Visteon Corp (VC) 2003 Q1 法說會逐字稿

Good morning and welcome to the Visteon Corporation conference call.

All lines are placed in a listen-only mode.

As a reminder, this conference call is being recorded.

Before we begin this morning's conference call, I'd likes 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 annual report on form 10-K filed with the SEC on February 14, 2003.

Please read the entire form 10-K if you have not done so already.

The presentation material for today's call was posted to the company's website this morning.

Please visit www.visteon.com www.visteon.com/investors, to download the material if you have not already done so.

After the speakers' remarks there will be a question-and-answer period.

If you would like to ask a question during this time, press star, then the Number 1 on your telephone keypad.

If you would like to withdraw your question, press star then the Number 2 on your telephone keypad.

I would now like to introduce your host for today's conference call, Mr. Derek Fiebig, Assistant Treasurer for Visteon Corporation.

Mr. Fiebig, you may now begin.

Good morning, welcome to Visteon's first quarter 2003 conference call.

During the call we may refer to certain non-GAAP financial measures, additional information regarding these measures is included in the appendix of our presentation material.

Leading today's call will be Pete Pestillo, our Chairman and Chief Executive Officer; and Dan Coulson, our Executive Vice President and Chief Financial Officer.

Immediately after our formal comments, the operator will open up the lines and allow Pete and Dan to respond to questions.

With that, I'll turn it over to Pete.

Thanks, Derek.

The first quarter we record an after-tax loss of $15 million or 12 cents a share.

This includes 20 million or 16 cents a share special charges for restructuring actions taken in the period.

Overall it represents an improvement from last year, we're not satisfied with these results.

We're continuing to focus on improving the business in a very tough operating environment.

Lower industry volumes in several key markets, lower Ford North American production, and increased economics for healthcare, pensions, raw materials, and transportation.

Despite these challenges, we took important steps that resulted in improved performance going forward.

We reached a collaborative agreement with Ford and UAW to exit the seating business, which has been a substantial drain on our operating performance.

Implementation should quickly affect the bottom line.

We've completed an agreement request IBM to outsource information technology.

It will result in a higher cost this year, but major efficiencies going forward.

We've made additional progress in structuring streamline.

This is one of the most important investments we can make for our future, we're able to accomplish it while maintaining our solid financial position with the debt to capital ratio remaining at 36%.

We reached an understanding with Ford and the UAW. on the major portion of the transaction to exit seats.

Exiting seating is a major step forward in our plan to shed uncompetitive business.

As we said from the outset, this [INAUDIBLE] seating business is noncore, we are a small player; with 1% of the global market devoted to one customer, up against competitors of much greater scale, lower cost locations, and multiple customers.

It was not a positive contributor to our bottom line last year.

JCI is on site and will take operating responsibility for seat assembly.

About 1400 hourly workers will be transferred to another Ford or Visteon facility or operated under separate packages.

As part of the agreement, Ford is committed to source incremental interior business to Visteon's nearby Utica, Michigan plant.

The action will result in ongoing reduction of Visteon revenue of about $500 million but avoid substantial ongoing losses, we expect to take a charge in the second quarter but the financial pay back should be quick, about two years.

As I said before, we don't mind being smaller if we're more profitable.

The seating transaction, as with earlier actions involving the glass operation, demonstrates a collaborative effort by Visteon, Ford, and the UAW can succeed in restructuring noncompetitive operations

There are benefits for all parties.

Visteon is shedding an unprofitable business.

Ford will reduce its cost on shared access to new technology.

The new interiors business will eventually employ about 600 UAW workers.

I'm encouraged by the cooperation of the UAW, they've taken the effort to understand some of our difficult business equations and to help us identify opportunities.

This also applies to work counsels in Europe, with their help we're exiting products and position plants to win new business there.

If you add up the benefits of the European plan for growth and the seating transaction, you can see the leverage of exiting some of the lower products and the potential for improving profitability.

Discussions continue with Ford about the plan to exit our steering column business.

As we've said before, we chose not to invest in technology required for the next round of safety regulations.

So we're working with Ford to find how best to apply steering columns for existing models that have several more years to run.

We got a comprehensive analysis underway of all business processes to identify efficiencies in a alternative approaches.

Our recent outsourcing of IT is a good example of these efforts.

We reached a 10-year agreement with IBM to deliver a wide range of information technology services.

It makes IT spending as variable as possible by allowing us to increase or decrease requirements based on business demand.

It avoids significant capital investment by allowing us to from which IT services more as a utility and the agreement doesn't lock us into today's technology.

It will facilitate new systems that will improve our quotation and engineering change management processes, and build consistent program management with with all our customers.

As we noted, we expect additional additional IT expenditures in the range of $150 to 200 million this year, associated with the transition of the outsourcing plan.

Our new business wins continued.

To date, we have won net new business of about $200 million this year despite the economic environment.

More than 90% of those wins were with non-Ford customers, 45% was outside North America.

Increasing our customer in geographic diversification.

Hyundai chose us to supply front end modules and climate panels for the Hyundai 2006 sedan model they will assemble at a new plant in the U.S.

This adds importantly to our presence in Asian/ U.S. manufacturing facilities.

We'll also supply the cockpit and instrument cluster on the Ford Icon, a small car Ford developed in India for Asian and European markets.

Among the most recent new business is the Visteon family entertainment system available on the 2004 Chevy Malibu, being unveiled at the New York auto show.

Recently, several OEMs formally recognized Visteon's quality.

