Visteon Corp (VC) 2004 Q4 法說會逐字稿

Welcome to the Visteon Corporation conference call.

All lines have been placed on mute to prevent any 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 the information that will be shared with you today consist 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 differ materially from those expressed in these forward-looking statements, including the automotive vehicle production volumes and schedules for our customers and in particular, Ford's North American vehicle production volumes, the successful completion of our discussions with Ford, and if successful implementing structural changes that result from those discussions, our successful execution of internal performance plans and other cost reduction and productivity efforts, charges resulting from asset impairment reviews, restructuring, employee reductions, acquisitions or dispositions, our ability to offset or recover significant material surcharges, the completion of the review of our prior period financial statements referred to in this presentation and adjustments that may result from such review, the effect of pension and other postemployment benefit obligations, as well as those factors identified in our filings with the SEC, including our Annual Report on the Form 10-K for the year ended December 31, 2003.

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

The presentation material for today's call was posted through the Company's Website this morning.

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

After the speakers' remarks the call will be open for a question and answer period. (OPERATOR INSTRUCTIONS).

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

Mr. Fiebig, you may begin your conference, sir.

Good morning, everyone.

I would 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 Executive Vice President and Chief Financial Officer.

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

With that, I will turn the call over to Mike.

I will start with a short recap of 2004 highlights.

I'm pleased to report our non-Ford revenue for 2004 reached $5.7 billion, up 36 percent compared to 2003.

Our year-over-year growth of 1.5 billion sets a new record.

Most of this new business was in our key growth areas of interiors, climate and electronics which also includes lighting.

Our full year 2004 revenue reached 18.7 billion, up 1 billion over last year despite the North American volume drop at Ford.

Our non-Ford revenue for the year reached 30 percent, up 6 points compared to last year. 2004 had a number of significant launches in all regions.

Our Asian growth continued at a healthy pace fueled by a 30 percent growth and our China business despite the recent economic slowdown in that country.

Our new business awards continued and we're averaging about $1 billion a year over the past 3 years.

These are some of the highlights of 2004 but the year also had many challenges.

One of the most significant challenges was the lower than expected North American Ford volume.

Material surcharges also had a significant impact on our business.

Improvements in operational efficiencies in all areas including material and manufacturing costs and SG&A weren't sufficient to offset the challenge from the nearly 200,000 units of lower volume and the rising material surcharges.

For the full year we posted a loss and we had negative free cash flow which Jim will cover in more detail.

As most of you know in early September 2004, we discussed the need to take aggressive actions to structure our U.S. business so that we could be successful in an uncertain market.

We said and it remains so, our highest priority is the pursuit of strategic and structural changes to our U.S. operations to achieve a sustainable and competitive business.

These changes will involve Ford and our legacy businesses.

We are having ongoing constructive discussions with Ford.

We are seeking a comprehensive agreement to address a number of items.

Our focus has been on reaching the right agreement, not on meeting any arbitrary deadline.

Again there is no higher priority.

This is important to our employees, our customers and to our supply base.

That being said, our hope is that we can get this resolved in the first quarter.

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

In 2004 we reduced North American headcount by 2,500 people.

Our Ford master agreement UAW headcount has been reduced by 2004 or 10.5 percent bringing our total headcount to 17,700.

The reduction was part flow back and about 1,000 workers flowed back to Ford, another 500 workers took a special incentive and the rest of the reduction was due to attrition.

Under the terms of the supplemental agreement we've hired approximately 850 employees.

In other non-UAW facilities we reduced about 850 workers due to manufacturing efficiencies and restructuring.

In addition to those hourly actions, we have also reduced our U.S. salaried headcount in 2004 by 500 and we have taken out another 120 agency and supplemental employees.

Over the past 18 months as we have planned the consolidation of facilities in Southeastern Michigan, we have reduced salary headcount levels by over 1,400 employees.

Last November we announced a voluntary termination incentive program for our U.S. salary employees and about 400 employees volunteered and accepted the package.

They will exit Visteon before March 31st of this year.

We recognize the charge in the fourth quarter of 2004 of $51 million to cover this; nearly all of the charge will be cash and will be paid in the first and second quarters.

As mentioned earlier our non-Ford revenue grew to 5.7 billion in 2004, up from 4.2 billion in '03.

Our non-Ford growth has come in all regions.

Year-over-year non-Ford revenue is up in Asia 19 percent, Europe is up 42 percent and North America is up 45 percent.

Asia revenue does not include unconsolidated sales through our joint ventures which is over $1 billion.

We are well-balanced geographically with our non-Ford business.

Asia accounts for 29 percent of the Company's total, Europe is 32 percent and North America is 39 percent.

