Visteon Corp (VC) 2001 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Visteon (Company: Visteon Corporation; Ticker: VC; URL: http://www.visteon.com/) conference call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. To ask a question, please press the number one key on your touch-tone telephone.

To remove yourself from the queue, press the pound key. As a reminder, this conference call is being recorded.

Before we begin this afternoon's conference call I'd like to remind you that much of the information that will be shared with you today consists of

forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties,

some of which are identified in the company's reports on form 8-K filed with the SEC on February 27, 2001 and January 8, 2002. Please read the entire form 8-K if you have not done so already.

I would now like to introduce your host for today's conference call Mr. Derek Fiebig, director of investor relations for Visteon Corporation. Mr. Fiebig, you may begin.

Thanks Pam and good afternoon everyone.

I'd like to welcome you to Visteon's fourth quarter 2001 earnings conference call. We posted our fourth quarter earnings presentation in the investor's section of our web site under news and events this morning. I hope you've had time to pull down and review those materials.

In the event that you didn't receive notification, the site is www.visteon.com and you can view those materials online as we cover them over the course of this call. If you'd like to receive these materials via e-mail in the future, please send a request to vcstock@visteon.com and we'll add you to the list.

Leading today's call will be Pete Pestillo, our chairman and chief executive officer and Mike Johnston, our president and chief operating officer. Immediately after our formal comments the operator will open the lines and allow Pete and Mike to respond to your questions.

And with that I'll turn the call over to Mike.

OK. Thanks Derek.

First of all, I'd like to announce Dan Coulson had a family matter today requiring his attendance and that's why Pete and I are handling the call without Dan.

OK. To get started Visteon posted fourth quarter results in line with consensus expectations with operating earnings of $3 million for 2001. Major production cuts at Ford led to weak results. North American production was down in all four quarters year over year.

Our restructuring initiatives, salaried reductions and glass and a firm hand on controllable costs help offset volume declines. We ended the year in a solid financial position including cash of $1.2 billion.

Fourth quarter working capital was strong particularly inventory improvement and non-Ford sales increased by six percent during the year and accounted for 18 percent of our total sales.

Page three summarizes 2001 financial results and I'll provide more detail on the fourth quarter on the next page. Our financial results for the fourth quarter and full year of 2001 include pricing accrual rates consistent with levels assumed in the first nine months results of the year.

Full year net loss was $118 million on revenue of 17.8 billion. Included in full year results are charges of 121 million after taxes associated with restructuring actions. These charges which were disclosed previously were incurred in the first nine months

and included costs associated with salary head count reductions, restructuring actions at glass operations and consolidation of two European facilities. There were no restructuring charges in the fourth quarter.

Our full year operating earnings which excludes restructuring charges were $3 million or two cents per share.

Fourth quarter 2001 revenue was $4 and-a-half billion.

We incurred a loss of 14 million in the fourth quarter in line with the first call analyst consensus estimate.

Page four provides added detail on fourth quarter 2001 results. Revenue of four-and-a-half billion was down 36 million from fourth quarter 2000. Ford revenue of 3.7 billion was down 55 million.

The decline is a net effect of lower vehicle production in North America and price downs offset partially by added content on selected vehicles, most notably Explorer and the Jag X400.

Non-Ford revenue increased 822 million up two percent compared with a year ago and I'll provide more details on the non-Ford revenue growth in a moment. Our fourth quarter loss of 14 million compared with earnings of 51 million in the same period a year ago.

Fourth quarter 2000 has been adjusted to exclude the glass impairment write down of 138 million after taxes. The decrease in profit compared with a year ago reflects the combination of lower volume and price downs which are not fully offset by cost reduction.

Also contributing are unfavorable currency changes and non-recurring one time gain on the sale of our interest in

and adverse net interest expense.

For clarification I'd like to mention two items that affect the comparison of revenues and costs but which have no affect on profits. Revenues and costs were both increased by $50 million in the fourth quarter due to a reclassification for sales to

Ford which previously had been reported as intra-company revenue. The other item was related to precious metals. Under our agreement with Ford, we have essentially a pass-through arrangement.

The increase to our fourth quarter revenue and cost was $50 million. The full year increase related to precious metals is about 200 million on a total revenue of about $1 billion.

On page five, our non-Ford revenue continues to be strong. For the full year non-Ford revenue totaled almost 3.2 billion. This was up six percent from 2000. And this understates the organic growth we've achieved due to lower industry volume,

unfavorable currency changes and our decision to exit some of our cut and sew operations. Non-Ford revenue accounted for 18 percent of total revenue in the fourth quarter in full year up two points from 2000.

Page six shows operating cash flow for the fourth quarter and full year 2001 adjusted to exclude the effective restructuring charges. Operating cash flow during the fourth quarter was 162 million positive reflecting primarily positive cash flow from working capital and accrued liabilities.