Toyota gave us their achievement award for our past [INAUDIBLE] security system.

Honda recognized our high quality and design for instrument clusters.

Ford announced earlier this month a quality award for [INAUDIBLE], our affiliate serving our customers in China.

The new business we're winning will improve margins and add to our customer and geographic diversity at the same time, we've stepped up efforts to reduce costs and improve operating efficiency.

Our European plant for growth remains on track.

We've implemented a number of actions this year, including additional head count reductions and resourcing of product to lower cost sites.

We should realize about $100 million in ongoing savings by 2004.

In North America, we are having regular discussions with the UAW at both the national and local levels to review our competitive position.

We're sharing the TVM analyses with them, and have initiated joint benchmarking studies.

We're also taking every opportunity to to streamline the work force.

We completed a detailed evaluation of all of our plants on a worldwide basis.

This identifies best practices within operations and a number of opportunities for improvement.

As a result, we're able to reduce manufacturing staff by several hundred employees.

Since then, we've eliminated more than 7500 positions worldwide.

We got a record number of launch this is year, more than twice last year's level and we are on track.

We've completed about 70 launches so far and have another 120 scheduled in the second quarter.

As we bring more focus to our product portfolio, we continue to target capital spending and R&D more efficiently to above improve our competitive position.

We're beginning to realize substantial savings of more than 2700 ideas our suppliers have generated to bring down their costs to meet our pricing targets.

The TVM process with Ford remains on track.

It's proving to be a good way to pare out cost and look at technology competitiveness.

For example, our air conditioning team worked with Ford out of reducing complexity, expandability, and more efficient climate control systems.

The team identified cost reductions and manufacturing deficiencies that should save us both, Visteon and Ford, substantially on future programs.

Another example is the more advanced, lower cost LED technology we're using on our instrument clusters.

It's a greener technology that in [INAUDIBLE] which uses mercury.

The cost reductions agreed through the joint TVM work should provide the basis for future prices with Ford.

How quickly these initiatives flow to the bottom line expect depends in part on a number of external factors.

Obviously, it's been a challenging start to this year.

First quarter industry sales were down 4 1/2% in the U.S., 5% in Europe reflecting the impact of the Iraq war and economic uncertainties in many areas of the world such as Germany.

Reduced consumer confidence.

The U.S. market landscape changed dramatically with an increase in the Asian OE share, reduction in the big three structure.

The big three's share in the passenger car market is 46% in the first quarter, it fell below 75% of the total light truck market, which is down about 4%.

Ford credits North American direction slightly in the first quarter but announced very sharp reduction about 17% in the second.

The new round of incentive is is welcome news, but it's unclear how well they'll succeed in the skiddish market.

There continues to be pressure on key commodity prices including: steel; [INAUDIBLE], and oil.

2003 will continue to be a tough year.

Given the uncertainty we're facing in the first part of 2003, we're concentrating on things within our control.

Visteon is determined to meet the objectives we set in January and demonstrate that we can operate in this climate.

This includes: improving profitability by getting cost down; winning new business with solid margins; improving margins on the legacy business.

Need to complete the launch schedule 2003, some 400 of them flawlessly for our customers.

We've set a target of additional billion dollars in non-Ford new business wins.

We're working to deliver the European plan for growth and complete the TVM process including implementing identified actions quickly and efficiently.

We'll maintain a strong cash focus, which has served us well in a difficult environment.

I'll ask Dan to take you through the financials.

As Pete indicated, the first quarter environment was really pretty tough.

There were a number of developments that affected our earnings which are summarized on the slide entitled, "Financial developments first quarter".

First, we're continuing our efforts to restructure the business with further actions taken by manufacturing in North America and Europe, following through on our European plan for growth.

We also have experienced substantial cost increases in several areas.

These include pension and healthcare, as well as raw material costs, such as oil, steel and resins.

We estimate these factors increase costs by about $60 million before taxes in the quarter.

Our IT costs also were up about $15 million in the first quarter.

Compared with a year ago reflecting the infrastructure actions that Pete discussed.

Ford's North American production was down about 20,000 units compared with the same period a year ago, it's European production was higher.

And we experienced a seasonal increase in working capital in the first quarter consistent with our past experience.

I'll go into this in more detail in a few minutes.

On the plus side, we intensified our efforts to improve margins and reduce spending and we recognized gains in material and manufacturing efficiencies.

And we had a substantial increase in non-Ford business.

We've revised the formats of several of our financial slides to incorporate the new reporting requirements.

We've also included several appendix slides to provide a consistent historical perspective.

Page 12, which is entitled, "First quarter financial summary", provides a summary of our first quarter financial results on a GAAP basis.

First quarter 2003 revenue totaled $4.7 billion, up $235 million from the same period in 2002.

We had a pretax loss of $19 million in first quarter 2003, this compares with a loss of $107 million for the same period in 2002.

Both amounts include pretax special charges. $31 million in 2003, and $116 million in first quarter 2002.

The restructuring charges recorded in 2003's first quarter include additional employee separations, and other manufacturing actions taken at our North American plants, as well as further implementation of the European plan for growth.

Charges recorded in first quarter 2002 reflected primarily the exit of restraint electronics business, and salary separations to reduce, research and development costs.

On an after tax basis, we had a net loss of $15 million, or 12 cents per share in the first quarter of 2003.

This compares with a loss on a net basis of $338 million or $2.63 per share a year ago.

