Visteon Corp (VC) 2004 Q3 法說會逐字稿

Good morning and welcome to the Visteon Corporation conference call.

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

As a reminder this call is being recorded.

Before we begin this morning's call, I'd like to remind you 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 factors, risks and uncertainties that could cause our actual results to different materially than those expressed in these forward-looking statements, including the automotive production volumes, and schedules of our customers, in particular Ford American Vehicle production volumes, our successful execution of internal performance plans and other cost reduction and productivity efforts charges resulting from asset impairment or restructuring, employee reductions, acquisitions, or dispositions, our ability to offset or recover significant material surcharges, the effective of pension and other post-employment benefit obligations, as well as those factors identified in our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2003.

We assume no obligation to update these forward-looking statements.

Presentation material for today's call was posted to the company's web site this morning.

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

After the speaker's 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.

If you would like to withdraw your question, press star and number two.

I would now like to introduce our host for the call Mr. Derek Fiebig, Assistant Treasurer for Visteon Corporation.

You may begin.

Thanks, and good morning everyone.

I'd also like to add my welcome to today's conference call.

Leading today's call will be Mike Johnston our Chief Executive Officer and President, and Jim Palmer, our Chief Financial Officer.

Immediately after our formal comments, the operator will open up the lines so Mike and Jim can answer your questions.

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

Thanks and good morning.

As Derek said, welcome to our third quarter conference call.

Before we get started, let me take a minute to address any expectations that this call will go beyond discussion of our third quarter business and financial results.

On September 9, when we announced we would record a non-cash charge to write down deferred tax assets, we also acknowledged that we recognized the need to take aggressive actions to structure our businesses in the U.S. so that we can be successful in an uncertain market.

We said, and it remains so, quote, "Our top priority over the coming months will be to explore and pursue strategic and structural changes to our business, to achieve a sustainable and competitive business.

Such changes will involve Ford and our legacy businesses."

Unquote.

Beyond those statements there is no further information or insight that we'll be making public regarding our discussions.

I realize there is speculation with regarding where those discussions could lead, but it would be very premature to open the content of our discussions to the public.

I do want to point out on September 9th we also said while solutions are being pursued we will not diminish our focus on meeting our commitments to all our customers for on time deliver and quality parts.

Today I do plan to share with you more about our customer focus and the results we are seeing in the diversification of our customer base.

With that, let me get this call underway.

In the third quarter, we recorded revenue of 4.15 billion, up 270 million from last year.

The 7% increase over 2003 was driven by a 37% increase in our non-Ford revenue.

Our non-Ford sales totaled 1.38 billion for 33% of our total third quarter revenue, the highest percentage recorded in any quarter.

I'm very pleased with our efforts to diversify customer base and we're focused and committed to moving our non-Ford revenue to even higher levels and I'll share more on that in a moment.

As previously announced, we did record a non-cash charge for the write down of our deferred cash assets.

This was 872 million we also took a non-cash charge of 314 million for asset impairment related to our steering systems.

Including these special charges we reported after tax loss of 1.36 billion.

On a cumulative basis, cash flow from operating activities for the first nine months was 227 million, an improvement of nearly 200 million from 2003.

I would also like to highlight the addition of directors to Visteon Corporation Board of Directors: Patricia Higgins, former President and CEO of Switching Data, James Thornton, Senior Vice President and Director of Diversity Recruitment and People Services for NBNA America Bank, and Kenneth Woodrow, Former Vice Chairman of Target Corporation.

In keeping with our company's commitment to diversity, I'm pleased to point out that of our 12 board members, two are women and two are African-Americans.

The growth we have been consistently seeing in each quarter non-Ford business reflects the new business wins we've been accumulating over the past years.

To recap our non-Ford growth, in the first quarter, sales to other auto maker totaled 27% of our total revenue.

That grew in the second quarter to 28% and now we finish the third quarter reaching a new record 33% of our revenue is to is automakers other than Ford.

The new business we are launching in the second half is concentrated on cockpits, electronics, and climate product areas.

These are the same product categories where we are winning significant new business.

Also, our non-Ford business wins continued significantly ahead of last year's pace.

These wins strengthened our sales diversification in future years, providing the balance we want both with our customer base and geographically. 2004 has been a year of several major launches for our customers.

Visteon products are on many recently launched vehicles and we're optimistic the remaining '05 vehicles that will be launched in the fourth quarter will be seen by the market places as got to have cars and trucks.

Let me cover some of the launch highlights by region.

In North America we've been pleased with non-Ford revenue growth.

The successful marketplace reaction to such vehicles as the Chrysler 300, with our premium branded Boston acoustic sound system and the Chevy Corvette with our front and rear lighting system, bodies well for us.

