Visteon Corp (VC) 2005 Q1 法說會逐字稿

Good morning, and 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'd like to remind you that the information that will be shared with you today consists of forward-looking statements, within the meaning of the Private Securities Litigation and Reform Act of 1995.

The forward-looking statements are not guarantees of future results and conditions, but rather are subjects to various factors, risks and uncertainties that could cause our actual results to the differ materially from those expressed in these forward-looking statements, including; the automotive vehicle production volumes and schedules of 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 resulting from these discussions; our ability to satisfy our future capital and liquidity requirements; our successful execution of internal performance plans and other cost reduction and productivity efforts; charges resulting from asset impairment reviews, employee reductions, restructurings, acquisitions or dispositions; our ability to offset or recover significant material surcharges; the affect 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 ending December 31st, 2004.

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

The presentation material for today's call was posted on the Company's website this morning.

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

After the speaker's remarks, there will be a question-and-and-answer period. [OPERATOR INSTRUCTIONS] We'll introduce your host for today's call, Mr. Derek Fiebig, Assistant Treasurer for Visteon Corporation.

Mr. Fiebig, you may begin.

Thanks, Marvin and good morning, everyone.

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

We'll be using some non-GAAP information in the presentation today, and have provided the appropriate reconciliations in the slide deck as well.

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

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

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

Thanks, Derek.

The first quarter revenue was $5 billion, essentially flat year-over-year.

Non-Ford sales reached $1.7 billion, an increase of nearly $400 million, or 30% over the first quarter of 2004.

Non-Ford revenue for the quarter represented 35% of total revenue, a 7 percentage point increase from the first quarter of '04.

The first quarter new business wins continue at a healthy pace with our non-Ford customers.

The wins are in our growth products of interiors climate and electronics and are principally outside of the North American region.

When these wins launch in the future, this will further help our customer and geographic diversification efforts.

We had cash flow from operations of $178 million, a $75 million increase from the same period in '04.

In pre-cash flow was $51 million for the quarter, a $144 million improvement over the first quarter of 2004.

In March, we signed a financial agreement with Ford to support the U.S. operations that directly serve the automaker.

And Jim will take you through that in more detail later.

We were notified of two significant customer honors.

General Motors named Visteon a 2004 Supplier of the Year for our climate products, and we were honored by Toyota with a 2004 Quality Achievement Award for an electronics product.

Those are some of the first quarter highlights, but quarter also had many challenges.

Our first quarter results were adversely impacted by lower Ford production volume, material surcharges, price reductions, and increased post-retirement benefit costs.

These items were partially offset by our non-Ford sales growth, cost efficiencies and lower UAW labor costs.

We see these challenges continuing, along with our efforts to drive unnecessary costs out of our system.

We're also working on shaping the organization that we'll need to take Visteon through current challenges and into the future.

The executive team that will work with me is changing, as you know, from recent announcements.

We're well underway in our candidate searches for the positions we have open.

Our discussions with Ford regarding strategic and structural changes to the business in the U.S. are ongoing.

The complexity of the discussions is reflected in the time it is taking to ensure we develop a comprehensive solution that's mutually agreeable.

We're continuing our work on the concept we've identified, and that would ensure the long-term competitiveness of Visteon in a continued supply components to Ford.

Unfortunately, the rating agencies felt they couldn't wait until a conclusion of those discussions to take actions, and we've received credit-rating downgrades.

We believe the conclusion of the Ford discussions will provide an opportunity for those ratings to be reviewed.

As discussions with Ford continue, we have kept the organization focused on delivering on our customer commitments, providing flawless launch performance, bringing new innovations to commercialization, and growing our business with strategic customers.

It was a great honor for Visteon to be in the elite group of suppliers who are named as a General Motors Supplier of the Year.

This award is determined on performance and quality, service, technology and price.

Providing excellent service to GM in all areas and expanding our business has been a well-stated goal.

Our supplier honors we receive focusing on our climate expertise.

Our most recent GM climate product programs include heating, ventilation and air conditioning modules for the Chevrolet Silverado, Hummer H2, and GMC Sierra.

The Chevrolet Equinox and Saturn Vue, have both Visteon's HVAC and Powertrain Cooling Modules.

Among our other contributions to this customer, include the LED front lighting for the Cadillac STS SAE 100, which is GM's technology integration vehicle, that was unveiled at SAE just a couple of weeks ago.

This vehicle was developed as a moving engineering laboratory to demonstrate the integration of innovative technology.

From a production standpoint, Visteon and GM have seen success with the 2005 Chevrolet Corvette.

