Visteon Corp (VC) 2003 Q4 法說會逐字稿

Good morning and welcome to the Visteon Corporation conference call.

All lines have been placed on listen-only mode to prevent background noise.

As a reminder, this conference call is being recorded.

Before we begin this morning's conference call, I would 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 periodic filings with the SEC.

Please read such filings if have you 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/earnings 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, simply press star, then the number one on your telephone keypad.

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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 begin.

Thanks, Kimberly and good morning, everyone.

I would like to welcome you to today's conference call.

Leading today's call will be Mike Johnston, our President and Chief Operating Officer, and Dan Coulson, our Executive Vice President and Chief Financial Officer.

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

And with that I will turn it over to Mike.

Thanks, Derrick.

I will start with a recap of 2003 highlights and we'll touch upon our non-Ford business growth and share with you priorities for 2004.

One of the most significant events of 2003 was the signing of the new commercial agreements with Ford, and it was a great way to end the year.

I tell you, we also worked collaboratively with Ford and the UAW to ratify a new contract last fall.

Negotiations are under way on the Visteon supplemental UAW labor agreement, which is on track to be completed within the 90-day window.

An example of one of the significant initiatives designed to make Visteon a more competitive, efficient, tier one supplier was the separation of our IT systems from Ford.

This is going very well.

We completed the first major phase in October and we anticipate the completion of the remainder by mid year, 2004.

Another example of an activity that will help Visteon become more competitive is the continued implementation of the European plan for growth which is also on track.

A major success for us in 2003 was the exit from our seating operation in Chesterfield.

In this allowed us to reallocate Visteon resources to more profitable businesses.

We also experienced strong cash levels throughout the year, and this was a great support to our transformation effort.

And as we strengthened our relationship with Ford, I'm pleased our non-Ford revenue now tops $4 billion, and this is about 16% higher than 2002.

Now, let me go into more detail about our efforts to diversify our customer base.

The growth of our non-Ford business continues.

Our 2004 non-Ford revenue is forecasted to exceed $5 billion.

This is up over a billion dollars from 2003, increasing about 25% and should account for 28% of our total sales.

We've had significant growth with Nissan, Daimler-Chrysler, Volkswagen, Hyundai, and BMW.

Our 2005 non-Ford revenue should be double the amount it was at the time of our spend.

In terms of our Ford business, our North American average content per vehicle remains at $3,000, even though we exited seating in the first half of 2003.

And finally, we see Ford revenue remaining flat over the years forecasted on this slide.

Looking at 2004, we have several priorities we want to highlight for you.

First and foremost is achieving results in line with our guidance of 50 cents to a dollar per share.

We will continue to focus on securing new business with non-Ford customers, especially in the electronics, interior and climate areas.

We have been increasing and accelerating our through put on innovative MU products through the pipeline of commercialization and in addition we are implementing stronger operating processes to drive our margin improvement.

We are set to deliver ongoing material savings through robust global commodities strategies and through our collaborative idea generation program otherwise known as SAVE.

We will continue to deliver manufacturing costs and efficiency improvements in 2004.

And the execution of our Visteon manufacturing operating system, our DMOS is going really well.

We're ensuring the best practices are shared and applied uniformly across our plants.

We expect to see continued positive movement in driving down our fixed costs year over year.

We're expecting SG&A expense to decrease over $50 million in 2004 compared to last year.

And we are continuing in an aggressive approach to reducing administrative costs worldwide.

In '04, we will not be facing the increasing IT spending that we did in '03.

And more importantly, the development of our own IT infrastructure will provide us with useful information in running our business.

Another area of fixed cost reductions is the continued shift to low cost engineering centers where it makes sense.

Finally, we will benefit in 2004 from earlier restructuring actions.

The exiting of seating, the European plan for growth, the asset write-downs, will help our bottom line results on a year over year basis.

The focus on all of these priorities for 2004 will enable us to achieve our '04 financial objectives and hit our earnings guidance of 50 cents to a dollar per share.

Now I will turn it over to Dan who will take you through our financials.

Thanks, Mike.

I will start with a review of revenue.

Revenue for the fourth quarter of 2003 totaled $4,459 billion.

This was down $84 million dollars or 2% compared to the same period of 2002.

The decline was more than accounted for by lower Ford revenue, which was down $270 million dollars or about 8%.

Non-Ford revenue was $1,170 billion in the fourth quarter, up $186 million or 19% from a year ago.

The improvement reflected the impact of new business, and favorable currency effects.

Currencies effects improved non-Ford revenue by about $80 million.

Non-Ford revenue accounted for 26% of total revenue in the quarter.

Full-year 2003 revenue totaled almost $17.7 billion, down $735 million dollars or 4% from 2002.

The decrease is reflected primarily lower Ford production in North America.

Ford production volume in North America was down 403,000 units or 10% for the full year and down 51,000 units or 5% in the fourth quarter.

In total, Visteon had a net after-tax loss of $863 million in the fourth quarter of 2003 and $1,213 billion for the full year.

This compares with losses of $34 million and $352 million for fourth quarter and full year 2002 respectively.

The 2003 amounts include special charges, of $756 million, and $947 million for the fourth quarter and full-year respectively, and I will go through these special charges in more detail in just a minute.

On a per share basis, our net loss for the fourth quarter of 2003 was $6.87 and for the full year, was $9.65.

As I noted, 2003 results included a number of special charges.

Special charges for the full year totaled $947 million after taxes, or $7.53 per share.

Of this amount, $756 million or $6.02 was taken in the fourth quarter.

The largest charge was to increase our deferred tax valuation allowance by $468 million in the fourth quarter.

This noncash charge relates to net operating losses in certain foreign countries, as well as a portion of our U.S. deferred tax assets where recoverability is less likely.