Fourth quarter working capital improvements were driven largely by a reduction in inventory of $164 million. We're pleased with the progress we made reducing inventories and I'll talk more about this in a moment.

Net spending and our loss for the quarter were partial offsets. Operating cash flow for the year was 222 million negative excluding the effect of restructuring. Net spending and negative working capital more than accounted for the negative full year cash flow.

I'll cover spending and working capital in more detail on the next two pages.

Page seven summarizes our capital spending over the last five years.

We're continuing to bring down capital spending despite increases in new programs and new business. From 1997 through 1999, capital spending averaged 885 million annually or 4.9 percent of revenue.

In 2000 spending was reduced to 793 million or 4.1 percent of sales. We continue the trend of spending reduction in 2001 and contain spending to 752 million. This was better than our target and was down 41 million from 2000.

We're achieving reductions through application of lien principles on major programs utilizing simpler standard equipment specs, bundling our purchases and reutilizing existing assets and examining lease versus buy opportunities.

Page eight focuses on the components of trade working capital. We ended the year with about 1.4 billion of trade working capital. This was 200 million better than last quarter reflecting primarily the decrease in inventory.

The cash effect from changes and receivables and payables were offsetting at about $100 million each. We do believe, however, there's still opportunity for improvement and we're focusing our

efforts on company wide initiatives to build on the fourth quarter improvements.

Some of those initiatives include targeting further reductions in inventory through closer monitoring of the production schedules,

lowering reorder points and putting discipline metrics throughout the plant system. We're also evaluating receivables and payables practices by geographic regions and have efforts under way to improve supply chain efficiencies.

And finally, we've added a cash component to our incentive compensation targets to heighten the focus even more. As you can see on page nine our financial position remains strong.

We ended the year with almost 1.2 billion in cash and marketable securities and this was up 200 million compared with September 30, 2001. Our debt decreased by 66 million compared with last quarter as debt was lower at several of our overseas locations.

Our capital structure remains solid with equity at 3.3 billion and total capital of 5.2 billion. Our debt to cap ratio was 37 percent unchanged from third quarter and also unchanged from a year ago.

In the past we've told you our solid financial position and investment grade rating were very important to us and with deteriorating economic conditions we believe we've had the right focus and intend to maintain this perspective in 2002. Now, I'll turn this over to Pete Pestillo.

Thanks Mike.

We all know that 2002 will be another tough year. But we go into it with some important advantages. Our financial position is strong and as Mike said our cash delivered situation is good and frankly, it's better than most of our competitors.

In an uncertain economic environment this is a real plus. We've added substantial strength to our management team too with new presidents for North America Asia and Europe South America,

a VP and general manager for the Asian OEMs and a VP for quality and materials management. All that extensive global tier one and experience and are experts at execution.

We continue to be pleased at the reception we're getting from new customers which has led to a steady progress in diversification. Nearly 50 percent of our $5 billion backlog is non-Ford. Forty percent is outside North America.

This diversification is critical with the over capacity and competition we see in the North American market. I'm convinced that our design expertise and ability to integrate complex systems into vehicles

will prove invaluable to customers looking to differentiate their vehicles with new technology and to take out cost and complexity.

We've also had some challenges. The pricing environment

a challenge throughout the industry. Margins are thin and over capacity and competition make price increases to the ultimate customer very difficult.

There are severe strains in the supply chain. The number of bankruptcies has doubled and we've had to take some extraordinary steps to assure

production is not disrupted.

To improve margins we'll have to cut even more cost and structure which translates into doing more with less in manufacturing, engineering and support activities. All of us fact the uncertainty of the shape and depth of the downturn and how soon recovery will come.

We're heartened by recent announcements that production schedules would suggest that the auto makers are willing to fight through this week economic period.

This environment

2002 focus will be on driving down break even and improving cash flow. We'll hold capital spending to 2001 levels observing economics in support of new business and product launches.

We've targeted a 10 percent cut in R&D. Half of that will come from realigning resources to focus on growth businesses. And to stop work on products where revenues and margins are not in line with investments.

Half will come from continuous improvement in operating efficiencies.

We'll undertake major initiatives on our supply chain. We'll share savings and supplier to come up with cost saving design ideas and we've targeted major cuts in a number of suppliers.

So, we can focus on those who can help us deliver innovative technologies and help us meet cost targets. We have some existing programs that do not make sense for us to continue to produce at current pricing levels and we're working with

the customer to help them resource the business with other suppliers.

We have some existing products where we won't seek to renew contracts because they don't yield adequate returns or they're not aligned with our product focus.

We'll put new discipline on how we pursue new business. Going forward that's bottom line driven. Mike discussed our focus on cash management. It needs to and will be a focal point for all members of the Visteon team.

