
Moving down the income statement, operating income in the quarter was $188 million, which is $13 million above the previous year. While our sales increased from currency translation, the impact of operating income was not material. After considering the net effect of both our translation and transaction exposures, as I have discussed in previous conference calls. We expect this relationship to continue through the remainder of the year. So at this point, despite our expectation of a stronger euro compared to 2007. We did not expect that to benefit from currency at the operating line.
Moving on, higher product volumes including increased modules sales were positives to our income in the 2008 quarter. These factors together with solid net cost performance and the non-recurrence of expenses related to a business disruption in the prior year, more than offset cost pressures related to customer pricing and commodity inflation. When comparing operating margins, the mix impact of increased module sales and foreign currency, which together added sales of $643 million, negatively affected 2008 margins, when compared to the prior year.
If I would exclude the $643 million of sales related to these two items from our results including the related income, our margins would actually have increased year-to-year, which is impressive given today's difficult environment. Below operating income, net interest and securitization expense was $49 million, which is significantly below last year's level of $64 million. The lower level of expense is due to our debt restructuring and the impact of lower interest rates.
Currently our debt, including the effect of interest rate swaps is approximately 38% variable, so we are impacted by rate fluctuations primarily tied to LIBOR. On a full-year basis and assuming today's rate environment, we expect net interest expense will be approximately $205 million for the year.
Tax expense in the 2008 quarter was $47 million, which resulted in an effective tax rate of 33%. This rate is below the expected full year rate of 38% to 42%. And, therefore, you can expect the effective tax rate for the remainder of the year will be above this range.
At the bottom line, we posted GAAP net earnings of $0.92 per share. This is a good outcome and is improved from the prior year adjusted result of $0.60 per share. And finally, in terms of EBITDA, we had $337 million for the quarter, which represents a 9% improvement compared to $309 million last year.
I'll move on now to our capital structure. First quarter net cash from operations was a use of $115 million, which compares to an outflow of $221 million in 2007. This improvement was a very good outcome for us and within the range of our expectations. During the first quarter, we completed two minor debt transactions. On February 15, we redeemed the remainder of our high-coupon bonds issued at the time of our 2003 LBO transaction, for about $20 million. And on March 13, we repurchased $12 million of our newly-issued bonds in the open market. This was an opportunistic move by us, given the pricing we saw in our bonds in an inefficient credit market.
Our total debt of $3,164,000,000 at quarter end is down $80 million from the balance at year-end 2007. Net debt in the quarter increased by $254 million to $2,599,000,000, compared to year-end.
At quarter-end we had over $1.5 billion in available liquidity. And additionally, as a result of the debt refinancing, we have no significant debt maturities until 2012.
Switching subjects now to our expectations for the remainder of 2008. As our guidance indicates, our prospects remain positive, although tempered by the difficult industry conditions. Most notably in the North American market and specifically related to commodity inflation. We raised our sales guidance to a range of $16.2 to $16.6 billion. There are a few things I'd like to remind you about when evaluating the year-to-year comparison. First, the decline in North American production will be significant for us. Especially considering that the big three are expected to produce nearly 900,000 fewer units compared to 2007. We expect that higher product volumes in Europe, Asia and South America will help offset this decline. Module sales are expected to increase in 2008, primarily due to the former Delphi Saginaw business. This business, in addition to the carryover growth from 2007 should increase our module sales by approximately $800 million to $900 million in 2008.
The last item to consider, consistent with our first quarter, we expect currency will again provide measurable upside to our sales line for the remaining three quarters. We do not anticipate a material benefit at the operating line. For my earlier comments the margin impact of currency in higher module sales will be negative for us. As John mentioned, pressure from commodity inflation remains at a high level and is recently intensified. We expect a significant increase in the remaining quarters primarily due to higher pricing for steel. At the bottom-line, we increased our expectations for earnings per share to be in the range of $2.30 to $2.60. Regarding free cash flow for the full year, we now expect this to be a positive.
Switching to the second quarter, North American vehicle production is expected to decline about 11% to 3.6 million units. The big three is expected to decline 17% for the quarter. For Europe, we expect production will be relatively flat compared to the previous year. Sales for the quarter should be approximately $4.5 billion. This is higher than the previous year, primarily due to currency in increased module business and the last item to note for the quarter our forecast for restructuring expense is about $10 million.