Major customers reflected in our 2004 non-Ford growth include Nissan, PSA, Daimler Chrysler, Volkswagen and Hyundai.

Looking at our non-Ford revenue by region, you can tell that the bulk of our business in North America is with Ford.

Our North America non-Ford revenue grew in 2004 to 18 percent, up from 12 percent in '03.

Europe and South America's non-Ford business grew to 42 percent of the region's total, up from 36 percent.

And in Asia Pacific, the percentage of non-Ford business remains constant and even though in absolute terms our non-Ford sales grew in the region because we had higher sales volume.

Over the past 3 years we have been rewarded with significant net new business wins that average about $1 billion per year and we are off to a great start in 2005 as we set a record for sales in January.

Let me share some facts about the January wins. 100 percent of this business is in our key product areas, most notably interiors. 93 percent is non-Ford and 82 percent of the wins are in Asia.

January reflects what we experienced in 2004.

We have had major wins with non-Ford customers while maintaining a strong base of Ford business.

Overall in the past 3 years, 90 percent of our non-Ford, new business wins have been in our key product areas of interiors, climate, electronics, and again, which includes lighting.

There is a direct correlation between our strong new business win rate and delivering innovative quality products.

In 2004 we received many customer industry awards for quality and innovation.

This includes customer quality awards for product excellence from Toyota, Honda and Fiat, to name a few.

We earned the highly coveted Automotive News PACE Award for our patented long life filtration system, and we received the J.D.

Power Highest Quality Award for outstanding customer satisfaction for our AM/FM single CD radio, an award we have won 3 out of the last 4 years.

Since 2001 we have tracked the J.D.

Power results related to our products and we have seen more than a 20 percent improvement in our scores.

2004 had a number of significant launches in all regions.

In North America we had significant content on the Ford 500, the Mustang and the Freestyle.

The Nissan, we're a major part of the Titan, Armada and Frontier.

In Europe, we are a major supplier for the Ford Focus, the Reneau Modiss and the Peugeot 407.

Our continued success with Hyundai in Asia has transferred over to their launches in both Europe and North America.

Some of the innovative products we have recently introduced include our Dockable DVD which we brought to market in less than 12 months, and the first Halogen Advanced Front Lighting System.

Our ability to offer unique cockpit solutions including the integration of electronics and climate control resulted in substantial growth in interiors business in 2004.

Another area of growth in our industry is supporting hybrid vehicles.

Visteon currently supplies significant content to the new 2005 Ford Hybrid Escape, as highlighted.

As a result of cooperation with a major European OE, Visteon developed a hybrid drive system which includes an electric motor, motor controls and an inverter, that we are now offering to other major automotive makers.

Visteon markets a 12 volt mile hybrid stop/start system, known as SpeedStart 12, which improves fuel economy and reduces emissions.

We have an extensive development experience in higher voltage hybrid systems including electronic hybrid controls, motors, inverters and power management systems.

This experience enables us to develop ancillary systems throughout the vehicles such as battery, cooler and climate control systems and electric steering.

Visteon technologies are being efficiently developed through the dual path of internal combustion engines and electrically assisted systems, such as hybrids.

We continue to grow profits in the Asian region.

As we sum up, on an operating basis may have reversed Europe from a loss in '03 to being profitable in '04 and well-positioned for continued improvement in '05.

For North America, in addition to our strategic and structural discussions with Ford, we will be taking actions to focus our capital and engineering resources on growth areas only and will work to minimize the impact of material surcharges.

We expect the continuation of our customer and geographic diversification as we have booked business that by 2007 will increase our non-Ford share from 30 percent to 36 percent, and at the same time will reduce our overall reliance on the North American region.

We have defined our key product areas and are fueling our global growth.

We made progress in many areas in '04 but clearly we have an urgency to address the challenges going forward.

Now to review the financial results, I will turn the call over to Jim Palmer.

Good morning, ladies and gentlemen.

In my portion of today's presentation I will walk through a few slides that detail the change in inventory accounting for the U.S. operations, as well as the corrections identified during our year-end financial closing process which resulted in a restatement of our previously issued financial results.

I will then review some slides on fourth quarter and full year 2004 financial results and make a few comments on the trends we see in the first quarter of 2005.

Finally I will turn the back over to Mike who will provide a review of our 2005 priorities.

But before we discuss the financial results for 2004, let me explain the accounting adjustments for which we have revised previously reported financial statements.

During the fourth-quarter of 2004 Visteon changed its method of determining the cost of production inventories for U.S. locations from LIFO to FIFO.

We believe the financials based on FIFO provide more meaningful information to investors as FIFO better reflects current commodity economics and it reports all of our inventories on a consistent accounting basis worldwide.