We've had a lot of questions about the impact on Visteon regarding Ford's announced restructuring. Since the announcement is to bring capacity down to present sales levels there need not be much impact if Ford's share holds up.

We're working with Ford to optimize capacity planning. The 20 or so new refreshed products that Ford intends to introduce between now and mid decade presents some real opportunities particularly in the premier automotive group

where we have major standing with Jaguar and Lincoln and overall in Europe and Asia where we are well positioned to support growth.

And we tend to be second to none in our focus on quality. We have now more than 300 black belts in place with aggressive plans to increase that number in 2002. More robust program management gives us the capability to have flawless launches.

Some of our goals for 2002. Our target is to position the business to achieve break even in a 15 million unit market in North America. We've set a goal of an additional billion dollars in new non-Ford wins. Our target is to achieve positive operating cash flow 2002.

We've added cash flow as a modifier to incentive plan. We intend to maintain a solid financial position and do everything we can to keep our investment grade rating. And we'll continue to pursue portfolio actions we've announced previously and to evaluate further actions.

Now, we'll be happy to take your questions.

Thank you. And at this time ladies and gentlemen if you do have a question, please remember to press the number one on your touch-tone telephone.

If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Please stand by for questions.

Our first question is from Wendy Needham of CSFB.

Good afternoon.

Good afternoon.

And congratulations on that inventory number. My question really is on revenues. Can you help us think about revenues in 2002? What is the net new business that's coming on? And then how do we look at that in light of the negotiations that are ongoing with Ford?

Had the revenue already built in a three-and-a-half percent price reduction? And then finally, not to make this too long, if you were going to resource some business, would you be able to accomplish that in the course of '02 or is that something that would take longer?

OK.

Sorry about that.

No. That's OK. I'll start at the end and work up to the first one.

On the business that we're looking to resource most of that would be early stages of launch where you know business we'd won in previous years and as we started to look it doesn't make sense for us in our product portfolio. We talked about the prioritization of that.

It doesn't make sense from an investment standpoint.

Where it doesn't meet those requirements we're working with the customer to just you

know frankly transfer the order and any technical information we have to help them resource it to somebody else if that makes more sense for them. So, it would tend to be more product that would not be shipping in the current year or probably more in the year 2003 out in that timeframe.

So, it would lower the backlog?

Yes. It would lower the backlog ...

OK.

... and we believe it'll improve our margins going forward.

Right.

In terms of whatever the pricing arrangements and estimates are with the customer those have been baked into our forecast and we feel comfortable with the -- with the numbers that we're using today based on

where we're at with negotiations and we don't see any major changes in those estimates going forward.

And then in terms of the new business coming on,

most of what we booked in the current year in 2001 actually hits a window of shipment in 2003. It's a little bit earlier than what you normally see. It normally seems to be out there you know three years but because of the product

we got and the mix we have frankly it's -- the biggest part of it comes in in the year 2003. If you look at our total backlog where we've talked previously of about $5 billion that tends to be not much of a hockey stick.

It tended to come on board at a pretty linear rate each one of those years going out from 2002 through 2004. So, I hope that answers that.

Yes, thank you.

Thank you. Our next question is from Steve Girsky of Morgan Stanley (Company: Morgan Stanley Dean Witter & Company ; Ticker: MWD ; URL: http://www.msdw.com/).

Good afternoon everybody.

Good afternoon.

Could someone -- I got three questions. Let me start with I think the easier one. You said the goal is to break even with 15 million production.

So, that assumes that if production's better than 15 million you're going to make money.

Yes, Steve, we expect that to be the case.

OK. Good. Gross profit. When I look at excluding the precious metal thing it looks like your revenue was down 90 but your gross profit was down 100. What's going on in the gross margin here?

OK. Let me take a -- let me take a look at it on excluding the precious metal. If we look at EBITDA and take a look at it that way, Steve, then you would see a revenue. Then you adjust for that $100 million two items in the fourth quarter that we talked about.

You would see a reduction in the top line of about 136 million and a reduction in EBITDA of about 58 million. And that would tend to -- you know that gives you a ratio of just over 40 percent which isn't too far out of line with prior periods.

You didn't -- I mean you may not know this but you didn't reclassify anything from cost of sales into SG&A, did you? Or out of SG&A into cost of sales, did you?

No. We did not.

OK. And what's the pension liability right now and what's your healthcare liability right now?

OK. Just give me a second to get that one for you.

I realize you're doing double duty there.

That's OK. That's OK. As we look -- I'll give you some information on it, Steve. As we look forward to next year we see an increase in pension and

costs somewhere around $100 million range. And if we looked at our pension asset values are down slightly, down around 14 percent for 2001 and that leaves us about 80 percent funded

but we feel we're in pretty good shape looking forward on that. And we really don't have too much of a hit on -- in terms of equity charges for the pension liability. We're looking at only a couple of million dollars even in 2002.