We will continue to monitor the valuation allowance.

It may need to be increased if expected results are not achieved, particularly in the U.S.

And it also may be decreased or recaptured entirely once sustained profitability is restored.

We also took an asset impairment charge of $260 million after taxes in the fourth quarter based on a review of our fixed asset carrying values.

The charge was to impair the assets of six product groupings; bumpers, fuel tanks, starters and alternaters, steering columns, suspension systems, and wiper washers.

Full year 2003 restructuring charges also included a total of $219 million for the exit of seating, implementation of our European plan for growth, and other smaller special charges.

Of this amount, $28 million was reflected in the fourth quarter.

Cash provided by operating activities was $253 million positive in the fourth quarter, and for the full year, cash provided by operating activities was $370 million positive.

Our net loss includes the special charges that we've discussed and a substantial portion of these charges are reversed for cash purposes because they're noncash items.

And on the slide that we distributed, that reversal is shown in a line called other, primarily accruals.

We continue to improve trade working capital throughout the organization.

Total trade working capital, which is defined as receivables, plus inventory, less trade payables, was at its lowest level since we've been a public company.

In addition, inventory of $761 million at year end is down more than $100 million from a year ago.

These efforts continue to reflect the ability of our operating team to deliver improved performance.

Capital spending in the fourth quarter totaled $238 million and was $879 million for the full year.

There is one additional item I would like to cover in a little more detail.

We have reassessed our trade payables program based on guidance shared by the SEC at a recent AICPA conference.

As a result, we've reclassified this item on our balance sheet from trade payables to short term debt.

Consequently, changes in our trade payables program will now be reported as financing activities, instead of operating activities, and the balance of this program was $100 million at year-end 2003, which was up $55 million from year-ago levels.

I should point out that since the inception of this program, in the fall of 2002, this payable has been on our balance sheet and disclosed in our financial statement, so we're just reclassifying it from accounts payable to debt based on the guidance that the SEC issued at this conference.

Our next slide shows our financial position at year-end.

We ended the year with $956 million of cash, and marketable securities.

This continues to be adequate to support operating needs.

Debt at December 31st totaled $1.8 billion.

The balance shown reflects the reclassification of our trade payables program that I just mentioned.

The noncash write-offs for asset impairment and deferred tax valuation allowance result in a substantial reduction in our equity.

Consequently our debt to capital ratio is now 49%, up from 36% a year ago.

We believe our balance sheet remains strong, even including the impact of these actions.

Our debt to capital ratio is about equal to the S&P median for BBB rated companies at 47%.

We've added a slide, in fact it is one we've shown before, and I think it is worth highlighting again, focusing on liquidity.

Particularly in view of the ratings changes that occurred late last year.

Our liquidity remains strong, we continue to maintain significant cash balances; we have over $1.3 billion in untapped credit lines; we've been able to maintain a limited access to commercial paper market, despite the ratings downgrade; and we have new sources of liquidity coming online in 2004.

Now, I will provide an update on our pension and OPEC status.

We've covered really two slides one on pension and OPEBs, and starting with pension, our pension just as a reminder is divided two parts;

Visteon stand alone plans and, expense reimbursement at Ford for assigned UAW employees.

For the Visteon plans, our worldwide funded position is slightly better than it was a year ago on a percentage basis.

Strong asset returns along with worldwide contributions offset the effect of lower discount rates.

For the year-ended September 30th, which is the measurement date for our pension funds, our U.S. portfolio returned 20%.

And we've returned an additional 9% since that time.

Lower discount rates, however, offset most of this improvement.

We've reduced our discount rate assumption used to value our pension obligation from 6.75% to 6.1%.

Looking forward, for the combination of Visteon stand alone plans, and Ford expense reimbursement, we expect pension expense to be down about $50 million in 2004.

Projected decline is more than accounted for by lower restructuring charges.

If you exclude the effect of restructuring actions and charges, we estimate 2004 pension expense will be up about $40 million.

We also estimate that the combined pension cash payments for 2004 will increase about $45 million, compared with 2003.

I will turn now to OPEB.

Similar to pensions, we have a Visteon stand alone plans and also Ford plans that cover UAW employees and certain salaried employees.

Unlike pensions, however, Visteon reports an obligation to Ford on its books and funds benefit payments.

Our liability for other post employment benefits totaled almost $2.6 billion at the end of 2003.

Of this amount, about $2.1 billion is Ford related.

Under the new agreement, Ford is relieving us of $1.65 billion of this obligation.

This benefit and the resulting reduction in liability is being deferred for financial reporting purposes and will offset future charges.

Also under the new agreement, funding of the Ford plans, which was to start in 2006 and be completed by 2020, has been extended substantially to the years 2049 is when we expect to complete that funding.

We also expect our combined expense in 2004 for Visteon and Ford plans will be down about $90 million, compared with 2003, reflecting the new agreement with Ford and nonrecurrence of restructuring charges.

We expect cash payments to be up about $20 million in 2004, reflecting payment for benefits, and restructuring actions taken in 2003.

With regard to our 2004 guidance, we expect revenue to be up substantially in 2004 compared with 2003.

The improvement reflects primarily new business, expected to come into production during the year, and favorable currency changes.

North American -- Ford North American vehicle volume is expected to remain essentially flat with 2003 levels.

We also expect an improvement in earnings, as Mike indicated.

This reflects the positive impact of new business, and the initiatives we're taking to improve our material and manufacturing efficiency.

It also assumes restructuring and special charges will be substantially less in 2004 and that there is no further increase in our tax valuation allowance.

Based on these assumptions, we estimate 2004 net income on a GAAP basis will be between 50 cents and $1 per share.

And this also, I should mention, reflects an effective tax rate of 38%.