In closing we are pleased with the outcome of our first quarter. Hopefully judging from the tone of our remarks today you can appreciate that we are apprehensive about the current economic environment; much of which is out of our control. We believe we have a good plan to mitigate the challenges as we see them today. With that I look forward to updating you on our progress after the second quarter. We will now move to Question and Answer portion of our call.
Question And Answer
Operator
Ladies and gentlemen, we will now begin the Question and Answer portion of today's call. [Operator Instructions]. We will now take our first question with the line of Bertt Hoselton with KeyBanc Capital Market.
Brett Hoselton - KeyBanc
Hi good morning gentlemen.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Good morning Brett.
Brett Hoselton - KeyBanc
Joe I was hoping you could talk a little bit more or in a little bit more detail about the impact of higher steel prices. Obviously we didn't see the impact in the first quarter, but we really didn't see a material increase in steel prices until it really moved through the first quarter. Can you talk specifically about your ability to one kind of resist the increase on the supply side whether it be your direct buy or your indirect buy and secondly your ability to pass along any increase to your customers.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Well, firstly on the say the input side of it. We have experienced movement in steel during the first quarter. We are aware of and we believe it will see further increases during the second quarter and for the balance of the year. Where we buy steel as a raw material then quite frankly, I don't expect that we have that much leverage regarding the major steel companies and therefore we will... so we have to accept most of the pricing that is put forward. I mean, if naturally we will say do our best and employ whatever leverage we can. But I think it's fairly minimal.
The next category for it is where we have steel inputs to us with some other value-added process and then of course we were in a better position. Albeit I mean some of the supply base, as I said in my remarks is in fairly poor condition to necessarily absorb some of those... those increases. Well I expect it will be a combination of... as we've had before, which is where it's been raw material very much driven by the market, the added-value there will be some content that we absorb, some content that the supplier may absorb and some content that the customer, our customers will absorb and naturally now full be speaking, and have been speaking with all of our customers where we feel the need to pass that on in the current environment.
Brett Hoselton - KeyBanc
: And Joe the interest expense for the quarter, you know, lower than I anticipated. Is this kind of a pretty good run rate for the remainder of year?
Joseph Cantie - Executive Vice President and Chief Financial Officer
Actually it's a little low in the first quarter Brett and thanks for the question it allows me to talk again about the calendarization of my quarters. I actually have eight less calendar days in my first quarter than I do in my fourth quarter. So if you think of the calendarization of how many days are in each of my quarters, I have the fewest days in my first quarter. So, we expected to be higher just given the number of days in the remaining three quarters. So we gave you an annual amount of about $205 million for the whole year and you can take your swag at what the remaining three quarters are.
Brett Hoselton - KeyBanc
Thank you very much, gentlemen.
John C. Plant - President and Chief Executive Officer
Thank you.
Operator
Our next questions come from Himanshu Patel with JP Morgan.
Himanshu Patel - JP Morgan
Hi good morning guys.
Unidentified Company Representative
Good morning.
Himanshu Patel - JP Morgan
Just two questions on the FX and on the segments. What currencies would have to go the wrong way for FX to actually -- right way for the FX that should become EBIT accretive for you guys?
John C. Plant - President and Chief Executive Officer
Well, I think the biggest one for us is the cross currencies, Himanshu, so the Canadian dollar strengthening against the US dollar is a bad thing for us. So, if the Canadian dollar weakened that will be good. Also when you look at Europe, the Czech Crown, Polish Zloty, those have been strengthening against the Euro. So if you can imagine our contracts, we sell in Euros but our cost base are in those local currencies. So it would be great if the Euro was to strengthen against the lot of those local currencies.
Himanshu Patel - JP Morgan
Okay. And then, I guess the question on guidance. You are raising guidance despite some higher restructuring cost despite higher commodity costs expectations for the year. What would change in the last year that you makes you guys more confident now?