What do you do when -- you got to fund the pension at all in 2002 or no?

No. We -- the -- we feel we're in adequate shape on our -- on the pension today.

OK. And can someone update us on the latest on the Ford situation?

On the -- in terms of our press release we had to issue a ...

They seem inclined to let this audit play out.

Is there any way that this thing could be resolved before the audit plays out? I mean who knows when the audit's going to play out.

Yes. We can't predict. We are -- I'd say this, Steve, we are cooperatively pursuing an agreement under the procedures laid out in the separation agreement. And that could end up being reach an agreement it could end up going down the course

that it's headed down now and both those options are being pursued in a very cooperative manner.

But we're continuing to pursue the audit process at the same time see if we could find some reconciliation.

What about -- you know when do we get definitively is this market basket staying or going or what's going on with that?

That would also be part of the ongoing discussions, Steve.

It all -- we'll get everything at the same time?

We expect so.

All right. Thank you.

Thank you. And our next question is from Matt Stover of Salomon Smith Barney.

Good afternoon. Thank you. A couple of questions.

To follow on to Wendy's question, I was wondering, Mike, if you could kind of put a number ballpark around the businesses that you're discussing with the customer in terms of resourcing. I mean is this $100 million worth of business, $500 million worth of business?

It -- I would say this it's spread across a lot of different individual parts and orders. And depending on our success of you know frankly finding a good solution for us and our customer and we have to take you know first requirement's to take care of the customer

and trying to find a solution for them as well. It could be in the range of the numbers you're putting out there. I think those are fair kinds of numbers to be looking at. And our degree of success will frankly depend on our ability to transfer that to another viable supplier

in cooperation with the customer.

The other question is on your tables. At 39 days a big movement versus the third quarter. And Pete, and I think his comments made reference to

supply base.

Did you have an issue with the fire that you had to put some cash into or?

No. There really wasn't a significant unusual

or anything in the fourth quarter. Our volumes were down and so the payable balances were down a bit.

The days looked lower than what we frankly like to see and then we'd expect to address that going forward with John Maples and the material management organization.

As far as distressed suppliers, you know we're probably in the same boat as everybody else. We've got a couple of dozen frankly that we work with and in terms of unusual premium payments or things like that to ensure supply of product to us it was just over $4 million in all of 2001.

So, no real impact in that year but I'll tell you the trend was toward the end of the year requiring additional assistance. So, 2002 will certainly get a lot of attention and focus. And, again, we would expect to try to do that proactively with John Maples' organization.

And the last question is -- it's with regards to receivables. You and Ford are discussing the pricing issues right now. But if I'm calcing the receivables

you're turning them at about 38 days.

I'm wondering if the discussions have been elevated to working capital and if we should modeling as we go forward a change in that.

We're not anticipating a change in that at this point. It hasn't been discussed at all.

You know we're working on other commercial issues at this time. Frankly, you know we see an opportunity to improve our cash management with the supply base and you know we have some long standing agreements with all of our customers on

what our terms would be and I wouldn't expect that to change.

OK. Thanks very much.

Thank you. Our next question is from David Bradley of J.P. Morgan (Company: J.P. Morgan Chase & Co. ; Ticker: JPM ; URL: tttp://www.chase.com/).

Good afternoon.

Good afternoon.

Good afternoon.

A couple questions. One, can this -- this audit I presume between you and Ford on the prices from our

of the market basket. Supposing the results come out that the market basket went down less

than your price decreases, do you get -- can it go the other way too? Could you get a refund back from Ford?

David, that's the way intended to operate. And obviously we'd certainly pursue that.

So, this audit when it's done could end up with you owing them more or them owing you more? It could go either way?

Yes, but obviously you know we took the issue on because we're optimistic that the sums are about where we calculated them.

OK.

And certainly no worse.

Yes. I'm also kind of wondering about the -- just understanding the market basket in the context of your daily dealings.

It seems like maybe it's -- instead of taking a hammer to a nail you're taking a frying pan to the nail and this market basket -- just a little example here. Supposing for example that you have a product you're selling to Ford at a loss.

It's a variable loss for you and so you decide you don't want to make that product anymore.

So you find somebody to resource it and somebody else makes it for them.

OK. Now, therefore that product comes out of your -- and then Ford along the way says well, what if we give you a 10 percent price increase.

Would that make it worth you keeping it? And you say fine. That works. So, we'll keep it.

So you get a 10 percent price increase on that product. The end of the year comes around and they look at the market basket

and you got to put a 10 percent price increase on one thing which goes the opposite direction of the basket. So then they have to give you a payment to override it. Is that a -- the scenario I'm describing, is that a feasible scenario?