For the first quarter of 2004, we expect total revenue to be between $4.8 and $4.9 billion, up about 4% from the first quarter of 2003.

We're forecasting first quarter net income in the range of 5 to 15 cents per share.

And this is based on a Ford North American vehicle production of just over one million units, or about the same as it was in the first quarter of 2003.

This completes our formal remarks.

And now we will turn it back to the operator who will open it up for your questions.

Thank you, if you have a question at this time, please press star then the number one on your telephone keypad.

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

The first question is from Steve Girsky of Morgan Stanley.

Good morning, can you guys hear me?

Yes.

I'm just trying to, Dan or Mike, get the walk to the first quarter.

Year over year, Ford looks flat volume.

You said your pension expense for the year will be down, OPEB is going to be down, you got euro restructuring, you got the absence of the seat business, shouldn't we have earnings that are sort of materially better than a year ago?

Steve, you covered a lot of the items we've talked about, and I think every one of those is in fact correct.

We also have new business coming in in the first quarter that wasn't here a year ago.

So that, as well, contributes to improvements.

On the negative side, we have economics that is coming in in the year, resulting from our contract that was negotiated last year with the UAW and also just normal economic increases.

Those hit us in the beginning of the year.

We also have price-downs that take effect on January 1st of the year that are in our numbers.

And they're throughout the year as well.

So I mean there are ups and downs.

You quoted the ups and we agree with them, and the downs are the things that I mentioned.

So does the cost downs accelerate as we move through the year?

Yes, they do.

As a matter of fact, we have plans to implement cost savings throughout the year, they don't all take effect on January 1st, obviously.

So we would expect an improvement in our cost-downs throughout the year as we implement these actions.

And can I just ask you, what is the people count at the end of the year?

Can you tell me what the hourly's were, how many sort of retired already, how many flow-backs are you expecting that?

That kind of thing.

Sure, we can tell you those numbers.

In total, if we're just focused on hourly employee, at the end of the year, we had 54,900 hourly employees worldwide on a global basis.

Of that amount, a little under 20,000, about 19,800, were UAW master agreement employees here in the U.S.

In addition to that, -- so therefore, the balance were either nonmaster agreement employees or hourly employees in other parts of the world.

In addition to that, we had about 17,100, in round numbers, salaried employees and about another 1500 agency employees.

So if the you add up all those numbers together, I hope you get to about 73,500.

Okay.

Steve, on the flow-back question.

In the first part of the year, we're not forecasting any flow-back, you know, we've surveyed all of our folks in terms of who would be interested in flowing back to Ford, so we have the pool that basically is the supply of folks.

Ford, though, is the gate in the sense that we have to satisfy their demands, so as they need openings to be filled, we have the qualified UAW folks to fill them.

We are only forecasting a very small amount of folks in the second half of the year.

It will take, you know, some time for the program to actually get implemented.

We're working really closely with the folks at Ford to make sure that any hires that they have come from our qualified pool.

How many people attrited though?

How does this 19,8 compare with a year ago or how does the agency people compare with a year ago?

The exact same numbers a year ago, in total, the total amount was 78,700.

Within that, we had a little over 22,000 UAW employees.

About 17,800 salaried employees.

In total, we had -- in total, the hourly employee head count was about 59,100, and about 1700 or so agency employees.

Which should add up to 78, 7, roughly, so we're down about a little over 5,000 employees or 6 1/2% during the year.

Now a portion of that was not attrition.

A portion of that related to the Chesterfield seating change.

But the balance reflected separations, normal attrition, what have you.

Shouldn't attrition accelerate right after the contract, though?

Normally, there's -- there's some attrition that occurs after -- after the contract.

We don't know what that number would be.

Because we have lump sum payments, there is really not a big incentive for folks to hang on into future years.

So I think we will probably see a trend where the attrition may be up a little bit in the first year but for budget purposes, forecast purposes, we're predicting it to be right on our average.

Right.

Thanks a lot, guys.

Okay.

Your next question comes from John Casesa of Merrill Lynch.

Thanks very much.

Dan, I was wondering if you could go back to page eight, the 2003 cash flow, and I just wanted to ask you about the expectations for '04.

Whether you would be willing to talk about capital spending, depreciation?

Whether you think trade working capital will be a plus or minus for the full year?

And then whether we're going to have material add-backs for accrual, I guess we wouldn't if we wouldn't have big restructuring charges.

Well, in first talking at a high level, I think we indicated in our press release that in the first quarter, we typically have a seasonal outflow in the first quarter, and we would expect that to occur again this first quarter.

In fact we're already seeing it as, you know, as the quarter begins.

So our cash from operating activities is likely not to exceed our capital spending.

So in other words, we will have a cash outflow in the first quarter.

With respect to the full year, we're expecting just the reverse.

That during the full year, for the full year, cash from operating activities will exceed our spending.

And on a bottom line basis, we will improve our cash position during the year.

Now, in terms of -- so that's the 50,000-foot answer.

If I take it down more specifically, spending for 2004 likely, in our judgment, will be in the ballpark of the spending that we have for 2003.

Maybe slightly higher, but not materially higher.

And the reason that it could be a little bit higher is we're completing the spending on our headquarters, Visteon Village in Van Buren Township, Michigan, and there is a major effort to get that completed.

It is on track and we're not expecting any overruns but just the way the calendarization of the spending works, we will have more in 2004 for that project than in 2003.

Otherwise, the spending should be fairly similar on a year to year basis.

Okay.

And then on these accruals, I mean they largely related this year to the add-backs from restructuring charges.

Presumably in '04 if we don't have a lot of restructuring charges, we shouldn't see a lot of add-backs in that line.

That's correct?

Yes, you're correct on that comment.

With respect to there will be one further ongoing add-back and that has to do with the OPEB expenses that we report for book purposes.