Joseph Cantie - Executive Vice President and Chief Financial Officer
Well, a couple of things. I mean first of all, our sales level is higher. It's primarily down to translation, but there is some favorable impact of some content in some of our businesses. That is number one. Number two, you mentioned the interest... or somebody mentioned the interest line. Obviously, interest rates came down and when we gave guidance at the beginning of the year, we didn't expect to have such a favorable impact both from the interest rates and our cash flows for the quarter. So, a little bit more confidence in the cash that's been coming into the company. So, a combination of those factors, a little bit on the tax side. So it's not coming from one place.
Unidentified Company Representative
And I think general operating efficiency I mentioned, Himanshu as well. So we have got several things working for us.
Himanshu Patel - JP Morgan
Was there a step up in some of the restructuring benefits that you guys, are seeing, I mean has that sort of ticked in little bit faster? Is that what strategy?
Joseph Cantie - Executive Vice President and Chief Financial Officer
No, I'm not really referring to that. In fact, as you have seen, we're actually going to increase our restructuring to hopefully give us a better platform for 2009, etc. So we are very conscious about managing our restructuring on a long-run basis, that's why we included in our all our figures. But the restructuring we carried out in the last couple of years is paying off really in line with what we expected.
Unidentified Company Representative
And just to mention, one quick point you mentioned, that we raised our restructuring. We were at 50; we went to 55. That primarily reflects the currency movements, a lot of our restructuring actions are in Europe. Just when you work the dollars, it winds up being more dollars.
Himanshu Patel - JP Morgan
Right, right okay. And then last question. In terms of steel and raw materials and stuff, are you guys having any success trying to push this onto the car makers? We are seeing some of your competitors talk about favorable commercial settlements and I am wondering are you guys having any sort of visibility there that suggests that the environment may not be as tough as it was a couple of years ago on trying to get the OEs to share a little bit more of this?
John C. Plant - President and Chief Executive Officer
We've never really commented extensively or indeed even mildly on these subjects. We don't like to discuss our commercial arrangements with our customers except really with them. I mean we have had some recovery in the past and we expect to have some recovery in the current environment. So I'm not seeing any change at all with the stance that's taken, neither by the customer nor by TRW at this point.
Himanshu Patel - JP Morgan
Well I guess let me ask the question a little bit differently. Was there a particularly large commercial settlement in this quarter?
John C. Plant - President and Chief Executive Officer
No, no.
Himanshu Patel - JP Morgan
Okay. Very good, thank you guys.
John C. Plant - President and Chief Executive Officer
Okay.
Operator
Our next question is from Chris Ceraso of Credit Suisse.
Chris Ceraso - Credit Suisse
Thanks. Good morning guys.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Good morning, Chris.
Chris Ceraso - Credit Suisse
: Just a couple of quick ones. SG&A looked a lot better than we thought. Is there anything in there that was unusual or do you expect it to continue to run at this level?
C: Joseph Cantie: It's very low, 3.2%. Part of the reason... and yet if you compare that to last year is about 3.6%. And part of the reason is we have these module sales that came in and the translation that benefit the sales. So just a higher level of sales pushed that percentage down a little. There is nothing really unusual in there. Each quarter, there is maybe a couple of million dollars of one-off items like settlements and some pension or OPEB buyouts that we do. But nothing unusual. I typically refer to about a 3.5% rate is pretty good, and in any given quarter, it could be above or below that.
Chris Ceraso - Credit Suisse
: Okay. It seems like we've heard from a few companies now that have benefited in the first quarter from commodity-related hedging or mark to market change or currency related gains. Did you have any of that happening in the first quarter Joe?
Joseph Cantie - Executive Vice President and Chief Financial Officer
No, there was no really no one off gains of any kind in that quarter.
Chris Ceraso - Credit Suisse
: Okay. Great, thanks.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Thank you.
Operator
Our next question is from Douglas Karson with Banc of America.
Douglas Karson - Banc of America Securities
Great, guys. Can you hear me alright.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Yes, good morning.
Unidentified Company Representative
Good morning.
Unidentified Analyst
And so good quarter. I wanted to just talk strategically for a minute on the acquisition front. I know globally you are growing there seems to be opportunities outside of North America that it could be attractive, are your plans still just for bolt ons, small kind of tuck-in acquisitions or is that strategy changed at all?