The accounting literature goes all the way back to APB 20, states that a change from the LIFO method of inventory costing to any other method is considered a change in accounting principle that should be applied by retroactively restating all prior periods, and so we have done so.

Also during the year-end financial closing process we identified several accounting corrections related to retiree benefits and income tax for which, based on the significance of the adjustments, we have restated financial statements for 2002, 2003 and the first 3 quarters of 2004.

The first accounting correction was for an adjustment of retiree health care benefits for certain U.S. employees.

Visteon has made this adjustment because changes in the benefits eligibility requirements made in 2002 and early 2004 were not properly communicated to participating employees.

The second adjustment was to recognize additional pension expense required under U.S.

GAAP for separated employees under the Visteon European plan for growth.

And finally, we also adjusted our previously issued financial statements for changes to the provision for income taxes related to intraperiod effect of foreign currency movements and the recognition of an additional valuation allowance for deferred tax assets previously not included in our deferred tax assessment during 2003.

The next slide quantifies the impact of these adjustments on prior periods and the periods affected.

As you see, this slide summarizes the adjustments by type with the pretax LIFO to FIFO inventory valuation change listed first, and then the employee benefits correction listed second, followed by the tax impact for those 2 items.

Finally the last item is the restatement of the provision for income taxes related to the intraperiod effect of foreign currency movements and for the additional valuation allowance for deferred tax assets.

I should point out that none of these items have a current cash effect.

I also want to take a moment to reiterate that the financial information presented includes all the adjustments that we are currently aware of.

We are hopeful that the review of these matters will be completed shortly allowing for a timely filing of our 2004 Form 10-K.

In compliance with Sarbanes-Oxley Section 404, Visteon management, under the supervision of its audit committee, has concluded that the control deficiencies that led to the noninventory changes constitute a material weakness in internal controls over financial reporting as of December 31, 2004.

As you know, this year Visteon's independent registered public accounting firm, PricewaterhouseCoopers, is required to assess and opine on the effectiveness of the Company's internal controls over financial reporting.

Based on our conclusion as to the effectiveness of internal controls over the financial reporting, we would expect that PWC would issue an adverse opinion on those internal controls.

Now let's proceed to the review of the financial results.

Turning to the fourth-quarter and full year 2004 results, as Mike has mentioned, revenue totaled 18.7 billion for the year, an increase of $1 billion or 6 percent as compared to 2003.

This increase is in spite of lower Ford revenue which is down 460 million, or about 3 percent.

The decrease in full year 2004 Ford revenues is more than explained by the reduction in North American production volume of 192,000 units.

The exit of our seating business also reduced Ford revenue by approximately 250 million as compared with 2003, as did 2004 price reductions which were greater than the lump sum settlement to Ford of 150 million in 2003.

Favorable currency, principally the strengthening of the euro versus the dollar, added 258 million to revenue as did higher Ford European production volume.

Non-Ford revenue was 5.7 billion in 2004, up 1.5 billion or 36 percent over 2003.

Non-Ford revenue now accounts for 30 percent of total revenue, up again from 24 percent in 2003.

The increase in full year non-Ford revenue reflects the impact of new business as well as favorable currency of about $235 million.

Significant growth occurred with Nissan, GM, Daimler Chrysler, Peugeot and VW.

On the next slide I will discuss 2004 special charges. 2004 results include a number of special charges many of which were discussed during the third quarter earnings call.

These charges, which total almost $1.3 billion, relate primarily to the increase in the deferred tax asset valuation allowance and a fixed asset write-down or impairment related to steering systems.

Both of these were non-cash charges.

In the fourth quarter, we recorded a special charge of $51 million related to a voluntary salary termination program announced in late 2004.

As Mike said, we expect that most of the cash payments for this charge will be incurred through the first half of 2005.

Offsetting, or partially offsetting this charge, was revisions to a prior period special charge related to the exit of our seating business.

Let's go to the next slide that reviews fourth-quarter results.

Our pretax loss for the fourth-quarter totaled 123 million including the net restructuring charge of 41 million, principally related to the voluntary termination program discussed on the prior slide.

These results compare with a pretax loss of 619 million in the fourth-quarter of 2003 which also included $455 million of pretax special charges. 2003 was also impacted by last year's Ford agreement.

While we did not break this out as a special charge, the fourth quarter of 2003 was affected by the finalization of the lump sum price reduction to Ford which totaled 150 million, of which about 100 million was recorded in the fourth quarter of 2003 and was partially offset by the IT cost sharing reimbursement we received from Ford of $50 million.

Obviously neither one of these items reoccurred in the fourth quarter of 2004.