No. That hasn't -- that's not what's been taking place, David. There's no work in and out or I can't think of a single product where we dealt with keeping it as a result of that kind of discussion.

OK.

it is parts where we are not the sole supplier. And the issue becomes then to what extent have the reductions elsewhere been greater than ours.

Right. And supposing that things do go -- the negotiations don't go well and the audit goes against you for whatever reason is there -- do you have a contingency plan in place so that would sort of steps you can get incremental costs out that would get

you back to profitability under that scenario?

Well, obviously we'll be more aggressive if we have to. But there's a further step that needs to be noted and that is that there is still an arbitration process that will present the question of fairness.

And that is you know is that what the norm for other suppliers has been. So we're comfortable there.

two reviews short of even more

actions but faced with that as I said earlier on we'll find a way to get the cost out.

OK. And then finally on this related issue but Ford's got a revitalization plan. Do you need to as a large Ford supplier and as a you know very, very close to Ford and do you need to do your own revitalization plan to kind of keep

-- a sister plan that keeps them

up with their plan to keep you guys even so to speak?

Sure. You know what we've -- in fact we really started our revitalization plan probably a year ago and took some pretty you know significant actions at that point in time. And what we're doing right now is working with Ford to understand

the impact of their plan and what the production schedules would be and in fact you know in our case our footprint isn't lined up with theirs to be one for one with our factories.

So, most of our factories would be supplying multiple Ford locations. And if they were to shut one down or take production out of one it has an impact on our plants

but it doesn't really give us an opportunity to shut a plant down one for one.

The other thing we have going on though you know in our case is the new business that we've been winning outside of Ford which

comes in and helps us offset any capacity that gets -- that does get freed up under the revitalization plan.

So, I'll just tell you know we're a significant partner of Ford and we're working very,

very closely with them so that we do things in lock step with them. And we are running different manning scenarios of what would happen at different shifts in our factories and so on and head counts depending on how they flux their volume. So, very much working together on this.

All right. Thank you.

Thank you. Our next question is from Gary Lapidus of Goldman Sachs (Company: The Goldman Sachs Group Inc.; Ticker: GS; URL: http://www.gs.com/).

Four conference calls, four different last names.

We go by your first name anyway Gary.

We'll go by Gary.

How you guys doing?

Fine. Thanks. And you?

Just a -- sort of a follow on question to some of the ones that have come earlier. With regard to the revitalization plan at Ford -- yes, to the extent that they hold share in their production stage level or maybe even goes up it doesn't affect you.

But to the extent that you know your -- you're not happy with your profitability levels and so therefore you might want to take some step changes.

Is there any risk here that Ford is sort of using up all the chips so to speak with the UAW and therefore, it makes it more -- it just makes it more difficult for you to maneuver to achieve your objectives?

Gary, I don't think that they're either inconsistent or incompatible. I think the point you made at the outset is that it's -- the share issue is the critical one for us

. The actions they're taking with respect to UAW are sort of consistent with the agreement.

They're exercising layoffs and some you know moderate shift reduction

. So, it has no near term affect on their good will with UAW that I can think of.

So you don't see it puts any constraint on you and what you need to do?

No. We have to operate in exactly the same way. I mean the conditions for layoff effectively are the same because it's essentially the same agreement.

So, were we driven to layoffs that are volume related. They effectively are insured at the outset. You know the unemployment comp and things of that concept.

OK.

Those are the first impacts come there.

In your 2002 goal of break even at 15 million is that assuming the typical three-and-a-half percent accrual on price reductions?

Yes. It would assume that there wouldn't be any radical change and with any of our customers in terms of what we've been doing historically.

OK. So it doesn't provide for the 125 million for that to go against you?

Well, we're dealing with that of course separately so.

Right.

Yes.

Yes. And then just lastly you said -- you said that the pension asset performance was 14 percent negative. Did I hear that right?

That's correct.

.

Yes. That's correct.

And so then -- and you said that the -- so the -- you said the funded status was 80 percent, i.e., there's a -- now a pension liability which is equal to 20 percent of the obligation?

Is that the right interpretation?

That's correct.

Whereas last year it was over funded I guess?

It was slightly over funded. Correct.

So you -- you guys must be set up much more aggressive as you probably should be in terms of equity versus fixed income -- versus say Ford I guess which is -- because the terms of your --

you know your retirees are so far out in the future I guess versus theirs.

No. They're not materially different.

Well, except you don't really have retirees at this point.

I see.

. Yes.

Yes. Whereas of course they do. OK. But is it true then that you are much more aggressive in equities than they are? I mean it would appear that way given that you're down 14 and they're down I think ...