John C. Plant - President and Chief Executive Officer
No, in the strategies remained very that the long run on and I did comment in previous calls on our departure in 2007 where we did consider one significant year paid acquisition that's outside of the it's really been where we could... all the companies which we were really not feel the business which strengthened us mainly from a geographical customer diversification point of view. So, we do maintain customer and so if targets on our radar screen and when we see something, we obviously we examine it and then make a decision whether it's something that we want to take steps. At this point we have nothing really further to add possibly yes, we would consider such things and but we there again with the main objective is that we want to continue to generate enough cash. The first call will be debt pay down but if you see the right thing we should certainly be willing to move.
Douglas Karson - Banc of America Securities
Following on the debt paydown, I think you what mentioned you bought some bonds back in open market, that's $12 million and some odd million, is there any more appetite for that? Are the bonds trading at level that it still makes them attractive or few in the market moving a bit, is that a priority?
Joseph Cantie - Executive Vice President and Chief Financial Officer
We constantly look at all facets of our capital structuring and quite frankly we constantly look at all facets of all our cost base within the company. We will continue about evaluate that, it is something that's available to us but we are not going any commitment to doing it. We just assess the market in our cash flow situation as we go forward.
Douglas Karson - Banc of America Securities
Turning to last question, working capital has been, if predictable and seasonal and I am wondering with all the suppliers out there, Q2 Q3 under distress and with American Axle on strike, are there any of your vendors that you see at this time that potentially need working capital support?
John C. Plant - President and Chief Executive Officer
Inevitably, in North America there is some additional stress that's out there. We tried to be vigilant and to ensure that we, we don't get into a difficult period with the supply base and normally have one or two instances per quarter or I mean you taken area for down around that number and so far we've not see any thing dramatic I mean the one thing we are conscious of is that in fact certain banks has restricted there that bank clients or credits into some of the supply base and that is producing additional stress. So we're mindful of it, we kind of work through it and but we have not have to chew up our work capital, raw finances to... to effect support at this point in time.
Douglas Karson - Banc of America Securities
Great, okay thanks guys.
John C. Plant - President and Chief Executive Officer
Thank you.
Operator
[Operator Instructions] Our next question comes from the line of Rod Lache with Deutsche Bank.
Rod Lache - Deutsche Bank
Good morning, everyone. Could you just clarify please, was there any distress supplier cost that you absorbed in the quarter, or is this just a comment about the potential for distressed supplier costs in the future?
Joseph Cantie - Executive Vice President and Chief Financial Officer
Good morning, I actually can't think of any particular significant ones. I can't say throughout the complete environment there weren't some issues somewhere. I mean I know, last year we were working through the insolvency of one of the European companies with a supplier and there may be some legacy carryover costs. But I think it was just responding to a question.
There is nothing that is here that is massive. In fact, we've tried to have, again, a clear plan for several years of working through the supply base in terms of moving away from smaller suppliers, consolidating the supply base and trying to ensure the creditworthiness of the same as we've gone through that. So, John, I don't know if you can think of anything specific.
John C. Plant - President and Chief Executive Officer
No, I'm sure right in the quarter we've had a couple of small situations, but there was nothing material. But the comment is more towards the fact that we are very cognizant in today's environment and our watch list is bigger than it has been. So it is something that we watch very carefully for the future.
Rod Lache - Deutsche Bank
Okay. Just give us some more color on your confidence level on these commodity expectations. What percentage of your buy is under long-term contract?
Do you have a significant amount of that rolling off this year and when do you typically start to engage in discussions to reset these contracts?
John C. Plant - President and Chief Executive Officer
We don't have any, I think, massive long-term contracts. I think we've answered the question before, we said nothing that is on a calendar year or even a half-year basis. I mean there are some contracts, I'm sure on a quarterly basis, but nothing of any significance.