These results include after tax charges for restructuring totaling $20 million or 16 cents per share in the first quarter of 2003, and $74 million in first quarter 2002.

Last year, we also took a noncash charge of $265 million after taxes to write off all the goodwill in our balance sheet when we adopted financial accounting standard Number 142.

As noted, revenue for the first quarter of $4.7 billion was up $235 million or 5% compared with the same period of 2002.

Within the total, Ford revenue was $3,721,000,000 in the first quarter of 2003, which was up $75 million, or 2%.

The increase is more than accounted for by currency changes compared with last year.

Largely associated with the strengthening of the Euro.

The results include a full quarter of seating revenue.

Non-Ford revenue of $983 million increased $160 million or 19% compared with first quarter 2002.

The improvement reflects higher volume in organic growth.

Non-Ford revenue accounted for 21% of total revenue in the quarter.

Favorable currency changes also improved profit in the quarter.

The amount of the improvement was less than $10 million before taxes, however, reflecting or ongoing hedging program.

We summarized our cash flow on the slide entitled, "Forecast 2003 cash flow",and the amounts are shown consistent with the way reported in our financial statements.

As indicated in the past, our cash flow is very seasonal throughout the year.

In the first quarter of this year, our cash from operating activities was negative by $135 million.

This outflow largely was the result of the seasonal impact of trade working capital, which was negative by $390 million.

This reflected pay back from the year-end holiday shutdown period and higher first quarter vehicle production when compared with the fourth quarter of 2002.

Depreciation and accruals were partial offset.

Capital spending, which is shown in the memo, is the other major component affecting our cash levels in the quarter we spent $181 million.

I'll discuss cash balances and liquidity in more detail in a moment.

First, I want to focus in more detail on trade working capital.

We prepared a slide that illustrates our seasonal outflow in the first quarter.

It also shows that absolute levels of trade working capital are lower than a year ago, reflecting or ongoing efforts to reduce the capital required to run the business.

As shown in the left column of the the slide, trade working capital increased to a little over $1.4 billion at March 31, 2003.

This increase supported higher production volume compared with the fourth quarter of 2002.

As shown in the right column, however, the absolute level has been reduced by $198 million at quarter end, and by $397 million at the beginning of the quarter when we reached our lowest level of trade working capital since our spin-off.

This reduction frees up cash for other uses.

The improvement in trade working capital requirements at quarter end compared with a year ago was accomplished despite higher revenue, which typically drives higher working capital, not lower working capital.

Consistent with this seasonality, cash and marketable securities declined from almost $1.3 billion at year-end 2002 to about $950 million at March 31, 2003.

Debt levels and debt-to-capital remained essentially unchanged.

Our solid liquidity position ensures that we have more than sufficient funds to fund our normal seasonal swings in working capital and handle other uncertainties.

We continue to have a strong cash balance that's in excess of our operating requirements, and we also are continuing our strong focus on cash flow.

Our cash generation over time has allowed us to steadily reduce our use of commercial paper to low levels of about $150 million at quarter end.

This compares with a level of about roughly $350 million at quarter end March 31, 2002.

Consequently, the recent SAP -- S&P actions should not have a major impact on our cash management plans.

We also don't face any long-term debt maturities until 2005, and don't have any major one-time deficit reduction requirements for pensions beyond our normal year-to-year changes.

We have additional available un tapped sources of liquidity that we will pursue as needed.

These include receivable-based financing programs, and development of an asset backed commercial paper program among others.

Our bank lines of $1.8 billion also are in place.

They include two stand by facilities totaling $1.55 billion, and a $250 million delay draw five-year line that we'll begin using during the second quarter to fund our U.S. central office facility.

This all will support or continued business improvements, new business launches, and restructuring actions where financially attractive.

As indicate in our last conference call, our objective for 2003 is to improve profitability.

This means to continue to take cost out, winning business at rates that can improve overall margins, and making progress on our legacy businesses.

Industry and market conditions are softer than anticipated at the beginning of the year, reflecting several factors, including the global uncertainties surrounding the war and its aftermath.

These conditions will make it more difficult for us to achieve our goal, particularly in the near term.

Our objective is unchanged, however, and we remain focussed on achieving it, despite higher costs for pensions, healthcare, raw materials and IT.

The restructuring actions we took last year and in the first quarter, along with our planned exit from seating and the European plan for growth, provide a good foundation for our efforts during the balance of the year.

We're not providing specific guidance or earnings for it the second quarter or the full year because of the uncertainties we've discussed.

Our intent is to concentrate on what's under our control and keep our eyes focussed on achieving our goals for the year.

Obviously, we'll continue to drive for improvements in cash flow and liquidity and restructuring efforts will continue where they make good financial sense, as will the pursuit of new business that will further diversify our customer base and improve margins.

And we'll work to improve our infrastructure gaining efficiencies in the process.

That completes our formal comments, and with that, I think Derek will allow us to open it up for questions.

Terry, if you could remind people how to queue for questions and open up the lines for the first question, please.

Yes, sir, I certainly will.

If you have a question to ask, please press star, then the Number 1 on your telephone keypad.

If your question has been answered or you wish to remove yourself from the queue, please press star then the Number 2 on your telephone keypad.

Our first question comes from Steve Girsky of Morgan Stanley.

Hi, good morning everybody.

Good morning, Steve.

I just have -- I'm going to tick off a bunch of quick questions.

Dan, what was the currency impact on revenue?

The currency impact on revenue, Steve, was -- just give me one second.