For Nissan we have provided a complete cockpit, that's the instrument panel cluster, HVAC, climate controls for the Nissan Pathfinder, Frontier and X-Terra.

Visteon's steering system is on the new Cadillac SPS and is on the new Jeep Grand Cherokee.

The Grand Cherokee also has the Boston acoustics sound premium system as does the Dodge Magnum LX.

In Europe Visteon provides the instrument panel and door panel for the first car to arrive from the Reneau Nissan's B platform, the new Reneau Modiss.

The Modiss is produced in Spain and the expected volume is 300,000 units.

Visteon supplies the instrument panel, trim parts and the rear lighting for the Citron C4, the replacement model for the X-Terra.

This vehicle is manufactured in France and again the planned volume is 350,000 units.

The all new Volkswagen Gulf 5 GTI has a unique front grill and bumpers with Visteon supplying the front and rear lighting.

The Gulf 5 also has our radio, cluster, and fuel tank.

In the Asia Pacific region, Visteon is supplying the cockpit and climate control system for the [Funidai Gips] launched recently in India.

Visteon climate control products are the on Hyundai Sonata, launched in Korea in September.

In Japan we're supplying the integrated center panel for the Honda [Fit] and clusters for the Honda CRV.

In China we supported Shanghai GM and Volkswagen with various interior components for their new vehicles.

Across all regions, our non-Ford business is doing very well.

While Ford sales are down in the third quarter due to the lower production volumes in the U.S., we look forward to the launch of several exciting Ford vehicles in the North American marketplace.

Visteon has major content and that's over $3,000 per vehicle on the new Ford 500, Ford Freestyle and Mercury Montego.

The same goes for the all new Ford Mustang which carries a Visteon supplied interior.

On the Ford hybrid Escape, Visteon is supplying major content and climate and electronics products areas.

In addition to these all new products, Visteon is providing interior, electronics, climate and lighting for the Ford C1 Focus European and Asian markets.

We're supplying the instrument panels on the Ford Fusion, that is launching in India, and we're a new content provider for the new Ford Fiesta in Europe.

On the labor affairs front in the U.S., so far this year we've had 1,250 leased UAW Master Agreement employees flow back to Ford or retire under normal conditions.

Special retirement incentive was taken by 510 leased employees, reducing the Master Agreement population by 9%, or 1,760 employees year-to-date.

In the end of 2003, the Master Agreement population totaled 19,770, at the end of the third quarter the number of leased UAW employees was down to 18,000, and we anticipate that number will go to 17,700 by year end.

Under the UAW Visteon supplemental agreement, 760 employees have been hired at the new tiered wage and benefits level to replace the 1,760 that have left.

That's more than two to one ratio, which significantly improves our competitive position.

In summary, while we're not pleased with the financial results released today, that should not obscure the fact we have a dedicated and talented work force focussed on serving our customers.

We are reaching the goals we set for the diversification of our customer base in all major markets.

Today's announcement of the new sales record for non-Ford revenue is attributable to the efforts of our entire team.

With each new vehicle program launched by our customers, Visteon's innovative interior, electronics, and climate products are being introduced and noticed by the marketplace.

We recognize that every launch is the first step to gaining additional business, and with that, our people are very focused on launch performance.

With the launch of several new vehicles in the second half of 2004, we're expecting our revenues to increase in the fourth quarter.

That does not mean the fourth quarter is without its challenges.

Our current cost structure combined with escalating material surcharges will challenge our operating performance for the rest of the year.

We are exploring strategic and structural changes and as soon as we can say more about that, we will.

I'd now like to turn the call over to Jim Palmer to take us through the details of the financials.

Jim?

Thanks, Mike, and good morning, ladies and gentlemen.

For the third quarter, we reported a net loss of $1.36 billion.

Our operating results were greatly overshadowed by just over $1.2 billion of special charges related to three separate items.

The first item was a deferred tax asset valuation allowance of 872 million, recorded as of the beginning of the third quarter.

This was principally for the United States, but included a handful of other jurisdictions.

This non-cash charge is a write down, not a write-off.

Once sustained profitability is restored in the effected jurisdictions, we will have the ability to recovery these assets.

This change will not impact our cash taxes, only our book tax expense.

Secondly, we've recorded a non-cash impairment of our steering system assets because the expected cash flows from these operations is now less than the book carrying value of the assets.

These assets support about $800 million of revenue annually, the majority of which is Ford related.

And finally, we recorded charges related to our UAW Master Agreement leased employees as part of an early retirement program, which about 500 workers chose to accept and initiatives for another 200 or so workers to flow back to port facilities.

This $25 million charge is nearly all cash, and the majority of which was paid in the third quarter.