Although our expenses will be less, they still will be greater than our payments in '04.

And so there will be an add-back in the accruals for that item.

Right.

And then just one other follow-up question, what is the various year over year from the absence of the seating business?

I know you guys haven't been that specific but I mean --

In terms if you're talking year over year meaning 2004 over '03?

Right.

In terms of looking at seating, we exited the seating business during the second quarter of 2003, so in the first quarter we had full seating results, and I think our revenue in the first quarter was about $120 million.

Of 2003.

So that will be gone in 2004.

And we've reported a loss related to the seating business in the first quarter.

Derrick is giving me a signal here.

But not in the second -- second quarter we --

We reported a loss in the first quarter of 2003 of about $25 million pretax and that was the only quarter in which we had a seating loss in 2003.

So therefore, that will disappear on a year to year basis in 2004.

Am I clear?

Or did I confuse you, John?

Well, you didn't confuse me but did that mean -- what happened in the second quarter?

What point was it divested in the second quarter of last year?

It was effective April 1st.

The actual agreement was signed during the quarter but it was made effective April 1st for all -- for settlement and reporting purposes.

It was really only four months of results in --

Just three months.

Three months.

Okay.

That's great.

Thank you very much, Dan.

Your next question comes from Ron Tadross of Banc of America Securities.

Good morning, everyone.

Good morning.

So the number looks like on an EPS basis, you lost about 85 cents on an operating basis?

Does that sound right, 80-85 cents?

Yes.

So your guidance range I think it was about a loss of 60 to a loss of 80.

Can you just explain the difference between the low end and the high end of that range?

What you guys, you know, thought could break right or wrong and what did break right or wrong?

Well, I will take a crack at it.

There was a lot going on in our fourth quarter.

As you can imagine, with all the negotiations that were occuring with Ford, with the review of our assets and our deferred taxes, we had an extraordinary -- as well as just normal year-end activities, we had an extraordinary amount of things going on.

So we had a fairly wide range in the guidance that we provided, with respect to the outcome.

We came in at the high end of that range.

Frankly, some things that we expected to get accomplished and completed in the fourth quarter, just didn't get -- just didn't get resolved.

Some claims we hope would have been cleared didn't get cleared.

You know, that type of things.

And so as a result, we came in at the high end of that range.

If things had broken, I guess, in a different way, we would have come in, come in differently, but they didn't.

So it sounds like it could help '04 numbers maybe?

Is it timing or is it --

Some of it was timing.

I don't want to jump to the conclusion that was just deferred from December to January.

But I guess I would leave it at, the items that occurred were -- did not, to us internally, appear to be of an ongoing nature.

They were much more of a, you know, a one-time, very specific actions, we could explain, identify, some of them were calendarization that will roll into the next quarter.

Okay.

On the 85 cents then, that includes the $150 million, the payment to Ford, the one time price payment?

Yes, it does but it only includes the portion of that that had not been accrued through the first nine months.

So we had been accruing for something, a pricing settlement with Ford throughout the year, and what was reflected in the fourth quarter was the fourth quarter business, I guess I would say, as well as a true-up in that accrual.

Because you're giving them a one time payment and then you're also giving them your regular, your regular price reductions?

For 2003, the $150 million settlement was the whole settlement.

That was it for 2003.

Okay.

And then by the way, that was the agreement in terms of the amount, it actually is being spread over a couple of months in terms of payments.

We'll make the final payment in this quarter.

This is North America we're referring to as well.

Ford's North American arrangement.

So you can't just take your -- what we would model as normal pricing and double it, you know, you have to -- it's less than that, is your point.

The point I'm making is that was a one-time payment or settlement for 2003, Ford North America pricing, it did not get baked into piece prices.

It was kind of a lump sum settlement.

For 2004, forward, for Ford North American pricing we agreed on a price-down percentage, and that price-down percentage is being baked into normal parts prices, starting January 1st of 2004 going forward.

Okay.

And then on the balance sheet, you say, I guess the future charges from Ford will offset the health care liability.

Can you just elaborate on that?

Are we -- what are those charges going to be like?

Well, in total, the amount of the deferred benefit is $1.65 billion.

Right.

And after reviewing with our accountants and auditor, we concluded that should be set up as a deferred item and it will be amortized over some future period.

We've actually broken it into -- we've looked at the periods for which it should be amortized, and about two-thirds of it, or in round numbers, maybe $1.1 billion, we believe should be amortized over a 13 year period.

Which is approximately equal to the remaining service life of our employees.

And so it will flow over that period of time and just be returned -- if you will, put into profits, at that point in time on an annual basis.

It will offset unamortized losses that we also have not yet reflected in our books.

Because we are -- we defer those for accounting purposes as well.

So that portion of the gain will essentially offset unamortized losses that would have occurred over that 13 year period.

The balance of about $500 million is being amortized over a much, much longer period of time.

Looking -- we're looking at 40 years.

So that will just come in on a very, very deferred process over a long period of time.

But Ford took a charge for this, I think of the full amount.

Yeah, I understand they did.

So they're putting that on their balance sheet, and you're not taking it off yours right away?

No, we are not.

And if you look at our financial statements, we have unamortized losses that do not -- have not yet been run through our income statement, or on our balance sheet.

And this deferred gain essentially offsets those unamortized losses.

Okay.

The net effect of it, Ron, when you stand back, is that this will reduce our annual ongoing OPEB costs, going forward, by about $75 million.

Right.

Compared with this year anyway.

All right.

Thanks a lot.

Your next question comes from Brett Hoselton of McDonald Investments.

Good morning, gentlemen.

Good morning.

A couple of quick ones here first.

Ford, the Ford revenues for the fourth quarter, can you give us the seating impact as well as the FX impact on the Ford revenues in the fourth quarter?