Yes. I don't remember their mix ...

I think they were down like six percent or something.

Yes. You know I -- probably we can dig into that and get back to you with more precise information, Gary.

I'll bother Dan with that one.

OK. We'll let you.

Yes. All right. Thanks guys.

probably have to get over to Ford as well to find out what

I just don't remember.

Yes. OK. Thank you.

Thank you. Our next question is from Darren Kimball of Lehman Brothers (Company: Lehman Brothers Holdings Inc.; Ticker: LEH ; URL: http://www.lehman.com/).

Hi. Thank you. Can I just clarify this? I know it's been asked a couple of times but you don't seem to be caveating the break even comment. Or are you in terms of the pricing dispute?

I mean it's almost like you're saying that you kind of know how this is getting resolved.

Well

I said at the outset we were comfortable with our position.

We're not hiding the resolution of this. But we'll -- you know we look at what's taking place in the marketplace and we've seen

report what roughly what their reductions had been. And so we're confident with that which we reserved. So, obviously we're pursuing those because we fell we're correct.

Right. But in terms of saying you're comfortable with a break even performance and a 15 million build that would change if this doesn't come out the way you're saying it's going to come out. No or are you saying you're going to get there no matter how this is resolved?

We said if necessary we'd take

actions to get that cost back out.

OK. Let me ask just a housekeeping question on cash outlays related to restructurings.

Is -- are there any amounts that aren't in your slide six that sort of lays out the operating cash flow? So, would a fourth quarter and maybe a full year number might be?

The fourth quarter number on cash for restructuring was 24 million. And the full year was 94 million.

Ninety four. OK. And let me ask you a question on one other issue.

I can't remember it was you or Peter was talking about a new discipline in terms of the new business effort and I guess that ties with the resourcing effort to a certain extent.

So, in terms of the new business that's coming on over the next couple of years and the kind of business you're going after today, can you give us a sense of some financial thresholds particularly in terms of the margin target?

I mean you've got you know a zero percent operating margin today you know as we stand. What kind of minimum operating margin are you looking to secure in terms of you know the new business you're bringing on?

Well, Darren, you know we're looking at what we think are realistic numbers and you know in the say the tier one industry. And we feel that you know that's the kind of numbers that we should be targeting and going after.

What we wanted to make sure that we put in place was the discipline commercialization process that made sure one, we were focused on the product portfolio we wanted to be focused on.

And two, that we were quoting business that we knew at the time we shipped it would be achieving those results that we felt we were entitled to.

And we probably didn't have that discipline in place and started to put it in place you know over the last year and are really starting to refine it. And you know frankly bringing in Jim Orchard and Heinz Pfannschmidt in Europe both with significant experience in this area.

You know we're driving -- I can just tell you an awful lot of discipline in that. If you look at what's in the backlog you know some of the -- some of the new business wins were taken you know I'd say strategically two or three years ago to broaden the base and we probably wouldn't take

those orders today and we want to make sure that the new business wins are going to improve our margins. And we're very confident that the new business wins we're booking today will do that.

But, Mike, in terms of you know your comment relative to your peers I mean again you guys are at you know basically break even. You've got peers that are doing a four or five percent operating margin.

You've got peers that are doing eight, nine, 10 percent. I mean can you be any more specific about this beyond you know threshold objectives?

Well, I don't want to be really more specific than that, Darren. You know we're looking at this on a product by product basis. And that was part of our prioritization process and when you look at our tier one competitors a lot of them have a tremendous amount

of focus and they're in one area or one product or one part of the vehicle. And what we have to recognize is that you know we used to talk about being able to product 40 percent of the vehicle. But the margins obviously are widely ranging across all those products and systems.

So, we've narrowed the focus down and put the discipline in place to get the margins on the parts of the portfolio that we grow. And I really wouldn't get more specific than that.

Yes. OK guys. Thanks.

Thank you. Our next question is from John Casesa of Merrill Lynch (Company: Merrill Lynch & Co. Inc.; Ticker: MER; URL: http://www.ml.com/).

Thanks very much. Just two questions. First, Mike, following on that working capital stuff. I mean do you have a target for this year that you're willing to share?

And, if not, wouldn't it be reasonable to expect that you could take $100 million of that working capital?

No and yes. We -- yes, we are sitting targets and driving it down through the -- frankly, down through the plant operations and we're looking at things like -- I mean the math is there.

So, you know we all know every receivable day is just under 50 million and every inventory turn is worth 40 and payables days are you know 40, six or seven.

And so we have a focus to drive significant cash out of the working capital and I'd be disappointed if we only drove 100 million out of the working capital. I guess I'd put it that way.

We see an awful lot of opportunity in the inventory management side. And, again, we've talked about John Maples and the disciplines there on making sure that we move to a more of a just in time receipt of the incoming materials as well.