In this vehicle, use unique High-Intensity Discharge Projector Headlamps and were part of a full-front and rear lighting system that supported the all new look of the Corvette.

And our lighting capability has also helped to support the overall design philosophy behind the Hummer.

In the first quarter, we successfully launched key products for our customers around the world.

Let me give you a few examples.

In the electronics area, we're producing for an Asian automaker, a single satellite radio receiver design, that can be either XM or Cirrus.

This is a first-to-market development from Visteon.

In Climate, we launched on the Chrysler Decoder, our A/C Accumulator and FluidLines, one of the first climate products for Chrysler group.

On a related note, this year, we received an Automotive News Pace Award, Honorable Mention for Innovation, for the our A/C Liner Accumulator, as it is equipped with special features that eliminates the noise that typically comes from the A/C subsystems.

In Interiors, we launched for an Asian transplant, driver information clusters that by quality standards, was a highly successful launch.

Later this year, we'll support Hyundai's launch of the Sonata and Santa Fe in Alabama.

We'll provide the Sonata and Santa Fe with Visteon's front-end module, climate components, as well as audio components for Sonata.

In three of the last four years, Visteon's AM/FM single CD player has received top honors from J.D. Powers.

On our last call, I provided a brief overview of our product offering on the hybrid vehicles.

I'm pleased to report we've been awarded our first contract from a European automaker for the innovative SpeedStart 12, one of the products in electronics.

This is an Integrated Starter Generator System that delivers a wide range of benefits for automotive manufacturer, the driver and the environment.

This was a first-to-market solution we developed after the European automakers agreed to reduce the CO2 emissions by 25% before 2008.

With SpeedStart 12, when a vehicle is stationary the engine is turned off.

When the engine needs to be turned on, SpeedStart 12 seamlessly restarts the engine within 400 milliseconds, virtually undetected by the driver.

This innovation improves power generation, it's 20% more efficient, it improves fuel economy, reduces CO2 emissions, and reduces complexity.

In addition, it reduces consumer costs by reducing fuel consumption, and they also allow a vehicle to qualify in Europe as a Mild Hybrid for future environmental tax initiatives.

Another example of our success with growing business outside of Ford is our relationship with Daimler Chrysler.

For this customer, our audio solutions have been met with market success.

Visteon is bringing the Boston Acoustic Sound into the driving experience with much success at Chrysler.

We started with the Chrysler 300, and our business has steadily grown to the Dodge Magnum and the Jeep Grand Cherokee.

In 2005, we'll bring the Boston Acoustics Audio to the Durango followed by the Charger.

Our focus is on executing our launches to the letter, as the opportunities for expansion at Chrysler continue.

In summary, we have an enhanced focus on cash-flow generation and have included this metric in our incentive program to insure the entire team is focused on cash flow.

Our first quarter results clearly highlight the need we have for structural changes in North America, and in our discussions with Ford, we're seeking a comprehensive restructuring to ensure the longterm competitiveness of Visteon and a continued supply of components to Ford.

As our customer diversification continues to grow, we're focused on delivering our customer commitments through successful launches.

Every time we successfully launch a product, the opportunity for us to grow our business with them increases exponentially.

Our first quarter new business wins were solid, and we expect that to remain at healthy levels.

Critical to new business growth is having innovative products.

We focused our resources on our growth products of Interiors, Climate and Electronics, and those efforts will bring innovations to market faster.

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

Thanks, Mike.

Good morning, ladies and gentlemen.

In my thoughts this morning, I'll cover as summary of the Ford funding agreement, its impact on the first quarter, and on our results going forward.

Then I'll walk through the income statement and add some clarity to the line items.

I will also discuss first quarter cash flow and liquidity.

And finally, I'll conclude with some thoughts on funding alternatives and on the second quarter before we open things up to your questions.

With that, let's begin.

This next slide summarizes the Ford funding agreement that we entered into on March 10th.

This agreement may be terminated by either party on or after January 1st, 2006, with ten day's notice.

The agreement addressed three major items -- t he acceleration of payment terms, bailment agreement for capital expenditures and a number of legacy facilities, and a reduction of our labor reimbursement to Ford.

Under the agreement, Ford agreed to accelerate payment terms for U.S. trade receivables from 33 days to 26 days, for Visteon products received at Ford U.S. facilities after April 1st.

During the first quarter, we received a jump-start to the program as Ford made a one-time advanced payment to Visteon of about $120 million.

The reduced payment terms is expected to generate up to $190 million in cash flow during the year.

The amount will vary during the course of the year, due to fluctuation in Ford's production schedule and our associated revenues.

Ford also agreed to fund capital expenditures for a number of our plants.