Yeah, the -- well, first of all there was no seating in our fourth quarter 2003 revenue.

Yeah, but versus 2002, Dan, is what I'm referring to.

Oh, versus 2002, I'm going to say it is about -- versus 2002, maybe -- this is a ballpark number, $150 million -- in that ballpark, I don't have the number but it is approximately that.

Okay.

In terms of currency effects -- currency also affected Ford revenue, and the currency impact on Ford revenue was about $90 to $100 million increase.

Does currency also have a -- does it have a positive impact on your operating results on the Ford side of the business?

It had very little impact on our operating results on the Ford side of the business.

In total, we had favorable currency in the quarter of about $10 million on a pretax basis.

In the -- that's in the fourth quarter.

And then did I understand you correctly, that the 50 cents to a dollar guidance for 2004 actually includes any restructuring charges you're planning on taking?

Yes.

Yes, it does.

We think those restructuring charges will be relatively small.

When I say relatively small, on a pre-tax basis, up to $50 million, but the number that we are giving guidance on is net, it includes whatever restructuring charges we take.

And Mike, as far as your outlook for attrition, flow-back and so forth, would you characterize that as conservative or realistic?

Well, Brett, I think it is, you know, it is certainly not aggressive, let me put it that way, and we're using kind of average numbers that we've seen over the last few years, so you know, I would say it is average.

Thank you very much, gentlemen.

Your next question comes from Chris Ceraso of CSFB.

Thanks, good morning.

Dan, can we talk about the evaluation allowance a little bit?

If you hit your target of 50 cents to a dollar profits in 2004, is the expectation that the valuation allowance remains the same?

I know you're saying there is no increase baked in there.

But if I look forward to '05, you know, when should we expect you to start releasing the valuation allowance, what has to happen?

Is it profits in a certain region or is it a certain product line?

Can you give us maybe a little more color on that?

Sure.

The first thing I will say is this is a very, very complex subject it is not one that there is a simple answer to.

That is the first comment I will make.

The second is it is driven by regional outcomes.

So you can't just generalize and comment if we hit bottom line targets that we wouldn't have to make any change up or down in our valuation allowance.

So we are managing and monitoring the numbers on a -- and projections on a very detailed regional basis.

Our expectation, having said that, is that if we can deliver the numbers that we have quoted here, that we would not have to have any further adjustment to our valuation allowance.

Now, if there is a dramatic regional shift within the numbers, and for some reason, which we wouldn't expect, we hit the total number, but there is a dramatic adverse development in one region offset by a major improvement in another region and we would have to take a look to see if that had any impact on our bottom line valuation allowance.

But at this moment, sitting here right now, we would not expect to have to have any further charge.

Looking forward, the other part of your question, is when could this be restored and added back?

We think we are going to have to demonstrate sustained profitability in the regions where we had to take this allowance.

And sustained profitability probably means a couple of years of profit.

It doesn't mean one or two quarters.

It means sustained.

So we're thinking in the 2005, 2006 period, if we can deliver our internal projections and plans, that would be the time frame we would be looking at restoring this.

But I -- this is a -- that's our best thinking right now, Chris.

And it is something we monitor on an ongoing basis.

Okay.

And then I'm -- Mike or Dan, can you give us an idea of what the major non-Ford launches are going to be?

In 2004.

Well, it is actually quite a variety, you know, as we talked about before.

We had significant business wins, you know, a few years ago, across a wide variety of customers.

So, you know, I would say there isn't any one in particular that is going to dominate, but just as we had about 400 launches last year, you know, we've got a similar number around the globe this year.

I wouldn't say there is any one that dominates all the others.

It is frankly a pretty good mix of customers and product coming at us this year.

And lastly, if I can just follow-up with one.

The -- you sort of touched on this already, but the guidance for the first quarter looks a little bit light relative to your 50 cents to a dollar.

What sort of benefits accrue later in the year that would make that run rate improve?

I know you said that you sort of pick up some steam as the year goes along on your own cost reductions but there other items in there?

This is one and it is the one you just asked about which is the new business.

The new business does not all come on -- January 1st.

It comes on progressively throughout the year.

And so that will -- that will contribute successively more each and every quarter as the year goes on.

In addition, the other major calendarization item I guess I would say gets -- is around our cost performance.

We implement the manufacturing cost efficiencies throughout the year, we don't put them in all on January 1st, that's not practical.

We put them in as quick as we can, but it occurs throughout the year.

And our negotiations with our suppliers on the material costs reductions we're able to achieve, occur throughout the year as well.

Often those are -- in fact, usually they are retroactive to January 1st, but sometimes we don't reach resolution until later on in the year.

So there are a number of things that cause us to be able to pick up steam from a cost side going forward.

Your next question comes from Gary Lapidus of Goldman Sachs.

Good morning.

Good morning, Gary.

I was waiting for you to call on Wendy Needham before you got to me.

I will check and see if she is on the call, Gary.

Could you talk -- you mentioned when you talked about Q4, you talked about some of the things that might have broke one way or the other.

And on your 50 cents to a dollar, you mentioned that that is at a fixed Ford production of 3.7, so could you talk about what some of the things are that, you know, that could break one way or another, which would get us to 50 cents versus getting us to a dollar?

I will take a crack at that.

I think the biggest thing is, I will call it the pace with which we're able to implement our cost improvements through the year.

We have a lot of actions planned.

They are occurring throughout the world at different points in time.

And any slippage or acceleration in those actions can have an impact.

A significant impact.

That's number one.

Number two, the launch timing of new business.

We have a launch timing schedule now worked out with our customers, and we based our financial results on that, and projections.

If there is a slippage of a major program for a month or two, that could adversely affect us.