About $130 million.

And that was split between Ford and non-Ford revenue.

But in total, it was about $130 million with the biggest effect on Ford revenue.

Okay.

And that -- and it was 10 million on EBIT.

Less than 10 million.

It was about $7 million.

Okay.

Because we have programs in place, as you know, on an ongoing basis to hedge a pretty substantial portion of our currency exposure.

Right.

I'm trying to back into your incremental business.

Do you guys make money on this incremental business or no?

When you say incremental business, you mean.

The 235 million in revenue, so maybe if I add the 75 million in costs of things you outlined, it still seems like you should have gotten a bigger margin on this revenue that you added.

Well, as we're getting new business, it's good business.

And added volume and added business helps our profitability.

Well, let me try it a different -- did your costs go down more than your prices in the quarter?

No.

No, we had, as you know, we had a number of cost increases.

I quoted the major ones.

Sure.

The economics and IT.

We also had cost deficiencies that more than offset those cost increases.

However, those, that net cost improvement was not as large as the net price down that occurred during the quarter.

And --

And that's typical in the first quarter, by the way, as, you know, as we ramp cost savings up throughout the year, you recall purchasing savings typically become backloaded as we complete negotiations during the year with our suppliers.

Okay.

What's employment today versus the end of the year and versus last year?

The total employment, and this is salaried, hourly and including agency people that we use, was about 78,000 in round numbers at the end of the first quarter, 78,100.

At the end of last year, that same comparable number was about 78,700.

And that's a global word wide number.

So down about 600 people.

What about in the first quarter of last year?

First quarter of last year the same number, apples to apples, was about 80,300, in round numbers.

How much of this 150 million in IT spending is going to be capital spending?

We're still working on that.

As you develop software, you have a very rigorous test to go through to determine whether it's eligible for capitalization or not.

And a lot of times you can't complete the tests until you actually are deep into the development work.

I think it's fair to say that a substantial portion, clearly the very, very large majority of the expenditures will come through as expense.

But there will be certainly some piece of it that will be capitalized.

But the largest percentage of it by far will be expensed.

Your two big profit improvement items, one is European plan for growth, the other the exiting of Chesterfield, do we see any benefit of that in the second quarter or no?

Yes, we do.

The European plan for growth we've been getting gradual benefits on since late last year.

And that will continue to escalate as the years goes on and really be pretty solid, solidly in place by next year.

So, yes, we will get some benefit in the second quarter from European plan for growth.

And we also expect some benefit from exiting the seating business at Chesterfield as well.

Okay.

Just Pete, what is TVM become the basis for future price-downs, what does that mean?

It means the shared savings we have with Ford, we expect to use extensively in discussion about future pricing.

So we're not going to -- I guess I'm having trouble getting my arms around that.

The reason is very clear, Steve, we haven't reached final pricing with Ford.

We've had discussions, they've been constructive, and I'd rather not talk much more about them until they are complete.

Okay.

All right.

Thank you.

Your next question comes from Darren Kimball of Lehman Brothers.

Good morning.

I'm just wondering if you can talk to launch costs, what did you get hit with in the first quarter?

You know, versus last year.

You spelled out a number of cost items, but one of them penalized the numbers and looking forward, when would you expect the launch costs to peak as we head out during the year?

I know you got a lot of big launches you're working on.

Yeah, you're right, Darren.

We do have a lot of launches-- we're working on a record number.

We've got about double this year than we had last year.

So as we look at the year, it's going to be a real challenge for us to keep our launch costs from increasing.

But that is our goal.

And, in fact, based on the data that I've got, and this is -- I'm a little reluctant to even quote it, but based on the data I've got, it looks to me like we had a very small improvement year-to-year in launch costs, very, very small.

So we were able to contain the increased launches this year without increasing our costs in the first quarter.

I'm pretty sure that's correct.

Okay.

And looking at the second and third quarter, would that be a more difficult thing to achieve, what you did in the first quarter?

More launches, first of all.

Yeah, there are more launches, as Pete said.

It will be more difficult.

We've got the F-150 coming up on us, clearly a huge launch for us, several others as well.

We've got to make sure they go perfectly.

But our goal is to keep those costs from increasing.

That's certainly our goal.

Okay.

And I just wonder in the context of your comments on savings in the European region, what is the profit comparison that you achieved in the first quarter?

I understand you're getting savings, but that's only one, you know, piece of the puzzle.

Are profits up in Europe?

Well, as you probably know, we don't disclose our profits on a geographic basis.

Maybe you could speak directionally in local currency, though.

In terms of directionally, I guess what I would say is profits are relatively flat in Europe on a directional basis.

Compared with the same period a year ago.

On a directional basis.

Is that because there are offsets to the savings or the savings really haven't hit at the kind of run rate that they will?

Well, it's the latter.

There are offsets.

Part of what I'm giving you as flat is an all-in, you know, including restructuring charges on a full GAAP basis.

There are some unique charges that are swept up in my comments.

Also, the savings are not clearly not yet at the run rate that we expect them to be.

They'll be, in our judgment, they'll be accelerating as this year goes on as we get more and more of the actions in place.

As well as when [INAUDIBLE].

Sure.

That's helpful.

Thank you.

Okay.

Your next question comes from Gary Lapidus of Goldman Sachs.

Good morning.

Hi, Gary.

Hey.

Have you actually said what you expect that benefit run rate will be?

Benefit run rate --

For the European plan for growth?

Yes, we have.