We gave some indication of this in our fourth quarter release, when we said we would focus the capital spending on growth areas only.

During the first quarter, the impact from this portion of the agreement was a noncash write-off of $17 million, as we recognized the impact of some end-process capital projects that would be transferred to Ford as part of this agreement.

The agreement also provides for a 23.75% reduction in the amount we reimburse Ford for labor costs for UAW assigned employees, beginning with the pay period of February 21st.

This labor reimbursement reduction, together with the impact on benefit accruals and the noncash write-off for end-process capital projects, reduced costs of sales by $26 million for the quarter.

As part of the agreement, Visteon agreed to honor its contracts with Ford and the UAW to keep shipping parts and not to seek material surcharge recovery for certain plants.

In a nut shell, the funding agreement recognizes the competitive environment in which we currently operate, addresses a portion of the labor penalty we face for the workers we lease from Ford, and funds some of the investments needed for the production of components for Ford, but we were unwilling to make.

It is not the final deal.

But I think it shows good progress, allowing us to receive some relief while we continue to work on the structural changes in the broader deal.

In the next slide, I will cover what the Ford funding agreement means to the second quarter and for the rest of the year.

The reduction in payment terms for U.S. plants will improve cash flow from working capital during the course of the quarter.

The benefit, as I said, is estimated to range up to about $190 million and will be dependent dent on Ford's production and our related sales.

The 26-day terms are about 25% better then we have previously agreed and -- to in our 2003 agreement with Ford.

The labor reimbursement reduction will be approximately $75 to $80 million for the second quarter, as it applies to two additional months for the quarter.

And production volumes and overtime work will be factors that could influence the overall reduction.

Finally, Ford funding of a portion of capital expenditures allows us to reduce the historical level investment needed in certain facilities.

So, we expect there to be a meaningful incremental benefit from the funding agreement in the second quarter and beyond.

With that, I'll turn to first quarter results on the next slide.

This slide does summarize those pre-tax results for the first quarter, and on the next couple of slides, I'll take you through some of the individual line item details.

First quarter pre-tax loss of $160 million was $203 million worse then last year's pre-tax income of $43 million.

With lower Ford production volume and mix, combined with price-downs across all customers; material surcharges; higher OPEB, freight and interest costs; were too much to be offset by the growth in the non-Ford business, cost efficiencies and the first quarter benefit of the Ford funding agreement.

The next slide looks at sales for the quarter in more detail.

Non-Ford sales, as Mike mentioned, totalled $1.7 billion for the quarter, up $400 million, or 30%, from the first quarter of 2004.

They now represent 35% of total sales, increasing 8 percentage points year-over-year.

Foreign currency increased non-Ford sales by $89 million due to the the strength of the Korean won and the Euro.

On the other hand, Ford sales were down $383 million as favorable currency of $56 million was more then offset by the 100,000 unit reduction in Ford's first quarter North American production.

Pricing and mix were also negatives on a year-over-year basis.

We have also realized an increase in revenue from content that is integrated into our products and shipped to both Ford and non-Ford customers from just-in-time assembly facilities.

The margins associated with this revenue are lower then the margins that we have on products we manufacture.

But the capital required is less, and the asset and inventory turnovers are both better.

Now let's turn to cost of sales on the next slide.

Cost of sales increased more then one might expect, given the relatively flat top-line revenue number year-over-year.

This can be explained by several factors.

Revenue generated from master agreement UAW plants was lower.

However, our relatively inflexible cost structure at these facilities makes it extremely difficult to reduce costs in parallel with lower production.

This revenue was replaced by non-Ford revenue from different facilities.

On an all-in cost basis the lower level of capacity utilization that our Legacy facilities and the increasing, albeit lower cost at new facilities supporting the non-Ford business, created unfavorable utilization.

The favorable impact of foreign currency in sales also translates to increased cost of sales.

Net material surcharges of $88 million for steel, aluminum, copper, resins and fuel were up, versus the $63 million we had in the fourth quarter, and essentially, zero surcharges in the first quarter of last year.

Net efficiencies, including the benefit of the Ford funding agreement and material costs reductions and labor efficiencies, were partially offset by increased OPEB costs and higher depreciation and amortization.

And finally, as you know, we recognize the impact of yearly price-downs to our customers at the start of the year.

But material cost reductions negotiated with our suppliers tend to be subtle during the course of the year.

This relationship generally improves over the course of the year, but it is becoming increasingly more difficult to generate negotiation and design savings on lower production levels that the industry is experiencing.

These factors, as well as customer price-downs and increased sales activity associated with the lower margin, higher turnover, JIT assembly facilities, have pressure pressured margins.