So, we think there's opportunity with the supply base on the payables days. So, when we look at it we think that there's a -- you know a significant opportunity there. We have communicated to the plants --

frankly, the one goal I will share with you is that all the plants have a goal of improving inventory turns by at least 10 percent. So, you do the math on that and you know, that alone is $100 million.

OK. So we ought to be thinking about a pretty

this year. Just a second question relates, Pete, to your comments about stopping work on projects that don't have an acceptable payback.

And I wanted to ask you about your comments last week about telematics. You suggested that you know maybe this is not a business for you long term. I forget the words you used. But is that one of these businesses that is going through this process?

And, if so, why would you consider reducing your exposure or getting out of this business?

Well, John, the business is first of all it's moving rapidly but moving into production rapidly. So, there's a lot -- it requires heavy investment. It requires a lot of software effort which we're not the best. But also the take rate seems to be declining.

I think you saw some comments by Bob

the other day of

and you know we see some exotic navigation radio and the like where the take rate we thought would be 60, 70 percent luxury vehicles has dropped to you know 10, 15 percent.

So, we're delivering on that which we're doing obviously. But, you know the question for us is do we want to go forward to the next generation and the like and I'm not confident personally that there's a retail market there yet. That's the principal reason.

It isn't that we don't understand it. It's just it's more dynamic and less active if you will than the business I'd like to be in.

Do you think there's the possibility that this is just the kind of business that is not right for not only Visteon but for an auto supplier in general that it's really more for an electronics business or a different kind of animal?

Well, at least -- you make a good point. It's at least a hybrid in the sense that the auto applications require auto knowledge. But it really begins at a high tech electronic/software which is a field that might be largely outside auto. Yes.

Thanks very much, Pete.

You're welcome.

Thank you. Our next question is from Scott Merlis of Dresdner.

Good afternoon everybody.

Good afternoon.

Just wanted to try to construct a timeline for Ford's -- to the best we can of Ford's restructuring and their impact on Visteon.

And more specifically when you think of Visteon changing its processes for launches or new product development and has some of that creeped in before the restructuring announcement or is it going to take six months?

Do you see any improvement in launches? And the second part of that is the 65, 35 program and more importantly the whole purchasing process in general. Have you already seen movement in that direction?

And does it -- just

doesn't it take several months to really get those engineer those cost savings into the process?

Well

you asked two parts. Let me see if I can take the first one on that deal with purchasing, Scott. The -- if Ford's restructuring is as we initially expected to be and

have a dramatic impact.

They're effectively taking capacity down to sales as they suggest. And this can't -- our quick look says that may be at most 500 jobs for us. As Mike pointed out earlier we're not perfectly positioned against them in the sense that we don't have

as say Chicago and Atlanta dedicated assembly plants doing the same things.

So, you won't see any closings come out of us as it is. We've been working on lead manufacturing anyway so we're finding more space in our facilities. And the offset for us is other people's business.

So I think we shouldn't notice a dramatic change in the business we do with Ford based on the restructure. It's a case that you know they keep most share and mix because there's no -- we have significant truck contents as well.

With respect to purchasing, again, we've already offered to be a model with them on the savings if you will associated with it. We've seen programs like that in the past. John Maples who heads our purchasing operation really was actively involved in a comparable program with Chrysler.

So we think we understand and it has some exciting prospects. As you know I've said in the past we've got to develop a better OE supplier relationship in this industry if we're all going to survive.

And the second part?

Oh that's -- what else

?

OK. On the process changes and things that we're putting in place that you know that was I'd say systems and processes and controls

that we initiated regardless and frankly prior to the plans that had been announced by Ford. And we need to do that just to be a global tier one supplier and take on all of the business that we've taken on and you know you have --

every OE has different expectations or different priorities as they review launch readiness. And so we put -- we believe the system's in place to make sure that we've significantly improve our launches and in fact have flawless launches.

So, if anything you know that should help us to assist Ford is they take on some of their initiatives. On the 65, 35 you know as Pete says that's a great opportunity and we're excited about that because you know I'll tell you that requires a heck of a lot of cooperation between the

OE and the supply base and a real spirit of trust and you know I think it can really be a good bench mark for stepping up relationships.

And when you have something that shares in the benefits then you get more buy in from the participants. So, we see that as a positive move and as Pete said you know we -- you know frankly we just said let us be a model on this because we have some of the people in place

that have done it before as well and we think we can be a good partner on this one.

Thank you very much.

Thank you. Our next question is from Michael Bruynesteyn of Prudential.

Good afternoon guys.

Good afternoon.

Have you already made any progress on the R&D front and can you tell us what the R&D spend was in the fourth quarter?