We expect that by 2004, when this is fully implemented, we should get a pretax improvement in profitability of $100 million.

Annual?

Annual, yes.

So 25 a quarter.

Yes, by the time --

I guess I can do math.

Could you give us a sense of how much we saw in Q1 using that hundred as sort of the benchmark?

I mean, is it pretty modest?

Yes.

Like very modest?

So, therefore, we have a lot more to look forward to?

Very modest.

Yeah,io actually have the precise number, but --

I get the idea.

I do know it's modest.

Yeah.

And then would you expect -- when you say by 2004, does that mean that you're at the run rate by the end of '04 or at the beginning of '04 where we're at the final run rate?

I would hesitate to say it would be January 1.

I'll give you January 2.

We would expect that early in 2004 and certainly not -- we're not expecting it will be reached in December or something, we're trying to accelerate and get that in place.

If possible, by the end of this year, but certainly as quickly in 2004 as we possibly can.

Uhm-hmm.

And what we intend to do is just keep you posted as we go through this year with conference calls, we'll give you updates on how we're going.

Did I hear you say that the IT spending in the first quarter was 15 million?

Yes.

Okay.

And then you expect the full-year number, you said, was --

We expect it to be expenditures in the range of 150 to $200 million, so if you do -- you said a minute ago you could do the math.

Yep.

You could see that the pace will increase or accelerate, too.

We signed our --

and that's an annual run rate of 150 to 200?

It's annual for this year, but there are some unique costs this year that will not be repeated next year.

Okay.

So we would -- we're not giving an estimate for next year, but clearly there are is this unique costs this year that will disappear.

Sure.

But it's 150 to 200 in '03 of which you've spent about 15?

Yes.

Okay.

And then I guess just lastly, you talked about the costs -- yeah, I mean, I think you mentioned pension and OPEB -- what was pension OPEB in this quarter?

We had a number of, I'll call them external economic-related items, including pension, OPEB and in addition, steel, oil, and freight costs, and so forth.

All of those amounted to about $60 million on a pretax basis.

But presentation and EPEB -- OPEB combined was roughly 50 of that 60.

Right.

And again, that's all a year-over-year kind of number?

Yes, it is.

And then so you had all these cost increases and at the same time, you had a series of cost efficiencies.

Could you just give us the sort of net, like, you know, this is sort of net what we were able to do on the cost side year-over-year?

Before I respond to that, let me just make sure I'm real clear on the pension OPEB.

Those numbers that I gave are what I would consider normal ongoing expenses.

They don't include any either increases or decreases for one-time restructuring reserves.

Okay.

They're the normal ongoing expenses.

That was incremental 50 million year-over-year for pension and OPEB, right, that's ongoing?

Right.

Now, to respond to your second part of your question, if I look at the net cost savings that we got in the quarter, and this is net of those increases I just mentioned.

Right.

So this is a net number.

Right.

It's in the ballpark of about $60 million net.

Okay.

And then --

So that means our gross cost savings was about 120.

Right.

And as you said, pricing was greater than the 60?

Yes.

Okay.

Uhm -- sorry, you were going to say something?

I was just saying that's correct.

Okay.

All right, thanks, guys.

Your next question comes from John Casesa of Merrill Lynch.

Thank you.

Dan or Pete, can you tell me how you measure your break even point?

What do you think -- how much of a change in the break even point do you think you can achieve with the combination of the U.S. restructuring, the plan for growth and, I guess, also once the seating deal is done?

Well, -- go ahead.

I was giving Pete a chance to answer that one, if he wanted to.

I'll speak up first.

That's a tough question, John.

How do you look at the break even point?

We look at it a couple of ways.

We look at it in terms of total revenue and we also look at it in terms of our Ford North American production volume, because that accounts for such a large percentage of our business.

Neither one of those ways is perfect.

Because there are a lot of other factors that, you know, have a bearing on our bottom-line results.

But those are two of the ways that we do look at our break even.

And obviously, you know, it's not hard to figure out what those numbers are going to be right now because you're close to break even, once the three things are done, I know it's a three-year process or, so I mean, do you have any view on how much of a swing you're going to see in that break even point?

What kind of -- I'm asking you what kind of companies this going to be three years from now in terms of cost base?

Let me comment, because I think -- there's an even greater complexity to deal with.

That is, we really approach this not really plant by plant but product by product in the sense that we've goat some operations, such as (indiscernible), three or four discrete parts for them.

The Europe plan for growth, it's rearranging products in the plant, that's what we're trying to do, working closely with Ford on the legacy business as we have with them.

It isn't like auto where you find what can you make money at 15 million units or things of that kind.

I think because of so many parts, so many plants, our complexity is more than that.

So, we really look at it product by product.

We need to do rearranging, which we continue to do.

We said when we did Chesterfield, and Ford agrees, this isn't the last issue with which we'll deal from sorting out product.

From our end, as outsiders, we can't make the simple calculation, we've got to be presumably watching the margins and calculating the incremental margin, things like that?

Yeah, but again, you know, from the standpoint of how we run the business, we've said all along, our objective to us get geographic dispersion, which will give us customer dispersion as well.

We need to get deeper in Europe and Asia and we're doing a very good job of growing very profitably in Asia.

And at the same time picking up other customers.

The good fortune we've had is the Asian customers are coming here with greater intensity.

We've got [INAUDIBLE] -- a very large customer, they will be here.

We've got good business with Nissan in Oxford, Mississippi.

That trend is supporting us.