Obviously, our performance in the first quarter reinforces the need for structural change at Visteon to improve the flexibility of our cost structure.

With that, let's turn to the next slide on SG&A.

Selling G&A was down $15 million year-over-year on flat sales, improving by 30 basis points.

The improvement is pivotal to a number of factors including -- spending controls, which were able to offset increased wage, economics and currency translation; lower expenditures for IT, due to the nonrecurrence of last year's clone activities; and a partial benefit from the Voluntary Separation Program.

The benefit from this program will be greater in the second quarter as many of the employees left during the portion of the first quarter.

Masking some of the improvements in G&A costs, are expenses associated with the negotiation of the Ford deal and increased legal fees which were not insignificant in expenses.

Turning to after-tax results on the next slide --

For the quarter, we had tax expense of $20 million.

This includes $30 million of what we would characterize as normal tax expense.

Offsetting this was $10 million of tax benefits recognized in the quarter, related to a reduction in the withholding tax rate in Hungary, and a resolution of the tax dispute in Mexico.

As we have explained to you on previous calls, our deferred tax valuation allowances do not allow us to recognize a tax benefit for losses in the U.S. and other affected jurisdictions.

So, although we had a loss before tax, we must still recognize tax expense for the profitable jurisdictions in which we operate.

Given this continued situation we think it might be helpful for investors to examine our results using the additional metric, EBITDA, as well.

The next slide looks at EBITDA for the quarter.

We have included this slide on EBITDA because we know that, although it's non-GAAP financial measure, many of you use it.

For reference, we've also included a look at quarterly data for all of 2004 in the supplemental financial information section of the presentation.

EBITDA for the first quarter was $37 million, including $7 million of pre-tax special charges.

The year-over-year $182 million decline in EBITDA is more then explained by the decline in net income.

As you are likely aware, our credit facilities have a net debt to EBITDA covenant of 3.5 to 1.

Under the covenant we can exclude special charges and add back interest income to the calculation, and we were within the covenant at the end of the first quarter.

The next slide takes a look at pre-cash flow.

Despite the year-over-year fall-off in net income of $208 million, our cash flow improved, as Mike mentioned in his opening comments, by $144 million on a year-over-year basis.

This was attributable to improved performance on trade working capital, lower capital expenditures, the increased sale of receivables and an increase in noncash expenses, namely, OPEB and depreciation and amortization.

Taking a closer look at trade working capital, Ford receivables increased $77 million since year-end, but the increase was less then what we would have normally seen in the first quarter, reflecting lower sales and the benefit of the funding agreement.

Ford DSO's however, were unchanged from year-end and from the first quarter of '04.

Non-Ford receivables were down $84 million from year-end, despite a $200 million sequential increase in quarterly revenue, resulting in a 14-day improvement in DSO's to 62 days.

Accounts payable were higher by nearly $150 million then at year-end, reflecting increased production activity, but were decreased on about 5% on a day's basis.

Cash flow from operations improved $75 million to $178 million, while capital expenditures of $127 million were $69 million lower then last year.

We will continue to focus our capital spending on our core products.

And then, finally, the pre-cash flow for the quarter was $51 million, or $144 million improvement year-over-year.

And as Mike mentioned again in his opening comments, we remain focused on improving cash flow, and/or driving the organization to improve asset turnovers as well as cash flow.

And I'll just reiterate Mike's comments of -- that is important, I think, for all of you to recognize that pre-cash flow has been added as part of the annual incentive compensation program for all of our employees.

Now, let's turn to our current liquidity position on the next slide.

Regarding liquidity, at quarter-end, cash on hand was $809 million, and net debt was $1.2 billion.

And, as I mentioned we were within the limit of our 3.5 times net debt-to-EBITDA covenant.

The Ford funding agreement provided additional liquidity for us in the first quarter, and will continue to do so through improved payment terms, reduction in labor reimbursement costs and funding of capital expenditures at certain Legacy facilities.

In the first quarter, we renewed our U.S. non-Ford accounts receivables securitization facility and increased the sale of non-Ford receivables in Europe.

With the recent rating agency actions, our capacity under the U.S. non-Ford securitization facility will be reduced.

We are currently undrawn on that facility and we continue -- we expect to be -- we expect to continue to sell receivables in Europe.

We have reduced the capital expenditures and we have suspended the dividend.

As I just said, the internal emphasis on cash flow and improvement has been significantly strengthened.

We'll continue to devote significant management attention to enhance the cash flow.

On the next slide, I'll discuss thoughts on liquidity going forward.

As you know, our $565 million, 364-day bank credit facility expires in June.

And we have $250 million of bonds coming due in August.