There also was a small or minor reduction of $3 million previous restructuring charges, resulting in a net special charge of $22 million for the quarter.

With the reduction of UAW workers from these programs, coupled with normal attrition, flow back and other reductions, as Mike said, we now have just over 18,000 UAW Master Agreement workers in our workforce, a 9% decrease from year end 2003.

In the aggregate, these special charges account for 1.2 billion of our 1.36 billion loss for the quarter.

Because our tax expense for the third quarter is rather unique and will continue to be so in the future, I'm going to take some time to discuss it in further detail on the next slide.

At the end of last year we announced increases in valuation allowances for deferred tax assets related to certain tax jurisdictions in Europe and a partial valuation allowance in the United States.

We have also previously shared with you that this would cause variability in our tax rate in the course of 2004.

During the third quarter, the company concluded that its estimate of profitable U.S. operations would not be achieved due to, among other factors, lowered and expected Ford thorn American production volumes and increased steel and fuel costs.

Accordingly the company established a valuation allowance for the balance of its U.S. and certain other jurisdiction deferred tax assets, as of the beginning of the third quarter.

Thus, for periods beginning after the third quarter of this year, we will no longer be able to currently recognize a tax benefit for losses generated in the affected jurisdictions, including the United States, Germany, and the U.K..

At the same time, we must continue to recognize tax expense on profits of our nonaffected jurisdictions included in our consolidated results.

So we find ourselves in a rather unique situation in the third quarter of having after-tax losses, actually being greater than pre-tax losses as we need to recognize a tax expense for our nonaffected profitable operations while not being able to currently recognize the tax benefits of our unprofitable affected jurisdictions.

Going forward, the key to our tax expense will be results by jurisdiction.

Now, let's turn to the financials on the next slide.

As Mike mentioned, total revenue was up 270 million or 7% from the third quarter of 2003.

Third quarter Ford revenue declined by 101 million or 4% from the third quarter a year ago.

Lower Ford production in the North America decreased our revenue by more than 100 million.

Ford's production of 747,000 units in North America is the lowest volume we have ever faced in any quarter of our history as an independent company.

Price downs and lower Jaguar production also reduced Ford revenue on a year over year basis, but these factors were offset by additional content, Ford European volume, and slightly favorable currency of about $35 million.

Non-Ford revenue increased year over year by 371 million, or 37% to nearly 1.4 billion.

They now represent a third of our total sales.

The highest percentage that we have ever ever had.

The increase was driven by the sales related to some of the launches Mike discussed with you earlier.

And changes in currency also increased non-Ford revenue year over year about $35 million.

The next slide shows how the diversification of our customer base has changed over time.

As this chart illustrates, year-to-date non-Ford revenue totaled 4.1 billion through the nine months, about even with non-Ford revenue for all of last year.

We now expect our full year 2004 non-Ford revenue to be about 5.5 billion, or about 1.25 billion for the fourth quarter.

Most of the growth has been with Nissan, GM, Daimler Chrysler, PSA and VW.

Although it's not shown on this chart, we expect to grow non-Ford revenue about another billion dollars in 2005.

Let's turn to the income statement for the third quarter on the next slide.

Our pretax loss totaled $449 million, including the $314 million asset impairment charge, and the restructuring charge the $25 million for costs associated with the UAW early retirement and flow back of workers to Ford.

These results compare with the pretax loss of 264 million in the third quarter of last year.

Last year's results included $64 million for the UAW contract ratification bonus and $2 million of pretax special charges. 2004 results were also affected by higher cost of the sales and lower SG&A costs when compared with 2003.

Cost of sales were affected by the aforementioned asset impairment and early retirement incentive flow back program, material surcharges, and higher total sales.

Cost efficiencies lower OPEB, product recall and incentive compensation accrual reductions were partial offsets.

SG&A costs decreased by 39 million year over year, reflecting lower spending on IT and a reduction of incentive compensation expense.

On the next slide we'll look at loss for the third quarter where you will see the impact of the deferred tax asset valuation allowances on our after tax results.

We had a net loss for the quarter of 1.36 billion, which compares with a net loss of 168 million last year.

This year's results include the $314 million asset impairment, and the other special charges mentioned earlier, as well as the charge of 872 million, to increase valuation allowances on deferred tax assets.

The net loss in 2004 is also affected by our inability to currently recognize the tax benefit of losses and those tax jurisdictions where we have established full deferred tax asset valuation allowances, while at the same time needing to recognize income taxes for those jurisdictions where we are profitable.

This results in the unusual situation of having to recognize tax expense for those profitable jurisdictions, included in our pretax loss, causing our after tax loss to be even greater than a pretax loss.