What would you say are the company's three strongest most globally competitive product lines?

Well, we've got climate, obviously, which has been successful for us.

We do systems integration broadly, which really includes blending of a number of interior prices which as well includes climate from time to time.

I think we're pretty good at lighting in Europe and broadly cockpits which we do here, the major part of the business with Nissan.

Thank you very much, guys.

Your next question comes from Brett Hoselton of McDonald Investments.

Good morning.

Good morning.

Dan, since you probably have the numbers, can you break up FX or the impact town between Ford and non-Ford, the 130 million?

In round numbers, it was 100 for Ford and 30 for non-Ford.

Then the restraint business, what would be the revenue impact, quarter over quarter from first to last year to first to this year?

In terms of this year's revenue, for restraint in the first quarter, it was about $125 million in round numbers for revenue, if that's what you're focusing on.

Excuse me, I'm, I picked up the wrong number.

On restraint revenue, it was $25 million last year in the first quarter, which is now not this year, I was looking at the wrong number.

You almost quadrupled the business there. [LAUGHTER] The amount of IT spending, can you give us a sense as to the incremental spending for this year in 2003, and then it sounds like it's incrementally going to go down in 2004.

Did you give me a number for 2004?

No, we really can't.

I haven't got the number, first of all, and we just haven't disclosed it.

There's a lot of internal work we've got to do on it as to where we're going to be next year from a cost and spending standpoint on IT.

All I can say is what we said before, which is this year's costs will be higher, we've dimensioned that.

It will be wrapping up through the year but it includes a substantial portion of cost that should be eliminated next year as we complete a number of projects.

Now, that's not to say that there won't be different projects coming on next year, but there are very major ones this year that will be completed.

And then just a final question, Pete: Can you describe the Ford TVM process, obviously not in detail, but can you describe substantially, what would we the one or two things substantially different between what you used to do and what you're now doing under under the TVM process?

I guess the -- TVM includes things we've done in the enhancing is we work together with Ford obviously in this case, on all elements, all components of cost in the product.

But I guess we made a significant effort on simplification really be began in a modified form in our audio business, where we will take them down to about 12 basic units.

That simplification alone is a efficiency.

But it's -- we use more complex parts, find some way for simplification, things of that kind.

But it's not -- it's finding ways to do things more effectively, more efficiently.

It's designed execution of the product.

Okay.

Great.

Thank you very much, gentlemen.

Our next question comes from David Bradley of JP Morgan.

Good morning.

Good morning.

Pete, on Gilmore, on the Ford call made allusions to this process your working with Ford on.

Is there anything you can tell us, broadly, conceptually, what you're trying to achieve there?

Well, David, I've said for sometime that the separation of Visteon was rather tastefully arrived at deliberately giving us a chance to get out in the market, we operate in five-year cycles, the longer we delay, the more programs we missed.

We recognized at the time that there were some things that would probably have to be looked at.

Early in the separation we reached a couple of agreements with Ford that had a value of about $100 million a piece.

We're working very well to -- their difficulties increase and changes in supervision took place.

So I think now they're obviously doing much better, more stable, have begun to look at the various things we talked about.

As I said, I think the issue of [INAUDIBLE] something sort of slipped away, I characterize it as having preps been done by gremlins over there who found something that isn't in my view necessary. [INAUDIBLE] is a pretty good student both in Visteon and Ford has agreed to make a comprehensive look at how we might make each of us more successful.

I've said all along, it's Ford's intention to make us a successful company, which is in their interest as well as ours.

So I think we really have a true meeting of the mind disposition to do the right things going forward, not to do us great favors, but simply to do things which make economic sense for both of us.

I know you're not in the habit of giving specific earnings guidance, but directionally, if we look at historically at what Ford and Visteon both had a very strong seasonal earnings pattern Q1 to Q2, but this year, because of the big production cuts at Ford, they're actually saying that they're 45-cent Q1 number should drop to 10 cents in Q2.

Should we expect given how important Ford is as a customer to you, you might have a similar sort of downward trend in Q2 versus Q1?

A, it's impossible to say for the system reason that I'm not convinced with the incentives on today that Ford will retain its intention to dramatically limit production in the second quarter.

Obviously, if they put it back in, it should help us.

The reason we haven't given direction, in our view, so many uncertainties out there, so much going on, that you almost have to live with it day-by-day, never mind quarter-to-quarter.

And lastly, the -- I guess SG&A expense, historically, you've had about a 200 million run rate per quarter, about 800 million a year.

It looks like fourth and first quarter has got about 970, so about 170 million increase in the run rate.

Is this tied into IT, or is it something else?

Should we expect it to stay permanently there?

What does that come from?

David, a lot of it is IT-driven.

In addition, some of the changes in the Euro have flowed through and hit A&S expense.

Some of it is also affected by some of our retirement programs as well.

So there's a lot of stuff rolling through A&S, but the biggest driver is the IT cost.

In IT, most IT outsourcing deals are done for the purpose of lowering IT costs.

I'm a little surprised you've been talking about a deal that drives up your costs.

Could you talk about that?

We expect longer term it will result in more efficient IT for us.

There's no question about that.

And this is a long-term contract with a lot of flexibility built into it.

What we're running into this year is the transition costs associated with going from an in-house to an external source, as well as continuing to -- and accelerating the pace of getting off of the systems that we use at Ford.

Ford is continuing to provide systems services for us and obviously that can't continue as we outsource the work to IBM.