Another item that can affect our projection is flow-back.

We have made an assumption with respect to flow-back of employees, it is modest, but there is some modest improvement built in later in the year.

If that were to be -- if we would have any slippage in that, that would be pushed into next year.

So because of all those things, we've had a fairly wide, you know, range, and all of these are the reasons we have a range of 50 cents to a dollar.

And one last one I will mention is currency.

Currency has moved around a lot in the last 60 days or so.

And although much of our exposure is hedged, it does affect our revenue, it does have some profit effect.

And the markets have been quite volatile, and so that adds to the degree of variability as well.

You mentioned the currency in Q4, '03.

Could you just tell us what the full year currency was for '03?

And then if you have a estimate within your revenue growth forecast for '04, if you do have sort of an estimate buried in there which is currency related?

Yeah, I will first talk about '03 and I will talk in terms of profit, not revenue for a second.

I mentioned that we had about $10 million of profit in the fourth quarter because of currency changes.

For the full year, it was about $15 million.

So most of the -- the first nine months was kind of just ups and downs that tended to largely offset.

With respect to revenue, for 2003, I'm not sure I -- I don't know that I have the full year -- yeah I do.

You said $80 million for Q4.

Yeah, I do have the full-year revenue.

The $80 million for Q4 non-Ford revenue on a full year basis was $199 million, or call it $200 million, for full-year currency effects on non-Ford revenue.

Okay.

On Ford revenue, to give you the entire fact pattern, Ford revenue was positive by $400 million because of currency effects, in the full-year 2003.

As we look to 2004, we see in 2004, and this is really pretty -- pretty uncertain, because the euro right now is trading at a $1.25 and who knows if it is going to be there at the end of the year.

But based on where it is right now, we see about, in round numbers, $500 million of positive revenue improvement in 2004 because of currency changes, roughly equally split between Ford and non-Ford.

But I want to quickly mention that with our hedging programs, we have hedged most of our exposures, so the profitability impact of that is relatively small.

Okay.

And then just one last one, on page 12, if you could just give us the 2003 OPEB expense and OPEB cash, so that we can compare it to that '04 outlook which you give?

Sure, for 2003, OPEB expense, and this is total OPEB expense, including any restructuring charges.

Okay.

Payments to Ford, total OPEB expense, was $401 million.

For 2004, we have indicated it will be better by about 90 and that is total bottom line basis.

Cash payments in 2003 for OPEB were about roughly $60 million, and we see them going up to about $80 to $85 million next year.

Here is my question related to that.

When you say Ford took on the obligation of spend, meaning essentially whatever people had accrued under Ford, Ford is now responsible for.

And whatever they're accruing under you, you're responsible for, is that correct?

And if so, my question is, wouldn't your cash payments be going down?

Because if somebody retired, you know, most of their obligation was accrued under Ford, and so presumably Ford is now taking responsibility for those health care cash payments.

It is the same as saying if your liability was cut in half, which it roughly was, I would expect your cash payments to also be getting cut.

I recognize you have new retirees coming in, but again, most of their accruals were Ford-related, not Visteon-related.

So I really -- I'm very confused as to why the cash payments would be up.

One of the reason why, Gary, is because we've done restructuring in 2003, and 2002, and we are responsible for the restructuring actions that we took.

And those actions are beginning to generate payments as we go forward.

Right, but those people's liabilities were essentially -- they worked for 29 years under Ford, and three years under Visteon.

So --

Well, the Ford payments, buried within those numbers, our payments to Ford are being reduced but our Visteon plan payments, people that have have retired and we're making payments under those plans are going up.

So what we're giving is an all-in kind of a number that reflects those ups and downs that we're talking about.

Okay.

I will follow-up later.

Thanks.

Okay.

Your next question comes from Mike Bruynesteyn of Prudential Securities.

Good morning, guys.

Good morning.

Hi, Mike.

When you're talking about new business coming on stream in 2004, can you discuss the -- how the product profile looks for new business as it comes on stream in terms of when the launch costs hit and when you sort of hit your stride on earnings for that new business?

We've heard from other suppliers that you know, initially profits are not good on new business and than it it gets better over time and I want to understand how it looks at Visteon.

Well, I think, you know, we're probably no different than anyone else.

You have launch costs that you incur pre-launch so, you know, we've talked about before the need to build up an infrastructure to support new business and you work on that for three years and then you go to ship it and you finally start to get some revenue on.

It the year of the launch depends on how well the launch goes.

You know, normally, most of them are going to go just fine.

But you do have unusual costs on every launch at the beginning to make sure everything goes smoothly and then that tapers off.

And then that particular order or that particular launch starts to fall into a normal mode of generating, you know, what you expect to be the average profit.

You know, we're in a mode now, where we're launching continuously.

All right?

So there isn't really one period of the year anymore that has, you know, dominates 80% of the launches.

And frankly with all the new business we've won over the last few years, we're in a continuous launch mode.

So I think you hit a pattern where there isn't a spike in launch costs, it is just part of the normal cost of doing business, every quarter you got launch costs going on, every quarter you go into normal productions on those launches or on the launches that occurred the prior quarter.

So I think it starts to get pretty normalized throughout the year and I would say that is true of all of the major suppliers.

Okay.

Great.

And then could you elaborate on how this $1.65 billion OPEB liability transfer to Ford is going to offset against future charges to Ford that you mentioned in your footnote?

Is that the unamortized losses that you discussed earlier or is that something else?

Yes, that is what it would be offset as.

If this had not occurred we would have been recognizing these unamortized losses, being amortized into our earnings over the next 13 years.

So we would have had an increase in cost each and every year for the next 13 years to recognize these unamortized losses coming in.

Essentially, that increase will be offset by the release of the deferred benefit from Ford.

