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Fitch Affirms Yazaki International Corp.'s 'F3' Short-Term Rating.

Business Editors

CHICAGO--(BUSINESS WIRE)--March 14, 2003

Fitch Ratings has affirmed the short-term rating of Yazaki International Corp. (YIC), a subsidiary of Japan based Yazaki Corp., at 'F3'. The affirmation is based on improved operating and financial performance resulting from industry volume increases, cost reduction efforts, restructuring efforts at underperforming subsidiaries gaining traction and continuing production orientation towards lower cost locales. Improved profitability and leaner working capital base have in turn helped to reduce debt levels. Also reflected in the rating is YIC's continued market share and technology position as one of the leading automotive wire harness suppliers. Despite the gains achieved in the partial restoration of YIC's operating and financial performance, however, the volume cyclical nature of North American vehicle manufacturing and the brutally challenging pricing environment faced by most automotive suppliers pose risks to YIC's continued operating performance recovery and financial condition improvements.

Rebounding from FY2002 (ended March 31, 2002) of operating losses and poor financial performance (due to industry volume weakness, pricing concessions, and other YIC specific operating challenges), YIC showed improved results for the 6 months ended September 30, 2002. Compared to $40 million in operating losses on $2.2 billion of sales for FY2002, the 6 months ended September 30, 2002 showed $26 million in operating profit on $1.2 billion in sales.

Although some of YIC's positive swing is reflective of the stronger build rate in North America in calendar 2002, cost reduction efforts (i.e. material purchase efficiencies, New Yazaki System of operational management and improved program launch cost management), turnaround in underperforming electronic components subsidiary, and further production migration to lower cost sites are also driving the gains. While Fitch does not expect YIC to regain its historical operating margin levels in the high single digit range in the near term, YIC is expected to continue with operating gains through the balance of FY2003 and into FY2004. Added programs coming on line with customers like Honda and General Motors will contribute to the revenue base. The new penetration gains will be tempered, however, as some existing programs with Chrysler may not be renewed going forward due to its sourcing strategy to increase diversification of wiring harness components. Continued execution of production migration strategy to lower cost locales should also yield further cost benefits.

Fitch recognizes also that YIC faces key risks in extending the operating gains into FY2004. For instance,if the build rate environment shapes up to be much weaker than the low to mid single digit rate decline anticipated currently, and price give aways, recently seen in the 1%-2% range, hikes up to greater levels due to troubled vehicle manufacturers demanding larger price concessions, then the recent positive operating and financial trend may be hampered

Total debt for YIC, much of which is in the form of borrowings from US branches of Japanese banks, decreased $32 million to $240 million at September 30, 2002 from $272 million at March 31, 2002 and $104 million from $344 million March 31, 2001. The debt reduction is reflective of seasonal fluctuations of working capital and concerted efforts to manage working capital more efficiently, as well as improved operating cashflows stemming from better profitability. Fitch expects the debt level will increase with period to period fluctuations but generally decline as positive operating cashflow is used to pay down a moderate amount of debt going forward. The debt funding is used to support YIC's working capital requirements principally.

YIC serves as the holding company for the Yazaki group's marketing, engineering, distribution and certain manufacturing operations in the Americas. Parent Yazaki Corp. is privately held, predominantly by employees (via a stock ownership plan), along with the founder's family and its major Japanese banks. The Yazaki group with global sales of more than $6 billion, is principally engaged in the business of supplying automotive wiring harnesses to OEM's globally and enjoys a leading 30% plus market share of the industry.
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Publication:Business Wire
Geographic Code:9JAPA
Date:Mar 14, 2003
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