So we've got the cost of migrating away from that as well as the -- sort of the one-time transition of moving to our outsource supplier.

But we do expect on an ongoing longer term basis to have a more efficient operation in IT than we would have otherwise had.

Okay.

Thank you.

Your next question comes from Wendy Needham of Credit Suisse First Boston.

Hi, good morning.

Hi, Wendy.

I think this one's pretty straightforward.

The seating business, does that just drop off in the second quarter now?

So if we're assuming like $100 million of losses that were there annually, do we just start annualizing that in the quarters or is there some pattern to this cost going away?

As soon as the deal is completed, it will go away.

Okay.

And the deal is considered complete now or --

Essentially so, yeah.

JCI is on the property effectively managing the business.

Not all details are tied, but they will be.

We should see a pretty dramatic improvement?

Yeah, I see no complexity left in completing it.

Okay, thanks.

Just another one: Can you comment on how the pension funds did in the first quarter?

I can -- yeah, I can provide a little bit of data on that, Wendy.

In the -- you might recall, our pension plan ends on September 30.

So we have a little different plan year than a lot of companies.

Right.

If you look back to the end of that plan year, from September 30 to right to today, on a global basis, our plan assets improved by about 3%.

We had a 4% improvement in U.S., about a percent in the UK, and you average it all out, it turned out to be 3% globally.

In terms of the first quarter, it actually was a little bit lower.

It was worse in the first quarter.

We ended up with a decline in the first quarter of 2%.

So that means the fourth quarter of last year, I don't have the numbers, must have been about four to 5% or something to get the right average.

But as we look at it on a plan year to date basis, our assets are up 3%.

Great.

Thanks very much.

Your next question comes from Mike Bruynesteyn of Prudential.

Good morning, gentlemen.

Can you talk about the new business win pace, 200 million in the first quarter, substantially behind the pace, last year's first quarter and even further the year before?

Does this worry you?

Well, the answer is no.

Obviously, you'd like to be more.

We set a net billion, which would show to Gary Lapidus standard behind the pace, but I think we'll catch up once we see significant delays in programs which we're not yet noticing.

I think we can still get to the net.

Can you talk about the key elements the equity line, why they did so well in the quarter?

Typically, I don't think we've seen that kind of performance.

In the equity line?

Equity is affected by, you know, various things.

Obviously, income is one of them.

But one of the other things that affects it is currency changes.

We did have an improvement in the foreign currency translation line or adjustment as currencies strengthened.

That was one of the things that helped the equity line.

And I guess I'll leave it at that.

Okay.

How much does it cost to separate an employee?

Because it looks like you spent about $27 million, works out to about $93,000 a head, including almost half of them from Mexico.

It seems high, is my math wrong or how should I be thinking about this?

I'll take a crack at that.

I don't think we can generalize it.

It depends an awful lot on where it is, where the employee is working, whether it's an hourly or salaried employee, years of service, the kind of plans that exist.

So it's almost impossible to give you a number that is a realistic average.

It's just too broad.

It would go from anywhere from, I'd say, a low of 25, $30,000, up to a high of 150 to $175,000.

So it really is a wide variety.

Okay.

Is there anything special you're planning to do to counter the recent announcement from S&P?

Can you do specific lobbying or are there actions that they're not accounting for that you think they should be?

Well, we do intend to follow-up with S&P.

We're disappointed to see their announcement the other day, it affected a lot companies, as you know.

We think our financial position is solid, we think our pension arrangements are pretty unique.

And we have a pretty steady, predicable flow of pension cash contribution requirements.

We have had discussions with S&P and Moody's.

We talk to them on a pretty regular basis to keep them abreast of what's going on in our business.

We intend to follow-up with them next week or the week after, as they've indicated, they have a fairly short fuse.

They plan to do some additional analysis and of course we're going to get back with them and try to, once again, you know, clarify at least in their minds, what our situation is and try to address what risks they identified.

But it's really kind of repeating things we've already said to them and providing a fresh look at some of the outlooks to make sure they understand our situation.

We really think our liquidity position is solid and our financial position is solid.

So that's the message we're going to try to communicate to them.

Okay.

And IT was actually a factor in the fourth quarter as well, so are we going to do so that , those incremental costs anniversaried by the fourth quarter, or does that goes away or are can we still going to see incremental in the fourth quarter as well?

We started a slow rampup in the fourth quarter of last year.

But it was pretty modest.

I would guess throughout this year, second, third and fourth, for IT, we will see adverse year-to-year cost comparisons.

Once we get through this year, though, we should see a different picture next year, even though we haven't got the numbers laid out we are confident this year each quarter will be worse than last year.

Thank you.

Your next question comes from Saul Rubin of UBS Warburg.

Good morning.

Good morning.

One question on the P&L, the equity and net income of affiliated companies rose about 10 million.

Which helps you out.

Can you just talk a little bit about that?

Very briefly talk about it.

It reflected improvements in a number of our -- the companies with which we have an investment, but they're not fully consolidated companies.

In this particular case, the majority of the improvement was in our Asian affiliates.

Is that primarily Korea?

No.

It includes Korea, but also China.

Okay.

As we have said, Saul, you know, our business there is strong, it's growing rapidly, it's a good, solid business.

We've got a lot of customers and we're seeing pretty successful operation there.

So the majority of the improvement came from China?

Is that -- can I read it that way?

It's was in the first it's fair to say in the first quarter that is correct.