Joseph Cantie - Executive Vice President and Chief Financial Officer
I would say, Rod, most of our exposures is through buying from tier II and tier IIIs and if I look at our you know steel and castings by, we are up closer to about $3 billion in that area. And that's the area that is most troubling for us right now because recently in the last two three weeks, we've seen as everybody has spikes in lot of industries that are out there and lot of noise from some of the big steel suppliers about surcharges there are going to be passed on. So you know when you asked about our confidence, I think we called it very reasonable in our guidance put what we have expected but as John made in his comments and I made in my comments you know it's volatile right now and we have seen some pretty big spikes and things like gray iron, ductual iron despite every kind of steel that's out there and all the experts say that these are short term spikes and lot of speculation, we hope they are right and we took our best reasonable information and we put it into our guidance but it can move and move quickly. So it is a caution about the future.
Rod Lache - Deutsche Bank
Okay. And then lastly, just broadly speaking you have comment a lot about some of the favorable secular trends in the industry, electronic steering safety, obviously, at the same time you have got something of a trends put smaller vehicles is occurring as this more of a focused on fuel efficiency as well net-net, are the global mix trends still as favorable as they were, are they changing at all as people are kind of moving towards smaller more fuel efficiency vehicles.
Joseph Cantie - Executive Vice President and Chief Financial Officer
I think your getting a couple of effects which actually... I can say a couple of effects obviously are very positive and one effect which is negative in that. And basically, on this subject, first of all, fuel efficiency, we are seeing an increased interest in our both pure electric steering and the electrohydraulic steering. And particularly electrohydraulic around hybrids vehicles, and indeed across even many vehicles... particularly, say, nontraditional, unlike passenger vans I mean it's a small cargo carrying vans that go into city centers.
And so, it's pulling, to a degree, with the CO2 rules in Europe a little bit of an unexpected, unexpectedly more potential than we previously thought that might be there. So that's a good trend. In fact, with small cars, the actual fitment of seatbelt pretensioners or multiple airbags around it, you'd find more airbags on a BMW Mini than you would on many of the U.S. SUVs.
So again, that would be a positive thing for us. The one negative, I would say clearly for some of the... more the metal-based products, which haven't the... you have mass to go with large vehicles. So, if you are trading down from a, an SUV to a passenger car here in the U.S., then it will have, let's say, smaller brake sizing that would go on them. You've still got, obviously, four wheels and therefore four rotors, for example, or four brakes. But then you've got the stability control. So the one negative I would say is with the value shift from big vehicles to smaller vehicles that's clearly going on in the U.S. But in terms of the safety and fuel efficiency, those have been net positives.
Rod Lache - Deutsche Bank
Great, thank you.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Thank you.
Operator
Our next question is from Jonathan Steinmetz with Morgan Stanley.
Jonathan Steinmetz - Morgan Stanley
Hi guys. This is Robbie in for Jonathan. Can you talk about the first quarter at a segment level, because its seems like Chassis here in particular was really strong and may be also give us the EBIT by segment?
Joseph Cantie - Executive Vice President and Chief Financial Officer
Sure regarding our segments we had growth in sales in each of when I think that's in one of the charts that you saw that Chassis system sales was up 24%, that's for the module sales are so there is 285 million of increase sales there if you take out the modules you had growth above 8% net segment which is still pretty good. In terms of the profit levels, Chassis was some where around 76 million for the quarter. Occupant safety was 114 million and our Automotive Components Group was 28 million so comparing the margins between this quarter and the prior year quarter, Chassis was very, very comparable about the same margin which is actually pretty good when you think of the lower margin module sales that get added. Our Automotive Components Group was up in margin about 40 basis points and then our occupant safety group actually had a slight decline in there, in there margin more because of the translation effect and the decline in the North American production which with had occupant safety group. So nothing that's a quick recap, you will get the full MD&A when we file our Q probably later today or tomorrow. But there is nothing terribly unusual in any of the segments that we have.
Jonathan Steinmetz - Morgan Stanley
Great and it also seem like our CapEx in this quarter was a little over than your full year guidance, how do you see that trending for the rest of the year?
John C. Plant - President and Chief Executive Officer
We have out guidance that's we expect about 3.5% of sales, so that's slightly lower than we've previously... number we've previously talked to. Somewhere reflects the currency impact in the sales, but of course we do have currency impact in some of the capital purchases. But overall, maybe slightly less.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Yes.