If you subtract the $287 million tax asset valuation allowance from the total $904 million provision for income tax, the remaining $32 million is the tax expense from profitable jurisdictions for the quarter.

Now, I'll turn to our results for the first nine months on the next slide.

For the first nine months of 2004, revenue is up $795 million, compared to the same period in 2003.

The increase can be attributed primarily to non-Ford sales increases of nearly $1.1 billion and higher Ford European volume, offset partially by Ford volume reductions in North America and exit of our seating business and price downs to customers.

Currency changes totaled $435 million.

Our cost of sales are about $600 million higher, reflecting again the $314 million asset impairment, and variable costs associated with increased revenue, currency changes of about 380 million and a higher material surcharges of roughly $50 million.

The trend of higher material surcharges that we and everyone in the industry is experiencing is expected to continue at an increasing rate.

These factors, were offset by lower OPEB expense, lower recall expense, and the absence of the UAW ratification bonus, as well as the exit of our seating business and improved performance.

SG&A was $21 million lower year over year, despite adverse currency translation.

Improvements primarily came from efficiencies and spending controls, lower IT spending, and lower special charges.

Interest expense, although higher in 2004 compared to 2003, is primarily because of our debt extinguishment actions that we took earlier in the year and to a lesser extent increased debt.

This all led to improved before tax results of just over $200 million, despite a $53 million increase in pretax special charges.

The next slide summarizes our year-to-date net loss.

For the first nine months, we had a net loss of $1.3 billion, about $950 million worse than a year ago, driven largely by the increase in special charges that we have been discussing.

The the impact of special charges was a reduction to income of nearly $1.2 billion.

The deferred tax asset evaluation allowance recorded as of the beginning of the third quarter of 2004, included $824 million of deferred tax assets as of the beginning of the year, and $48 million deferred tax assets recognized in the first half of 2004.

Other special charges are lower year over year, primarily due to the exit of our seating business last year.

On the next slide we'll take a look at EBITDA.

This quarter, we've also added a chart on year to date EBITDA because we know it's a useful, albeit non-GAAP financial measure that many of you calculate.

For reference, we have included a look at first and second quarters in the appendix of the presentation.

For the first mine months our EBITDA was $218 million, including $352 million of special charges.

This represents a $217 million improvement from the first nine months of 2003, despite $53 million of additional special charges.

As some of you are are likely aware, our credit facilities have a net debt to EBITDA covenant of three and a half to one.

Under the covenant we can exclude special charges.

We are well within the terms of this covenant at the end of the third quarter.

In fact, we could have added approximately $850 million in net debt and still have been under the limit of the covenant.

The next slide now looks at cash flow.

Cash flow from operating activities was $227 million for the first nine months of 2004, an improvement of 195 million from last year's $32 million.

The improvement reflects a substantial reduction in pretax losses, as losses before tax improved about $200 million when compared to the results of the first three quarters of last year.

Trade working capital flows had about the same total impact in both 2003 and 2004.

Year over year we have improved our non-Ford receivable DSO, by 16 days from 93 to 77.

Ford DSOs were at 50 days, a little worse than last year, as it was skewed by lower sales early in the quarter, early in the third quarter, as Ford took more downtime at the summer shutdown and had stronger sales in a year over year basis in the back half of the third quarter.

Inventory returns remain at 18 and capital spending during the period was $573 million, excluding capital leases about $7 million, down $68 million versus a year ago.

Finally, our free cash flow for the year was a use of $347 million, but in an improvement of $263 million year over year.

Our thoughts about the road ahead are included on the next slide.

Looking at the road ahead, we know that there is a lot of heavy lifting to be done here at Visteon.

Asia is performing better than the United States and Europe is improving.

Our operating results have improved, but they're not where they need to be for the long term.

We do look forward to improved sales at Ford when the new products hit the showroom floors in the fourth quarter, but this alone will not solve our structural problems.

We do expect a continued headwind from materials and commodity costs, some of which will spill into 2005 results.

We are working hard to increase our discipline and focus on capital spending and working capital management and to improve our cash generation despite the levels of profitability that we find unacceptable.

And finally, as Mike mentioned, we are taking the actions to address the structure of business and recognize that incremental improvement is not nearly enough to solve our structural issues.

Derek, with that, it concludes our formal presentation, and guess we'll turn it over to the operator for questions.

Please remind people how to queue up for questions.

If you have a question, please press star then the number one on your telephone keypad.

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

Our first question comes from Steve Girsky with Morgan Stanley.

We can't hear anything right now.

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

We are not hearing any questions whatsoever.

Can you hear me?

Hello?

We can, yes.

It's Ron.

Right.

On a year over year basis, I see a lot of positives that could have helped drive the gross profit dollars higher, and they were higher, I guess.