Going on from David's question on SG&A, it's up 40 million, IT was about 15 or so, can you give a a little bit more detail as to where the rest of the rise came from?

First of all, IT, actually within A&S was a little higher, closer to 20.

IT in our cost for sales area, actually went down a little bit.

There was a mixture among accounts.

In addition to that, we did have some early retirement accruals.

That was worth around $5 million.

We had some added exchange rate effects that got to us as well in the quarter.

We just recently completed the launch of a new payroll system in the first quarter of 2002 which added some cost, pleased to say that went well and is successful.

So you add them all up and you get pretty close to that number.

Okay.

In a different area, seating is now pretty much done, it looks like you're moving to know to steering columns.

Can you give us a sense of the scale of that business?

Steering columns is just one product in the plant, I don't have a dollar volume on it.

It's significantly below seats.

The steering column business, as Pete said, is a much, much smaller business.

Its revenue is more in the range of 175 to $200 million on an annual basis.

It is -- it was not nearly as much of a, I'd say, a profitability issue as seating was, which was a very adverse profit situation for us.

Seating or steering columns are basically a break even business.

Maybe even in some years, a small profit.

The issue with the steering columns is the investment required to maintain our competitive position over time.

There's pretty extensive investment requirements on the capital side to continue to provide competitive product there and because of the profitability equation, it just didn't make a lot of sense for us to keep putting money into that product over time.

This year, the 2006, the safety requirements change so it would have been a completely different column, that's why we walked away..

And then the last question, you talked about working capital trends.

I can understand the net movement, but in gross terms, both receivable and payable trends seem to be on the rise which suggests that perhaps payment terms are just being pushed out generally through the value chain.

Is that a correct assessment?

Well, in last year, we did change some of our payment terms with our suppliers, and standard -- we standardized and changed some of our terms last year.

So that is behind us.

And actually contributed to some of our improvements in working capital last year.

We got our terms more in line with competition after we did an analysis, we found that we were actually paying more quickly than our competition.

So we brought our terms in line.

This year, in the receivables area, what you're seeing largely is driven by the normal first quarter seasonality with stronger production in the first quarter than in the fourth quarter.

But also frankly there is a little bit of effect of currency and collection issues that we're starting to experience a little bit this year.

And we're certainly turning our attention to that and really aggressively pursuing it to make sure it doesn't become an ongoing issue.

But by far, the biggest effect driving the receivables change is seasonality.

On the payable side, what is the whole play to pay process, doesn't that push out your payables slightly further?

What do you mean?

Does it pay to play, up-front payments to be --

It's the injection molding business, we've been accused of that, no it shouldn't in any case, no.

No, we, in fact, to my knowledge, we haven't done any of that business -- any of that.

I mean, that was something that was -- being explored to see if it made any sense from a supplier standpoint.

I don't think we've done any of that at all.

Okay.

Thank you.

Our final question comes from Rod Lache of Deutsche Banc.

Go ahead, Mr. Lache.

Can you hear me?

Yes.

I know people have been trying to get to the cost of the IBM deal a number of different ways.

Would you disagree with an assumption that of this 150 to $200 million costs, maybe half of it is setup costs and maybe half is permanent increases, just order of magnitude?

I don't think I could comment at all.

I don't know if that's right or wrong.

Okay.

Maybe just approaching it a different way, from an overall cost structure perspective, is it -- would it be fair to say that, I guess, this year the savings from the Chesterfield deal, the IBM deal, but next year you've got the savings from the IBM, I guess the IBM deal cost goes down quite a bit and you get $100 million of European plan for growth so you would expect a significant swing in margins as we head into 2004.

Well, let me see if I can try to address that.

First of all, I don't want to leave the impression that next year our IT costs are going to drop back by 150 to 200 million, the same place they were last year.

That's kind of a change is not going to happen next year.

We would expect to see some of the the costs this year incurred this year go away and some moderation but I don't expect in the next year or two to see the costs come back to where they were.

So I want to clarify that, just maybe clarify that expectation.

And we have not -- don't have -- and aren't giving a specific disclosure on next year's IT cost.

But the other part of your conclusion is, yes, we should see the full effect of Chesterfield in place next year.

As Pete indicated earlier, that should be kicking in starting in the second quarter.

And the full effect of the European plan for growth should be in effect next year.

So those will be two positive contributors to our ongoing profit profitability.

They'll be starting this year as we're wrapping them up and have the full annualized effect next year.

Does that answer your question, Rod?

Yeah, I think so.

And I was hoping you can also comment, you guys have made some comments about accelerating the supplier cost savings this year.

Is there a specific target that you guys are shooting for in terms of savings in that area?

We said last year we were looking to accomplish 18% over three years, we have about 2500 suppliers, we're trying to get it down to 500, just windowing them will -- limiting them will help us accomplish that (indiscernible).

Is that spread across -- spread relatively equally over the three year period?

Well, roughly [INAUDIBLE] we've been achieving [INAUDIBLE] over the years anyway.

Okay.

Thank you.

Well, thank you, Terry if you can officially close the call, that will be great.

Pat and I will be around to answer your questions today.

Thank you.

Thank you, sir.

Thank you for participating in today's Visteon first quarter conference call.

This call will be available for replay beginning a at 12 eastern today through 11:59 p.m. eastern time on April 24, 2003.

The conference ID number for the replay is 9473313.

Again, the conference ID number for the replay is 9473313.

The number to dial for the replay is 1-800-642-1687.

Or 706-645-9291.

You may now disconnect.

Have a good day.