Our fourth-quarter 2004 results were also impacted by other operating factors including increased non-Ford business, material surcharges of about $63 million reflecting the continued commodity inflation pressures that we have been experiencing, lower OPEB expenses of about $50 million which we have seen in every quarter of 2004, lower SG&A spending particularly after taking into consideration the onetime IT cost sharing benefit that we received in the fourth-quarter of 2003, and then finally material and manufacturing efficiencies that were realized were more than offset by volume decreases and customer pricing.

The next slide takes a look at our after-tax results.

For the fourth-quarter of 2004 we had a net loss of 115 million which compares with a net loss of 829 million for the fourth-quarter of 2003. 2004 after-tax special charges were significantly less than those in 2003.

Some of you may be surprised at the tax benefit in the fourth quarter of 2004, so let me take a few minutes to explain that situation.

As we explained in last quarter's call, we are no longer able to record a tax benefit for losses generated in jurisdictions for which we have recorded a deferred tax asset valuation allowance.

We also indicated that we would continue to record, if you will, normal tax expense for profits in the unaffected profitable jurisdictions.

In the fourth-quarter we did have a tax benefit of $15 million on our quarterly pretax loss.

This was comprised of $23 million of what we would characterize as normal tax expense related primarily to profits in the jurisdictions unaffected by the deferred tax asset valuation allowance.

Offsetting this was a $38 million benefit related to the weakening of the U.S. dollar versus key foreign currencies.

As the Company expects to repatriate all of the earnings of its foreign subsidiaries, we are required to recognize the expected U.S. tax impact for foreign currency changes.

This deferred tax liability results in a reduction of our net deferred tax asset and therefore a corresponding reduction in the valuation allowance in the fourth quarter.

Our tax expense will continue to be volatile in 2005 and will be driven primarily by the profits of the countries unaffected by the deferred tax asset valuation allowance that is also affected by foreign currency movements.

Given this volatility and tax expense, we would suggest that investors focus on pretax as well as after-tax results.

On the next slide, we will look at our pretax results for the full year of 2004.

For 2004 our pretax loss totaled 489 million including restructuring charges of 396 million.

These results compare with a pretax loss of $1.176 billion in 2003 which included 754 million of pretax special charges, primarily for asset impairment and the exit of the seating business.

Higher non-Ford sales, lower special charges and operational improvements, including reduced SG&A cost and OPEB cost, were offset by lower Ford North American production volumes, pricing to customers and material surcharges.

Essentially these are the same reasons for the year-over-year changes as discussed for the fourth-quarter.

The next slide summarizes full year 2004 loss.

For 2004 we have a net loss of 1.5 billion, which is 299 million worse than in 2003 and is more than explained by the 352 million increase in special charges in 2004.

Both 2004 and 2003 included substantial non-cash special charges related to the increase in the deferred tax asset valuation allowance and the write-down of fixed assets on compared productline.

The year-over-year increase for these two items is $498 million which is offset partially by the decrease of 146 million in other special charges principally related to the exit of the seating operations in 2003.

The tax expense in 2004 of 965 million primarily results from the special charge to increase the deferred tax asset valuation allowance, and secondly, for normal income taxes in those jurisdictions where we are profitable.

On the next slide we look at EBITDA.

We have included a slide on EBITDA because we know that it is a useful, albeit non-GAAP financial measure, that many of you calculate.

For reference, we have also included a look at quarterly data for 2003 and 2004 in the supplemental financial information section of the presentation.

EBITDA for 2004 was 254 million, including 396 million of pretax special charges which represents a $708 million improvement from 2003, including 358 million improvement in special charges.

As you are likely aware, our credit facilities have a net debt to EBITDA covenant of 3.5 to 1, and we were well within the terms of this covenant at year-end.

On the next slide we look at cash flow.

Cash flow from operating activities was 427 million for 2004 which is an improvements of 57 million from 2003.

Net loss after adjusting for non-cash deferred income taxes improved by almost 700 million when compared to the results of 2003, including a $358 million reduction in pretax special charges.

Trade working capital flows were an outflow or usage of 81 million in 2004, primarily reflecting the significant growth in the fourth-quarter non-Ford volumes as compared with the fourth-quarter of 2003.

Trade working capital in 2003 did reflect a significant improvement in payable terms and inventory turnovers which largely continued into 2004.

Capital spending during 2004 was $836 million, excluding capital leases, down $43 million year-over-year despite a $48 million increase in facility consolidation.

Finally our free cash flow for 2004 was a use of 409 million, an improvement of $100 million year-over-year.

Total cash and marketable securities at the end of the year were $752 million.

The negative free cash flow of 409 million was partially funded by net debt issuance of about $200 million during the year.