I'm wondering if you could share with us the bigger minuses, because it seems like the gross profit dollars were not up as my positive column would lead you to believe.

What were the big drags on gross profit dollars?

Can you quantify some of them?

Ron, one of the big drags obviously is the thing that we all have been talking about is raw material surcharges.

That was up maybe $15 million, though?

It's greater than that.

Actually, it was $37 million for the quarter.

Okay.

And then on the Ford business, obviously you have some lower margins there.

Are you guys able to share with us what kind of variable margin we should think about on that business?

Ron, we haven't disclosed that and we're not going to go there today, either.

Okay.

Maybe on the non-Ford business, are you -- is there -- are the margins there up or down on a year over year basis and maybe you could just talk about China?

Directionally, they are better on a year -- on terms of booked business, so we continue to work the process that we put in place a few years ago, and I think are quoting process has improved significantly over the last year years, so we're pretty happy with that.

We're really happy with the growth, the new business wins are, this year continue significantly ahead of prior years.

All that is doing well.

In the past we discussed our operations in Asia and where they come from, and we're seeing the same kind of growth rates there that we've been seeing for the last few quarters.

We continue to win business in Asia and in fact, most of our new business wins, or the biggest percentage of our new business wins this year to date are Asian based.

Mike, is this fair to say thought that the gross profit dollars on your Asia and non-Ford are up on the year over year basis?

That's correct.

That's a fair assumption, yes.

Seems like got to be some another negative, because it seems like even your incentive comp was a big help, the retirement was a big help, all those seemed to add up to at least over 100 million dollars of positive in the gross profit dollars, then you got steel, which is a negative.

I'm wondering, is there anything else other than the Ford production I should think about?

Ford production is a big part of it as well.

Obviously with that decline and the cost structure for those workers, it's a drag.

Okay.

Fixed asset impairment, the 314 million, how much is that going to reduce you depreciation by going forward?

How much depreciation was left there?

It isn't a number of more than one facility, so it is influenced where the assets were put in place.

In taking a quick look at it, Ron, it's not a real big number.

Probably less than ten or so.

A year or quarter?

Yeah.

A year.

Thanks a lot.

Your next question comes from Rod with Deutsche Banc.

Good morning, it's Mike Heisler for Rod.

Hi, Mike.

Couple of questions.

I think you mentioned that the raw material costs were $50 million higher this year so far.

Can you talk about the outlook for the raw materials?

Well, what we said, Mike, was $50 million year-to-date and 37 million for the third quarter alone, and we also said that we're seeing increasing trend rate on those increases, that cost pressure, so.

Mike, I would just add, it's an industry-wide, as you know, the dilemma that we're all going to have to wrestle with because the industry can't continue to absorb that rate of charge and I think the model that's been used in the past is broken today, and we'll have to be adjusted collaboratively going forward

Okay.

There was about $84 million of positive accrual adjustments in the quarter, and just what is your thinking on those items going forward?

Are there any more positive accruals we should be thinking about?

Not that I'm aware of.

The Cap Ex outlook, going into next year, I think you guys were spending on the Visteon Village and some other, you know, unusual projects.

Should we be thinking about Cap Ex coming down?

I would put it this way; the one -- the large unusual events, okay, so the Village and also IT expenses were very large over the last year or so, year and a half or so.

Those are behind us and I would say the capital expenditures going forward are product related, and I think as we come into the subsequent year, so in '05 you will see a focused capital spend on the businesses that we are able to grow around the world.

In the past we communicated that that's climate, electronics, and cockpits.

I think you will see a change in the capital expenditures going forward and frankly, we're in the process right now of the normal budgeting and looking at capital spend and working capital requirements.

But although we can't comment about some other things, I can tell you internally there are actions we're taking to make sure that we focus our spend only on those areas that we can compete and grow around the world.

Okay.

And lastly, I know Ron asked about the margins on the non-Ford business, and it sounds like they're improving, but are you profitable with that non-Ford revenue?

We've never disclosed it that way.

What we have said is that, you know, we're profitable in Asia, in Europe, and probably South America is small enough, but positive, and then you can make a conclusion, I think, from that, if you add the pieces up.

Okay.

Thanks, guys.

Your next question comes from Steve Girsky with Morgan Stanley

Can you guys hear me now?

We can hear you, Steve.

I'm just trying to, this fixed asset write down to push this a little bit, can you tell me the process you go through?

I guess -- don't take this the wrong way, I'm surprised there weren't other fixed asset write downs here.

So is it the accountants look at these one at a time or every quarter they evaluate this stuff?

Steve, we look at this when you have a so-called triggering event and clearly one of the triggering events was lower Ford volume and expectations about that.