Okay.

And then the price-down agreement that have you with Ford; is that a constant?

Or is that varied by year?

Or is there a formula or something?

What we communicated before, Mike, was that we written going to talk about, you know, anything about that -- those prices, in any given year, or how they fair, versus historical numbers or anything and that's an agreement we have with Ford and so we're just going to stick with that.

And the one thing we just want to emphasize is the benefit when we do our guidance and our forecast is there is no uncertainty, you know, for the next four years.

We know what that number is and whatever it is, that will be included in the guidance and forecast numbers we give to you.

Okay, and then if I might finally, could you talk about your material cost reduction outlook, what you've achieved in the last couple of periods and what you expect going forward?

We've talked in the past about somewhere around the 6% range was the target that we've had and that that's made up of, you know, frankly negotiations and design changes, working with our suppliers through the SAVE program that we put in place a couple of years ago.

And what we're seeing is really good results out of the SAVE program.

And so there is a lot of actions that were already identified coming into the first of the year in '04.

And I think we, you know, we commented we're in the 80 to 100% range of having already identified where those saves were coming from, which is a much higher percentage than we would have been in any historical period.

So we're -- I don't want to give you the exact number, but we're -- we are forecasting improved saves in '04 versus '03 due to the benefit of the SAVE program where we worked together with our suppliers to take costs down.

And you got 6% in '03 so you are saying more in '04?

We're not going to give you the decimal point on that.

We're in the range of 6% and we're saying we're going to be better than that in '04.

Thank you.

Your next question comes from Rod Lache of Deutsche Banc.

Good morning, everybody.

Good morning.

Just a couple of -- a lot of the questions have been answered.

But what is the projection for depreciation?

I guess there is a benefit from the asset impairment charge you're taking?

We're looking -- I don't have the exact number, but it is roughly flat.

It may be up slightly but roughly flat.

And the reason it is up slightly is because of the capitalization of our spending on Visteon Village that will come in during the year.

So -- and the capitalized IT software that we've been doing over the last year or two.

But not a material change.

Okay.

So if I could just run through, you know, I think I have a summary here of the improvements, you've got a $25 million reduction in the losses of Visteon seating, a $90 million improvement in OPEB costs because of how you're accounting for the gain.

I think you said your IT costs are going to be down by about $100 million?

Is that correct?

I don't think we did.

No, we didn't say that.

And there was a charge in the OPEB number as well.

So -- of that 90 improvement.

There's a $75 million benefit from the amortization of the gain and the overall expense is going to decline by $90 million or no?

Ron, we didn't -- we didn't give a walk in the presentation, so we're not going to run through your model here on the Q&A.

Okay.

I thought you said that the OPEB costs are going to be down $90 million.

Yeah, we did.

We did.

All right.

The working capital, did that include the $200 million benefit from the change in payment terms?

Or is that in the future?

That is a 2004 action.

It will occur during 2004.

Okay.

And then just lastly, talking about the seasonality of earnings, it is pretty typical that it is more front-end loaded, just obviously based on production, primarily.

Are you suggesting that, I guess it would have to be that your expectation is that the earnings over the course of this year will be pretty flat quarter to quarter, first half, versus second half.

Am I correct in that?

We're expecting actually setting aside production for just a second, we're expecting to be able to improve as the year goes on.

As we get the traction from the various cost actions throughout the year as they're implemented.

So we do expect improvement in our cost performance throughout the year that will help our results as the year goes on.

We're also adding new business through the year.

And that will tend to improve our results as the year goes on.

Now, the big -- the biggest uncertainty, though, is in fact production.

And we're basing our assumptions on the production numbers that we included in the guidance here, a little over a million units in Ford North America in the first quarter and about $3.7 million for the year.

If there is a dramatic change in that one way or another, that will certainly skew our results.

Okay.

All right.

Thanks.

Your next question comes from Saul Ruben of UBS Warburg.

Good morning.

Good morning.

First of all, the numbers on the pension, and the guy's question on the OPEB, the actual expense in '03, the actual full cash payment.

Okay.

I've got that.

Just give me one second.

For pension expense, and this is total pension expense, including payments to Ford, for our Visteon plant, as well as restructuring charges was in 2003, was $300 million.

From a funding standpoint, in other words cash payments, was about $230 million.

And the big difference between those two is the fact that we did set up some accruals for restructuring actions that aren't funded, that we don't actually pay the cash for, for several years.

So that was our 2003 expense and funding.

If that was your question, Saul.

Yes, so 2004, down, so it is 250, right, on the expense side?

Yeah, roughly, and it is more than accounted for by lower restructuring charges.

As we've indicated, we expect fairly small restructuring charges in 2004.

In 2003, within that $300, we had about $100 million of pension-related restructuring charges.

So our nonrestructuring was in the ballpark of $200.

So that's why the decrease year to year is more than accounted for by the absence of restructuring.

Okay.

That's fine.

So I mean when you say restructuring, that is included in the charges then?

Yes, it is.

Okay.

And then the cash, 230, that's the money you pay directly to Ford, right?

Well, either to Ford, or that we put into our plans around the world.

We have a number of our own stand-alone plans that we have to make ongoing contributions for.

That cash is not what I would characterize as abnormal.

We have no catch-up requirements.

We have no risk assured calls.

It is just the normal ongoing program of funding our pension plans around the world.

How much of that was to Ford, the Ford payment?

About, in round numbers, about $90 million.

Okay.

And what do you expect that number to be in '04?

Well, we expect the total, the $230, to go up in 2004, by about $45 million.

Okay.

Is that mostly the Ford piece of the puzzle?

No, the increase is sort of across the board.

I mean what we're dealing with is, we have continued funding requirements of a modest nature in all of our locations including Ford.

Okay, great.