John C. Plant - President and Chief Executive Officer
And quarter by quarter, a lot of it is on timing. So I wouldn't take anything huge away from the fact that we were slightly lower in the first quarter.
Jonathan Steinmetz - Morgan Stanley
Great. And finally was there any impact from your own strike in 1Q?
John C. Plant - President and Chief Executive Officer
Nothing of any significant nature. I mean, there'd be a fractional amount.
Jonathan Steinmetz - Morgan Stanley
Thanks very much.
John C. Plant - President and Chief Executive Officer
Thank you.
Operator
Our next question is from Patrick Archambault with Goldman Sachs.
Patrick Archambault - Goldman Sachs
Hi, Good morning.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Good morning
Patrick Archambault - Goldman Sachs
: Actually, just wanted to talk a little bit more about the segments. Clearly, it seems like a lot of the growth has been coming from Chassis recently. Can you give us a little bit of an outlook for the OSS segment? Is that something that you expect to be slowing down, just given the significant penetration in some of the faster growing products, like side curtain airbags? Or is there enough regulatory... large enough regulatory catalysts out ahead of you that that is something that can sustain maybe above-average growth, vis-a-vis your other businesses?
John C. Plant - President and Chief Executive Officer
I think we're comfortable with the overall statement for the company. And what I've said in the past is that some segments in a particular year will be slightly higher than the average and some will be slightly lower. In fact, I think in the second half of last year, I did comment that we expected chassis to be strong in 2008. But again, if you went back over the last few years we said we saw occupant safety being strong for... we still see occupants safety developing well and growing. But we said just now chassis would be the one that would give us higher growth in the next short period of time. But if you looked at our five year plan you'd actually see all three of our segments growing pretty much in line.
Patrick Archambault - Goldman Sachs
: Okay. And any kind of color on the regulatory front you can share with us, that's driving....?
John C. Plant - President and Chief Executive Officer
There is nothing significant regulation passed... in the, and now our we are seeing the we are seeing the full fitment, we should not coming through on side-impact airbags and curtains. So there is more of that to run yet.
Joseph Cantie - Executive Vice President and Chief Financial Officer
You see stability control obviously in the states and there is some hope that let me some regulations in Europe as well but that's a couple of years out.
John C. Plant - President and Chief Executive Officer
Just to give you a slightly fuller picture, I mean no, there are further regulations which are being talked about, which are in discussion with both the vehicle manufacturers and of course the supply industry and we are playing our part in the discussion. So, I mean I think we may expect that there will be additional things which are going to be mandated in the next two to three years.
Patrick Archambault - Goldman Sachs
: Okay, thanks a lot guys that's all I had.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Thank you.
Operator
Our next question is from Derrick Wenger with Jefferies & Company.
Derrick Wenger - Jefferies & Company
Thank you, I think you touched on this but I just want to... in the first quarter and at what level? And can you back out the principle balances outstanding on the 2014 and 2017?
Joseph Cantie - Executive Vice President and Chief Financial Officer
We repurchased the 7% notes that carry the 7% coupon. We purchased them at a yield of about 9%. So, I think that I don't know the exact conversion there, but I think it's somewhere around 92. And I'm sorry, what was the last question?
Derrick Wenger - Jefferies & Company
The balances outstanding on the 2014 and the 2017 obligation?
Joseph Cantie - Executive Vice President and Chief Financial Officer
Bear with me one second.
John C. Plant - President and Chief Executive Officer
Why don't you give us a call afterwards, because I don't have the exact balance. I mean the total balance is 1.5, 1522 but I don't have it broken out between the 14s and the 17s right now.
Derrick Wenger - Jefferies & Company
Okay, on the 7s what was the principle amount acquired?
John C. Plant - President and Chief Executive Officer
12 $12 million.
Derrick Wenger - Jefferies & Company
Okay at around 92? Okay thank you.
Joseph Cantie - Executive Vice President and Chief Financial Officer
Yes. Thank you. All right. I believe that concludes today's call. So everybody thanks for joining us today. And if you have any follow-up questions, please give me a call and I'll do my best to answer them. Thank you.
John C. Plant - President and Chief Executive Officer
Thank you.
Operator
This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.
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