Based on that we took a look at all of the fix asset, all of our product lines, we do it on a product line basis, and based on updating the analysis that we had performed last year, the one additional product line that fell out of that whole process was the steering assets

So everything else here is like axles, everything else here is good?

Yes, sir.

And just, what is the raw material buy here annually?

Did you give that number?

We haven't given that number in the past.

I assume you're talking about steel.

I have a number of a billion and a and a half written down from old notes, somewhere long ago.

I don't know if that's a good number or not.

That's a pretty good number for a total, total Visteon basis.

Obviously it's skewed more heavily towards domestic and that includes both direct and indirect purchases.

Okay.

And how much of your buy is covered by your customers?

Is that what you mean by direct and indirect or what do you mean by indirect and direct?

Steve, what we're talking about is some is raw material direct that Visteon would buy and the number that we're referencing here would include the steel content of components that we buy from tier two suppliers as well.

What about anything that's covered by pass throughs or something like that?

That excluded from that number?

Yes.

Yes.

And the 37 you gave us, that exclude -- that includes -- that's net of pass throughs, right?

Yes.

Yep.

Okay.

So that's what you're paying?

Your customer is not helping you with.

You may be paying more but your customer is helping with the rest of it?

Could be.

We would say the next effect when you consider all the factor you're putting out there is 37 million.

What portion of your contracts -- I realize we're paying surcharges, but we got contracts rolling off, correct?

That's correct.

When do they come off, at year end?

They stagger.

They stagger for quite a period of time.

So some of them have rolled off this year.

Some of them not until next year.

And there isn't one cutoff date that we have with even a large number of them.

It's staggered over a period of time.

Okay.

Let me just ask you one more thing, and I don't know if you can come up with an answer.

Is there any way you could sort of -- I don't need you to name businesses, but the -- you have businesses that are good businesses and bad businesses.

I'm just trying to get an idea of the distribution of these things.

Is, like, everything around the mean or is there some that are really good and some that are really bad kind of thing?

Is there any way you could bucket that for us?

I don't think we can.

We've said in the past that the growth businesses are roughly two-thirds, round numbers of our revenue, and the non-growth are about a third.

Within there, there is, you know, there's distribution of really good to not really good, I guess.

I would say, you know, we couldn't break it out that way.

I just don't see how we could.

I wouldn't say there's any that are on radical extremes of a bell curve, either.

With any magnitude.

Thanks a lot.

Your next question comes from Darren Kimball with Lehman Brothers.

Good morning, Mike and Jim.

Good morning.

First of all, can I just understand what you guys see as the pretax loss in a quarter, if you exclude the nonrecurring?

Probably the easiest way to do it, Darren, is to back off from the $449 million pretax loss, the asset impairment of 314, that leaves you a balance of 135.

That includes a number of, if you will, special items like the UAW Master Agreement and the adjustment of accruals.

If you want to think about it as kind of a basic business or the engine.

I think that's the way I would think of it.

Okay.

I'm a little confused on the 22.

The 336 is the 314 plus the 22, not including the 25 for the UAW Master?

Is that -- is that right?

There are three items, aren't there?

314, plus the 22, is the 336.

The 22 is 25 for UAW Master, less some $3 million of changes to prior reserves.

Oh, okay.

Okay.

And so my question therefore, is when you, when you think about the third quarter moving to the fourth quarter, as was pointed out, that 135 loss sounds like it had about $85 million of nonrecurring benefits from accrual changes.

You got raw materials escalating, production, although it's going to be a bad quarter in the fourth quarter is up sequentially, how do you see all that shaking out?

Is the fourth quarter better or worse on this adjusted basis than the third quarter?

I would have to say that's what -- there's so many major items moving, and as we said, you know, we do have discussions that we can't go into detail on.

It's just a lot of, a lot of large items moving around, which is why we didn't give guidance.

We felt it was prudent not to do that at this point in time.

And we'll revisit that as soon as we have some understanding of where these factors are going to come out.

Can't you answer the question, you know, subject to anything that might happen?

I mean, you're suggesting that you're in discussions and things might ultimately change, but to the extent nothing changes in the fourth quarter and whatever commercial agreements happen in 2005, at least conceptionally, you know, which way are we going?

Well, as you pointed out, revenue will be up, and that's I think you can, we can all feel good about saying that.

There are a lot of negotiations.

Forget the discussions, there are a lot of factors that are moving.

And I guess we could have gone out and said here's our guidance and assumptions for that guidance and provided a lot of detail in terms of our own assumptions, as obviously, we do model the fourth quarter.

But we just thought there are so many items to exclude, that there was no point.

And so we're just going to stay with that.

Okay.