Although we are not providing specific items for 2005, I will comment on some of the trends we see in the first quarter of 2005 on the next slide.

Non-Ford sales are expected to increase from the fourth quarter levels and will be substantially higher than what they were in the first quarter of last year.

Ford's announced North American production level of 920 units -- 920,000 units for the first quarter of 2005 will be higher than what we had in the fourth-quarter of 2004 but lower than the first quarter of 2004.

It will be higher than the fourth-quarter of 2004 but lower than the first quarter of 2004 which was slightly over a million units.

We do continue to say escalating raw material cost increases or surcharges.

They are expected to be significantly higher than what they were in the early part of last year and higher than what they were in the fourth-quarter this year, primarily due to the impact of resins which had a nominal impact in 2004.

We will benefit from lower master agreement UAW headcount and staffing efficiencies on the salary side.

Pension and OPEB costs are expected to be higher in 2005 than they were a year ago.

And finally, we will incur the annual price downs for our customers and expect the normal seasonal trade and working capital flows to occur again this year.

With that, I will turn things back over to Mike who will highlight our priorities for 2005.

Thanks, Jim.

Looking at 2005, we have a few priorities I want to share with you.

First, we need to reach a satisfactory and timely conclusion of our discussions with Ford.

As soon as we have something to announce we intend to give you a clear picture of what it will mean for us going forward.

We need to improve our operating results, particularly in the United States.

We need to lower our total capital expenditures.

And we will take the actions to focus our capital and engineering resources to our growth products only.

We need to successfully launch all new business coming online and continue to win profitable new business in key products.

Finally, we need to improve cash flow and enhance our liquidity.

That concludes our formal remarks and we would be happy to take your questions at this time.

(OPERATOR INSTRUCTIONS).

Steve Girsky with Morgan Stanley.

I'm just trying, in this uncertain environment, I'm just trying to figure out, you said your backlog grew in January.

How does that conversation go with the customers?

We have this uncertainty.

The customers must ask you what you think you're going to look like before they grant you new business, no?

Sure, we are a global supplier and there's X number of customers around the world, so we make sure that we keep them informed of our strategic direction, where we are investing money, what products we see are key to us.

Then it becomes self-fulfulling in the sense that they give us purchase orders on the products where we have a good global competitive position.

So this uncertainty with Ford, you're not seeing -- there is no reluctance on our customer part to give you business during this period?

No, we had a full strong fourth-quarter at the end of '04, and frankly, the start of '05 was exceptionally high and as I mentioned it was 100 percent in what we consider to be key products and about 92 percent of it was non-Ford, so we are seeing good results.

We are seeing a good flow of new orders coming in and we are winning the business around the world and in products that we see as key for our future.

Are you profitable in those key products?

Sure.

As we have talked in the past, when we put in the disciplines on our quoting process over a few years ago, that we are comfortable with the business that we are winning in the key products, is desirable business and will help improve the overall results of the Corporation.

When I looked at your '03 10-K interiors, electronics and climate represented somewhere between 9 and $10 billion.

Those are your key product as you define them, right?

That is correct.

The one wrinkle to that, Steve, is that we include lighting in electronics because of the electronic content in the corners of the vehicles now.

So lighting -- so that means this number would be higher?

Is lighting a core business, or no?

We consider lighting to be a subset of electronics which is a core business.

And the impact on currency on the profit?

For the fourth-quarter, very small, about -- less than $5 million.

For the year, it is about 35, $36 million.

Favorable.

Favorable, sure.

What is the update on the pension liability or the OPEB liability?

I didn't see that in here.

I'm not sure I --.

What was the liability at the end of the year?

We haven't finished the financial footnotes, so you don't have it in there.

Steve, I don't have any information with me right here.

Thanks a lot.

Let me just add, it should be a little bit greater I believe, and this is believe, since the discount rates are a little bit lower.

All right, thank you.

Ronald Tadross with Bank of America Securities.

I apologize -- on that currency number, it was 5 million, you said, in the quarter?

I said less than 5.

So just a quick question here.

If you guys cut through a lot of the noise and just look for the year at your cost reductions, both material and fixed versus your price reductions including Ford and non-Ford, how are you doing there?

Are you able to offset the price pressure?

Let me take a shot at it, Ron.

First of all, excluding unusual material surcharges, the answer to that was, yes.

We had good progress in manufacturing costdowns, as well as on our supply base in SG&A.

We were able to bring cost down but as the year went on in '04 the escalation of the material surcharges put us in a position where we weren't able to recover 100 percent of that.

Does that include -- I know it excludes the surcharges, does it include the restructuring charges, when you talk about it?

No.

No.