Yes. We can get the fourth quarter number for you. We have made progress on the R&D front and for the year we're down roughly 80 -- about $80 million or slightly over that, somewhere around 10 percent or so in 2001 versus 2000.

We have a similar goal we communicated I believe last week of taking another $100 million out in 2002. And you know there'll be some restructuring involved in that but also some -- you know some outsourcing

of some non-core types of things that we do testing and prototyping and some of that. And maybe moving just some lower cost parts of the world to get some of the services that we do. So, we've identified you know specific actions that we believe will deliver that $100 million in 2002.

Great. And we saw a big payables gain in Ford's results yesterday. Has there been any pressure from Ford to extend your receivable?

No. There has not.

There seems to be a bit of a disconnect here because your receivables have gone. Their payables have gone down. Is there some sort of third party action going on here?

No, there isn't. And it was you know nothing really unusual at year end. Our unusual year end was actually in 2000. And we had a very favorable date fall on a payment at the end of 2000 and it frankly you know lowered you know our receivables by about $140 million.

So, we kind of had an artificially low start point for this year and in return more than normal in 2001 and in fact because of the timing of some launchers there's about $60 million in tooling receivables that are a bit unusual at the end of 2001. So that may account for some of that difference.

OK. Thanks a lot.

Thank you. Our next question is from Ken Blaschke of Deutsche Banc.

Just to follow up on the break even goal,

can you give us the production assumption at Ford in North America that you're using for that break even goal?

Actually we wouldn't disclose our estimate of what Ford's production is and in fact it's changing you know as we speak.

And what we said was that we would -- you know we would target a production of slightly below 15 in total but we're not giving any specific guidance on what we think Ford's production number's going to be.

Well then, can you comment on the share? Are you assuming they're going to hold share?

No. We wouldn't -- we wouldn't comment on that either, Ken.

You know we're saying we think -- whatever that combination of Ford share and total production in North America is for us we're saying it's 15 million and our goal is to try to break even down to that level.

OK. Then a separate question, Mike, on the seat business. That'll eventually go away.

Do you have a number for 2001 on how much you lost on an operating profit level in the seat business?

OK. First of all yes we wouldn't -- you know we wouldn't disclose the profitability by product line. We haven't done that in the past and I'll tell you if you went down to the auto show and looked at the seats in the Navigator we have a great looking interior system

in that vehicle. So, I'm not sure that it goes away. We've -- you know we've said that it's not a core business for us but the technology that we have in that particular application coupled with the patents we have on some of the features on the third row seat we think --

it adds value to the business. It won't change from being you know non-core but it certainly is a more you know more attractive order, a great application. It's a great seat system and we'll continue to be in discussions as we are now with other partners on it.

So you didn't lose money on that then?

Again, we wouldn't give guidance on any product line profitability.

OK. I'll try one last easier question then. The UAW --

it looks like your attrition was down about the six percent that you had said before. What are you -- what's your outlook for '02?

It's about the same. And you're right I think it was actually 5.7 percent.

And do you have the specific numbers or should we follow up with Derek.

No. We have -- we do have the numbers. Hang on.

Five seven is accurate.

Yes. The 5.7 is the right number. The total attrition is 1,378. And the final head count was 22,867.

And what was the total hourly?

I'm sorry. Total was 22,668.

Six -- and total global hourly?

That number I'll have to get for you.

And then lastly just a total head count for Visteon globally.

I'll get it to you.

Yes. We -- it's right at about 82,000.

OK. I'll follow up with Derek with the specifics. Thanks.

OK.

Thank you. And ladies and gentlemen, we have time for one more question. Our final question is from Richard Hilgart of Fahnestock.

Thanks. Good afternoon everyone. I wanted to follow up on an earlier question about voice activation technology. I was wondering based on your comments are you saying that you're seeing interest weighing somewhat in that product right now?

It wasn't voice activation per se we've talked about. It is the -- what

things as satellite radio which we have

and will be successful. Seems to be coming on. More exotic radios such as traffic information things of that kind which are slowing.

But we think we've got significant leadership in voice activation. But it really is an adjunct of all these other facilitating devices and that's the virtue we see where we wouldn't have to do some of the hardware but utilize our voice activation for such things as hands free telephone, things of

that -- all of which are safety related in which we have some expertise.

OK. So is recent

focus, as well as some of the legislative focus that we're seeing at the state levels, has that caused continued OEM interest in this technology?

Well, rather clearly, I think it's - but, you know, this is a pretty rudimentary product, the telephone. But I think the hands-free device is clearly going to be

. It is in some jurisdictions already.

But I think the only way you'll facilitate the use of those devices will be with voice activation. And as I say, that's - it's an adjunct technology, but one in which we have significant expertise.

OK. Great. Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may disconnect at this time.

Have a good day.