Let me just ask you one another item with regard to that walk.

Can you talk about what your launch costs might be in the fourth quarter versus the level in the third quarter?

What were your launch costs in the third quarter by the way?

We haven't broken out launch cost, but the the third quarter launches were pretty significant.

We also see a bit in the fourth quarter.

I think at the start of the year we said first and third quarters were the heavy launch quarters for us, and second and fourth were about the same.

I would expect that launch costs in the fourth quarter would be less than in the third quarter.

Okay.

And lastly, can you just sort of give us the top couple of countries where you guys do pay taxes?

Where are you the biggest taxpayer?

I don't actually have that list here, Darren.

We are profitable as we mentioned in Asia and in some European countries as well.

So I'll leave it like that.

Okay.

I assume that's Eastern Europe, given you said U.K. and Germany were not the case?

Eastern and actually some Western countries as well.

Okay.

All right.

Thank you.

Your next question comes from Chris Ceraso with CSFB.

Thanks, good morning.

Good morning.

I wanted to dig in a little bit on the flow back.

You've got a bunch of numbers here in terms of how many people have either flowed back or atritted--

Chris, we're having a hard time hearing you.

I don't know if you're close to a speaker phone or --

No, I picked it up.

Okay.

Is that better?

Yeah, it is.

I'm trying to get to the underlying rate of flow backs.

It looks like as of the last quarter call, you said you had 400 year-to-date.

It looks like if I'm doing the math here, you're up to 760.

That implies you got another 360 in the 3rd quarter?

Is that right?

Are you sort of flowing back 300 to 400 a quarter here to Ford?

Actually, the flow back was round numbers 300 in the third quarter, and it was a little more than that in the second quarter.

So year-to-date, you're in the 750 range.

Okay.

And then -- but your comment when you, I guess in early September, that you expect less of a benefit from flow backs, does it rate slow down do you continue at this pace if 2005?

Maybe you could put a little more color around that particular comment about your expectations for employee flow backs to Ford.

Sure.

First of all, don't forget we have the supply and Ford has the demand.

As their production goes down, we get actually hurt a couple of ways.

One is the ability on absorption in our factories and the other is that as production goes down, they don't have the expected number of job openings for our folks to flow back into.

There's kind of a 2-sided hit to us on Ford volumes.

But we're running about through the third quarter, not too far off what we had expected.

We're down slightly, but I would say probably down by like 100.

However, to get that flow back, we wound up incentivizing about 500 people and we had not anticipated that we would have to do that.

When we were talking about this program earlier in the year.

There was cost to us in the third quarter that Jim talked about that were unexpected when we were talking to you a quarter or so ago.

As I look at the fourth quarter, I don't think we'll see the expected rate of flow back that we had made in our assumptions at the beginning of the year.

So I think it's going to depend on, again, on the demand side of this equation.

And what we can do to make sure that every opening at Ford is filled by folks from Visteon, and I think it will go into next year and I think we will see that, you know, Ford in the past has offered incentives to facilitate the flow back.

I guess I would leave it at that.

There is a good benefit to us.

We know that.

We've certainly reduced the Master Agreement, master wage, headcount, beyond attrition to a significant rate, and to that extent, we're accomplishing what we set out to do.

The rate is probably running slower than we expected and it cost us more to get what we did get than what we had forecast.

Okay.

Not though belabor this, to make sure I have the numbers right.

You were expecting additional 1300 people in the second half and it sounds like make you'll fall short of that by a couple of hundred?

Actually, we had expected somewhere in the neighborhood of a thousand or so in the second half of the year.

We'll be short of that.

I wouldn't get more precise than that.

Okay.

On the tax issue, I know it's hard to gauge, but is there some sort of rough estimate that we can use based on the percentage of your business that is profitable and some kind of tax rate that we would apply just to have a base level assumption for either the fourth quarter or for 2005?

Chris, that's a really good question.

It will all come down to, as I said, what is the profitability of each of those jurisdictions.

I don't think it's unreasonable assumption to assume a kind of a normal run rate going forward.

Okay.

And then, Jim, did you just to clarify, you said you expect about a billion in non-Ford business to come on in '05?

Yes.

That's our latest look at that.

Thanks.

Your next question comes from Himanshu Patel of J.P. Morgan.

I have one follow-up question.

On that billion of additional new business, could you give clarity on customers and geography?

What we've been seeing is that heavily, more heavily weighted on the, in the Asian market than -- for future year I would say a little more in Europe as well.

Remember, the launches where we won significant business in North America where Nissan was a major new customer for us, those launches were this year.

So as you look at the new business coming on stream next year, think more Asia and Europe.

Okay.

How much was the incentive accruals reduction year on year that affected SG&A?