How much were the -- on the material surcharges, if you're talking about numbers, were these on the order of magnitude of maybe $40 million or something in the fourth quarter?

Could it have been that much?

It was more than that, Ron.

I said 63.

I'm sorry;

I didn't hear that.

Sorry about that.

What do you think about '05?

Do you expect some relief?

We expect to see continued cost pressure in '05, so we expect to see some growth.

So you can take that 63, annualize it, and you even expect more than that?

Yes.

Okay.

Finally just on pension and health care, for the quarter do you have expense number for that?

In the past you have given us, whether or not it helps or hurts, I assume it hurt a little bit.

Is it in the range of where it's been, 20, 30 million a quarter?

If you're talking about the OPEB relief from Ford last year, that amount is continuing through the quarter.

That was roughly, that relief was about a $50 million benefit quarter-over-quarter.

Total OPEB expense for the quarter, is about $47 million.

So the relief, is that number net of inflation (indiscernible) in the expense too?

Is that a net number, that 50 million?

That is a net number, yes, if I understand your question correctly.

Sorry, I meant help (ph).

Thank you.

Darren Kimball with Lehman Brothers.

The 63 billion if a net number right, net of recoveries.

Yes.

Can you comment on that, where there are significant recoveries experienced in the quarter?

There are recoveries in the quarter.

It depends, frankly, on the individual customer and our ability to negotiate.

I would rather not comment on individual customers and recoveries.

Okay.

So maybe in terms of the increases that you are seeing, can you give any indication of how much of it is an inflation problem rather than a recovery problem in terms of recoveries being less than you might have hoped for?

It all starts with the inflation problem and then it becomes a matter of negotiation with individual customers.

The key is, it begins with that inflation issue.

As you know too, as you enter these negotiations, you may get concessions in other dimensions of the relationship.

Even though you're in there negotiating one item, you may end up negotiating some concessions in other areas.

It is pretty hard to tie everything to this one topic.

Negotiations are pretty complex on a global basis.

In particular, Ford, is it the raw material issue tied in with all your other ongoing discussions or is that being handled how you normally handle it with a customer?

We won't comment, frankly, on any of the items or any types of parts of the discussions we are having with Ford.

Let me just ask one more question on the raw materials.

You mentioned that incrementally resin is creating a problem.

The focus has been on steel.

Can you give us some sense of the size of your buy in that department?

It is approaching $400 million.

Is there a direct versus indirect break down as we have been talking about steel?

I believe on resins, our exposure is much more direct than indirect.

That is helpful.

Thank you.

Chris Ceraso with CSFB.

Jim, can you explain on the currency related tax effect that you felt in the quarter.

Was that -- I know you said that is something that you will experience on an ongoing nature as you look to bring income from other regions into the U.S., but was there some catch-up effect that made it bigger than normal in the fourth quarter?

Or should we expect this sort of magnitude to flow through the tax line going forward?

Two questions, so two responses.

There was not a catch-up impact in the fourth-quarter.

If you actually look at what happened with exchange rates in the fourth quarter, there was a significant move, particularly in the euro versus the dollar in the quarter, which caused the large fluctuation.

Going forward, I wish I had or wish I was able to really project what is going to happen to currency rates.

I don't think I have that capability.

We could have these kind of impacts on a go-forward basis, depending upon what happens with currency rates.

And when you said to the earlier question, that the net benefit of currency was less than 5 million for the quarter, that I assume excludes the benefit you realized from taxes?

Correct, that was the operating benefit.

Back to the materials question, just to dig into this a little bit deeper.

Some of the other supplier companies that we have been talking with this quarter, have mentioned that the discussions with your suppliers and your customers seem to be still ongoing.

There is a lot more influx than would normally be the case at this time of year which lends a little bit more uncertainty to the whole material price issue.

Is that accurate for your situation, as well?

I think all of us in the industry are grappling with this serious issue, and so, yes, I don't think anyone is happy with where they are and everyone is trying to address the cost of supply.

Last way, on the issue that Steve touched on earlier about how is your relationship affecting your business wins.

What about your business wins with Ford, and specifically in the areas that you're not designating as core?

Are you starting to see Ford source away from you in those product areas?

I would say we are not seeing any change in the sourcing patterns from Ford.

So, no.

I mean whatever patterns we have seen in the past, we continue to see.

We track net business wins with Ford.

We quote competitive prices out in the future.

If you remember there was an agreement in the prior year about relief on labor costs when you get out into 2007.

That allowed us to quote more competitive price in that time window which is a product that we're quoting today.

All of that normal relations with Ford continue, and we try to quote competitive prices knowing we get labor relief at the time we ship the product.

Thank you.