And in the slide on pensions, you talk about the funded status of your on balance sheet plan, can you talk at all to sort of the notion to what is held at Ford.

No, we refer to just what we're responsible for, what our liability is, and what we report in our financial statements.

Okay.

And in terms of savings in 2004, you talk again with the European plan for growth, can you update us on that?

I mean that's been sort of ongoing for a year and a half now, maybe longer.

Can you just talk about what you mean by continued implementation, where things stand with that, and what --

Yes, Saul, I would look at it, that it is, you know, the initial effort and the initial plan, the works with the European Works Council, where we've moved some folks out, we moved product around, that part of that is for all intents and purposes done.

But like anything else, once you start down that path, you constantly have opportunities to improve, move additional product, possibly have additional reductions.

And so when we talk about, you know, continued efforts in that area, it is more along the lines of fine-tuning and tweaking and it wouldn't be of a significant nature.

The bulk of it has already been accomplished and the benefits are realized in '04.

But you must have substantial benefits realized in '03?

Is that the case or not?

Yeah, we did have important benefits, but I think the point is, is that it was implemented starting in the latter part of 2002, gradually throughout '03, and it is being kind of wrapped up in the first quarter or first half of 2004.

During -- in 2002, when we started, we had fairly nominal savings because we were just getting started.

In 2003, we estimate that we got about a third of the ongoing savings booked in 2003.

And if you recall, our ongoing savings we quoted at about 100 million a year.

We expect the balance of that, so we will be at our running rate of savings, in 2004.

And now, I can't tell if you we will hit that running rate in the first quarter or the second quarter or the third quarter.

But during the first half of 2004, we expect to be at that running rate, pretty much done with charges and so forth.

Now, the point Mike was making is now we've identified as we've gone into that, further opportunities.

So we're looking at other things we can do to improve that ongoing savings and are working on those as well.

But the thing that we have defined as European plan for growth, we expect to wrap up and hit our ongoing targets of $100 million savings during the first part of '04.

Thanks very much.

Ladies and gentlemen, we have time for one more question.

Our next question is from Kirk Lewsky(ph) of J.P. Morgan.

Good morning, everyone.

Good morning.

Some of these are follow-ups.

With respect to the incremental revenue in 2004, is there an average contribution margin that -- including the launch costs, that we could apply to those revenues?

We wouldn't provide that, that level of detail on any part of our business.

Okay.

Did -- we talked a lot about the cash requirements for 2004.

You mentioned that are you going to get -- going to accelerate the Ford receivables by, it sounds like $200 million next year.

Overall, is working capital a source of cash based on your estimates?

Based on our estimates, it is literally about a push.

We have needs, working capital needs to support the growth in the business on the non-Ford side, as we continue to grow that business, that generates a requirement for working capital.

On the things that we can manage, we're trying to bring down our day sales, so that that growth is minimized.

We're also continuing to try to bring down inventory and we have really made great progress on inventory in 2003 and we want to continue that pace in 2004.

So we're doing the things we can to, frankly, not require any added working capital as our revenue goes up.

But having said that, we don't see it as a major contributor next year.

Okay.

The tax calculation is, probably pretty tricky, and I'm curious what type of cash taxes you will be paying next year, or this year, rather, based on your earnings guidance.

Fairly small.

We have to pay taxes in a lot of parts of the world where we earn profits and just like everyone else.

And so despite the fact we have an overall loss, we are in a tax paying environment in many countries.

We expect that cash tax to be about the same next year as it was this year.

And the numbers are -- they are less than $100 million of out-of-pocket cash payments on a global basis for all the jurisdictions where we are paying taxes.

Excellent.

And then are there any other cash requirements that we haven't talked about on the call, restructuring activities?

Well, we do have continued -- where we have taken restructuring charges and set up reserves in 2002, and 2003, in a lot of cases, the cash part of that, the cash payment is deferred by a year or two or three years.

And so we will have continued restructuring cash payments in 2004.

They begin to wind down, however, as we get out of the restructuring window, but there will be some of that carried over.

That's probably the only remaining item that we haven't talked about.

Are you sharing that number with us or investors today?

No, it is one of the numbers we haven't.

But what I did say is that, all in, everything considered, we expect our cash at the end of next year, based on this guidance, and these assumptions, to be higher than at the end of 2003.

So taking all those things into account, you know, we are expecting our cash to increase.

And I should also mention, we don't have any major debt maturities until 2005.

So if you look at the debt side of the equation, we have a large maturity in 2005, in July, I think.

But beyond that, we just have normal turnover of short-term debt and have nothing of a major nature.

So we are expecting our cash to increase.

Okay.

Did you securitize any receivables in the quarter?

A very, very small amount.

I think we have a program in France that we have had for some time.

And that changes quarter by quarter, the amounts that we do under that program, increase or decrease, and literally we're talking in the, if I remember right, $5 million range, 5-10 million.

So it is fairly small changes.

Okay.

And then last question, the special charges in the fourth quarter, I guess the total $756.

You mentioned in the press release that $450 of it is was in cost of goods sold and SG&A.

Is that it, in the amount of charges that were used in calculating operating income?

Everything else was below the line, the remaining numbers below the line?

Just one moment.

Yeah, I guess, I would call your attention to the supplemental data page that we sent out.

And it shows the breakout of the $756 and where it appears. $450 of it on a pretax basis goes through cost of sales and SG&A.

And the tax effect of that is equivalent to $288 million.

And then -- which is comes from after taxes.

And then the deferred tax charge is all in -- in taxes.

That's the $756.

So I call your attention to that supplement the data schedule.

Fabulous.

Thank you very much.

Okay.

All right.

Well that concludes the call.

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

And have a good weekend, everyone.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may disconnect at this time.

Good day.