I believe that's actually in the foot notes to the financials, and I think it's $35 million.

Okay.

Thank you.

In your next question comes from Michael Bruynesteyn with Prudential.

Good morning, gentlemen.

Good morning

Can you tell me what kind of improvement you're expecting from the new Ford models going into next year in terms of, you know, Ford production?

I'm sorry, Mike, I'm not quite sure I understand the question.

You mentioned you expect a lift, basically, because Ford's got new models coming and their production will be fortified.

Did I hear that correctly?

What I tried to say is that we are looking forward to those new launches.

We're excited about the products.

And looking near term, clearly fourth quarter production announced by Ford is greater than their third quarter production.

Mike, the other piece of that, if you remember in the early years of the spinoffs, the first year after, we were net positive on Ford wins.

Yep.

And so the product that's launching now, we actually, as I mentioned in the my comment earlier this morning, are content on the Freestyle, Montego and 500 is above the $3,000 average that we communicated in the past in terms of average content per vehicle.

When I look across the content we have on those three vehicles, it's extensive.

So to the degree that those models are successful and we certainly believe they will be, we do get an uplift on volume and also content per vehicle on those going into '05.

So you're not talking about a base line assumption for Ford other than that?

This is more like a mixed improvement, really, for you?

Correct.

Okay.

And then the cash balance looks a bit on the low side versus historical standards.

How should we be thinking about liquidity here?

Cash is, we have these seasonal issues where traditionally, we have lower balances throughout the year and traditionally, the fourth quarter is a quarter that is a cash generation quarter, just simply because the factories shut down for the Christmas holidays, so we end up reducing our working capital as just part of that normal process.

Liquidity is something that we look at every day.

As I mentioned in my earlier comments, we are working very hard to improve our working capital management, and we have substantial room under our covenants of our debt agreements currently.

So you expect to improve working capital again this fourth quarter?

Again, that would be the traditional way the business operates, yes.

Right.

Finally, could you comment on the aborted sale of the Chicago facility, the PlasTeck?

Sure, Mike.

That was just a matter of, we couldn't come to terms, as we get into the agreement there were some things that they felt they needed that we felt we were better off not going forward with the transaction.

That was all.

It wasn't confrontational at all.

It was some things as they get into they felt they needed we felt we shouldn't give them and then when we looked at that, we were fine to continue to run it as our V wrap and that's when we're doing.

Thanks, very much.

Your next question comes from John Casesa with Merrill Lynch.

Mike, can you give us a sense of the content per vehicle difference in the Chicago plant products that is between the Taurus Sable and 500 Freestyle?

How many more content do you have in dollar terms?

I really couldn't break that out for you.

I would just say that on average the content on cars would have been slightly under $3,000 a vehicle, content on trucks above, that's how we averaged the 3,000.

I would just stick with my comment that on these vehicles in Chicago, the content is above the 3,000, $3,000 number.

And I don't think, you know, it's right for us to discuss that beyond that.

Could you confirm that you have more content on the new vehicles than the old vehicles?

Yes.

Okay.

Thanks very much.

Okay, John.

We have time for one more question.

Your final question comes from Brett Hoselton with Key Bank Capital Markets.

Good morning, gentlemen.

Good morning, Brett.

Couple of quick ones.

FX impact on revenue, I apologies, in the quarter, could you repeat that?

In the quarter is about $70 million in revenue.

P&L impact is less than ten.

With regard to Chris's question on the tax rate, I know it's a guess on your part, you said roughly a normal run rate going forward.

What is a normal run rate?

Third quarter

What's that?

You meant similar to the third quarter?

Yeah, that 32 million affectively that we highlighted in the difference in total tax expense versus the deferred tax asset write-off.

Excellent.

Then, I apologize if this is in the detailed notes, but the fixed assets write down of 314 million, was there a pretax amount associated with that or is the pretax and after tax the same?

They're the same because of writing off income taxes as of the beginning of the third quarter.

Pretax and after tax exactly the same amount.

Then the other special charges of 22 million, I think yowl said to Darren's question in the footnote that there was pretax amount in the footnote of 35 million or something along those lines?

You're confusing two items again.

The 25 million reduced by three, for reversals of reductions of prior restructured activities is the 22 million.

That is again, a pretax and after tax number.

Again, because we wrote off income taxes for the United States as of the beginning of the third quarter.

The other question dealt with incentive compensation reductions, it's in the foot notes and it totals $35 million.

Excellent.

Thank you very much, gentlemen.

Okay.

That concludes the call for today.

Like to thank you for your participation and remind you that Chris Collins and I will be around to answer your questions.

Thank you.

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

Thank you for your participation.

You may now disconnect at this time.

Good day.