Rod Lache with Deutsche Bank.

I don't know if you would be willing to do this or not, and I know that this may be a little bit unfair because there are a lot of things up in the air vis-a-vis Ford, but if that was announced, if there was not this structural change that you are looking to do, could you give us some comments on what the '05 earnings or cash flow trajectory would look like?

Let me answer it this way, we say we can't -- we are not in a position to give the guidance because of the position we are in and discussions that we can't talk about.

But it is our intention when we conclude discussions with Ford and going forward, to give you good insight and guidance into the future and give you the trends and give you a better view possibly than you have had of Visteon going forward.

We feel it is important that we conclude this discussion, reach agreement and then at that point what we talk about will have a lot more clarity and I think will make a lot more sense to the outside world.

So you won't really comment on this kind of sonsin (ph) agreement sort of basis?

Correct.

Also I just wanted to clarify.

I think you suggested that we should be annualizing the raw material cost hit.

Are you really suggesting that there is a $250 million headwind that you’re facing in 2005, or are you going to be annualizing against?

I would think that the comparison by the fourth quarter of this year versus the fourth order of '04 would be a bit easier.

What I said, Rod, is the cost increases continue to escalate, that the level of cost increases that last year's first part of the year, had very little cost increase.

So the comparison quarter-to-quarter or year-over-year rather, is going to be greater and that we expect to see greater increases than what we had in the fourth quarter of this year.

That clarifies it a bit.

Can you give us what the headcount was at the end of the year under the master agreement, in total headcount, and how that compared?

In round numbers it is 17,700.

I think it is 17,707 to be exact.

And last year was a little over 18, am I right?

Over 19.

19,773, so we are down over 2,000 heads.

In total?

On UAW master agreement, yes.

Right.

Do you have a total North American headcount as well, because you had that fairly substantial salary reduction too, right?

I think I've got some information here.

Hold on just a second.

North America or U.S., the fourth-quarter, including agency people and salaried and all of that, we were at 31,600 compared to 33,500 at the beginning of the year.

Last question, if you can, there has been a lot of editorial comment on the $600 million reserve adjustment that Ford took on the receivable.

Could you just give us what your take is on that?

This is obviously separate from the discussions, but is there any implication or should we be thinking about any implication of that?

I think you should probably ask the people at Ford.

Okay, thanks.

(OPERATOR INSTRUCTIONS).

Brett Hoselton with KeyBanc Capital Markets.

A few questions here.

I apologize, I didn't hear anything as far as an FX impact for overall sales.

Maybe it was in the press release and I just overlooked it.

Overall sales, it is about 490 million.

I've got something right here.

Overall sales was $492 million impact -- FX impact on sales for the year.

And for the quarter?

For the quarter, a total of 59 or 60 million.

Growth in Asia surprisingly good, given the slowdown in light vehicle sales.

What is the reason behind that?

I think in our business in Asia, we have picked up significant business with General Motors in Asia.

We also have a number of joint ventures there.

We are a large supplier to Volkswagen.

They are losing share, but GM is gaining.

We have a very good footprint around the Asian region with businesses in Thailand and India and China, also a very large business with Hyundai based out of Korea but also supporting their growth in Mainland China, as well.

We have a great customer footprint.

I think in the charts we showed that the non-Ford business in Asia was 90 plus was percent of the total, and again, I think we have a great spread of customers in Asia and that is a real strong story for us.

As far as profitability in Europe, you have gone from losing money to making money in '04.

Would you expect an incremental improvement in '05 or would it be more likely that it would be flat given higher raw material costs, etc.?

Actually we are projecting continued improvement on that.

We have never broken those numbers out, and what we're trying to do is give you just a little vision into trends without giving you the numbers.

So we've get a good turnaround, '03 to '04, and it's not a plateau.

The European plan for growth is really taking over and we have won some good business in Europe as well, and so we would expect to see continued profit improvement in Europe in '05.

Finally, you had mentioned you would like to finish the agreement with Ford hopefully by the end of the first quarter.

Can you just give us the confidence level?

Probably not.

That is our goal.

I think the point is that we want to reach a very good agreement with Ford to benefit all the parties that are involved.

It is very complex, and I will tell you we are focused all on getting the right agreement as opposed to hitting a specific artificial due date.

I think all parties realize that sooner is better.

We need to communicate to our own employees.

We have issues there that we need to address to make sure that they see a good vision for themselves and our suppliers and also the non-Ford customers.

There is a lot of momentum I would say to reach an agreement sooner than later.

And so we would hope it would be in the first quarter for a number of different reasons.

Thank you very much, gentlemen.

Brian Vinsor (ph) with Merrill Lynch.

A couple of questions, I guess, just really on the liquidity side.

Can you just review with the us where you are in terms of liquidity sources with your AR securitization facility?

How large -- I think it is about 100 million.

How much is outstanding?

And go through the bank lines in terms of overall size and availability right now?

The bank lines total about $1.3 billion, made up of 565 million, that's a 364 day facility that is renewed or comes up for renewal in either late May or early June.

The balance is a 5 year deal that matures in 2007, as I recall.

At year-end there is nothing drawn under either one of those facilities.

The receivable securitization program I believe is a $100 million facility.

I don't remember how much is drawn on it at year end.

In terms of other sources of liquidity, we are looking at whether there are possibilities to expand that receivable securitization program.

It is one of the items that we are currently working on right now.

Does that answer your question?

Yes.

I guess that leads into the last question which would be, just in terms of funding plans for 2005, I know you have a bond coming due in August.

There is about half of the face amount still left out there, as I recall.

For another breakeven or even negative cash flow year for 2005, I guess what are your expectations in terms of capital markets access?

As you are alluding to, liquidity, and as Mike mentioned in our summary about 2005 priorities, improved cash flow and enhancement to liquidities is one of those priorities that we have for 2005.

To do that we are looking at a number of different things.

First of all, I think we can make significant improvements in our working capital management.

We have made some improvements but I still, just intuitively, I feel there are opportunities there particularly on receivables, reducing the days outstanding on receivables.

Customer payment terms is one of the things I have asked people to look at.

Mike commented on capital spending reduction.

I mentioned the nontraditional sources of liquidity such as expansion of the receivable securitization program.

So those are all the kind of things that we are working on the liquidity side.

On the EBITDA or the earnings side, clearly we need improvement there as well.

We have commented on cost reductions that we have been implementing for G&A and other areas such as engineering, clearly aggressively managing the material surcharges, negotiating both with suppliers and customers is very important, and ultimately the strategic and structural changes that we have been talking about with our relationship is part of that EBITDA improvement, as well.

In a nutshell, it is work the liquidity and work the EBITDA side which will help on both liquidity as well as EBITDA improvement.

The guess the bond markets have been a little bit volatile for you guys.

Do you have any thoughts right now in terms of how you are going to handle maturity in August?

We are looking at a number of alternatives.

Have had conversation with some folks, but at this point we have weighed going to the markets but I think it's getting the resolution on the Ford agreement is of utmost importance, and that would facilitate anything that we would want to do in the capital markets.

Thank you.

Stuart Hosanski (ph) with Vanguard.

A couple of questions.

In your bank line what are the provisions regarding late financial filings?

If you have issues with your filing due to the accounting issues, how does that impact your bank lines?

I am not real sure, Stuart, but I believe we have a 120 day window after the period end to get financials filed, but I honestly haven't looked at that yet.

Just to make clear on that, my understanding, your expectations is that PWC will issue an opinion that is not a clean opinion, is that correct?

What I said is we would expect PWC to issue a nonclean or adverse opinion on internal controls.

That does not mean that they will not have a clean opinion on the financial statements.

Okay.

On a different subject, looking at the non-Ford business that you have in North America, it is still relatively small as a percent of the total.

Could you talk to us about the progress in achieving non-Ford business and what kind of expectations you might have in the next year or two.

Actually the non-Ford business in North America had pretty good growth year-over-year.

And we are in a period now where business that we won a few years ago is in production.

So you have launches of different vehicles that are in production today, supporting orders that were won 2 and 3 years ago.

Nissan, in particular, is a large customer for us in North America.

Also we have had pretty good wins in certain parts of General Motors and as Hyundai comes online here in the States, I mentioned they are a very large customer of us in Asia, and we have follow-on orders here in the States to support their production here.

We have also been winning, lately, some good business at Chrysler.

There is opportunity for us to grow the business in North America outside of the Ford account, and actually I think we are making pretty good progress here.

So you're up about 18 percent from 2004 non-Ford business.

Where do you see that going in the next couple of years?

It depends on our launch performance, frankly.

That is true across the industry.

I can tell you that our launch performance in '04 from all the quality metrics that our customers have, was significantly better than it was in '03, and I mean orders of magnitude.

So like 85 percent better in one category, 53 percent better in another category.

We are proving to the non-Ford customers that we can launch products here in the States as well as around the world.

That then sets up your opportunity to win additional new business.

I think we are well positioned to do that and we have targets by customer, by product.

I will only say that most of the business we win is in these key or core products.

Thank you.

That concludes our call.

Chris Collins and I will be around all day to answer your questions.

Thank you for participating.

Goodbye.

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

Again thank you for your participation.

You may now disconnect at this time and have a great day.