Our existing bonds and credit facilities were issued under terms that were investment grade packages.

Today, our balance sheet is essentially unencumbered, providing a basis from which to work for secured financing.

Current market conditions and the recent rating agency actions, combined with today's situation, where Ford's strategic discussions have not been completed; creates an environment where we need to consider options available to us for providing financing capacity now, that ultimately, may be sub-optimal when the Ford transaction is completed.

We have began discussions with the banks in our global credit facilities to address our financing needs, including the renewal of the 360-day facility -- 364-day facility at market terms.

I do believe the Ford transaction could bring additional financing alternatives and better terms.

So, post-Ford deal, we'll look to capitalize on the market access opportunities the deal will give us, and may want to revisit the overall needs in capital structure post-deal.

Now, let me turn to some thoughts about the second quarter.

Ford has announced a second quarter production volumes for both North America and Europe, and while down versus 2004, they are essentially unchanged from first quarter levels.

We may also see a shift in mix, so we expect Ford revenues to be down slightly on a quarter-over-quarter basis.

Non-Ford sales will likely increase slightly from the first quarter levels, but not as significantly as we have seen in the first quarter.

We continue to see material surcharges, but the rate of increase seems to be stabilizing.

They are expected to be significantly higher then they were during the second quarter of last year, but not significantly higher then the first quarter levels.

We will realize the full quarter's benefit from the labor reimbursement reduction negotiated in the funding agreement with Ford.

And as I mentioned, the material cost reduction environment remains challenging.

With lower volumes being experienced by many companies in a supply chain, it is becoming increasingly difficult to generate material reductions from negotiations and near-term design changes.

We'll continue to work with both our suppliers and customers to find ways to reduce total material costs, but it has become more difficult.

And with the completion of our Voluntary Separation Program, we will receive a full quarter benefit of the head count reductions in the second quarter and beyond.

Believe me, we're committed to taking actions to improve the business.

But also, recognize the need for structural changes that the business must achieve.

With that, Derek, I think I'll turn it over to you and open the line for questions.

Marvin, if you could please remind people how to could you for questions and line things up for the first question, please.

Thank you. [ OPERATOR INSTRUCTIONS ] Our first question from Steve Girsky with Morgan Stanley.

Please go ahead with your question.

Good morning, guys, can you hear me?

Yes.

Good morning.

I'm just trying to be clear, you talked about being cash flow break-even in the quarter and focusing on cash.

But you can't really be cash flow break-even longer-term losing the $160 million a quarter, right?

Some to get but -- something's got to change on the operating side, right?

On long-term basis, Steve, you're right, something has to change on the operating side.

I do believe that there are opportunities in working capital, and that we can reduce our level of current level working capital, however.

And it seems like a lot of the strategies to reduce costs and stuff like that, it seems like a lot of them are incremental until we ged get a Ford deal -- is that fair?

Steve, I would say that in some sense that's fair.

Because a lot of what we do would depend on the outcome of the Ford agreement.

And there's some things you wouldn't put in place today if you were going to get an agreement in the short-term.

So, to some extent you're correct.

And I would just say we have a lot of actions identified post-agreement, and ready to launch those.

And can I ask you a little bit, Mike, about the non-Ford business?

It seemed like it was up a lot.

I was a little surprised on -- that the non-Ford -- is there pressure on margins on the non-Ford business as well?

I think, Jim addressed it, Steve, when he said part of the non-Ford revenue increase in this period is coming from some regional assembly plants where we're doing assembly operations, in some cases, on directed material.

And so, we're doing the assembly and not manufacturing all of the components, so we have a bit of a disconnect that we've recognized all the revenue but there's not anywhere near as much value-add as we would normally get on most of the sales.

So, it's a little bit unique in the current period on new business that was won three and four years ago, where that's the condition -- we're assembling component produced by other people.

And you've talked about a 5% margin in the past on this business.

Does that still hold or no?

It would vary, Steve.

Realistically across the product lines and, again, I would just emphasize we're real happy with the -- over the last couple of years or three years, with the new business wins that we've gotten, and they tend to be focused on those three product categories and we feel very good about the disciplines in place and we do celebrate when we get an order.

And just, Jim, the -- theoretically, you said you're in discussions with the bank.

Is Ford part of those discussions with your bank or -- what's Ford's involvement?

It seems like the bank need to know what a restructured company is.

What's Ford's involvement in these discussions?

At this point the conversations have largely been between us and the banks.

We are approaching it with the perspective of not having a deal, and that we want to make sure that we have our financing capability in place.

And as I said, post -deal, it's -- in all probability, we would be needing to readdress our financing packages.

Suffice it to say, we're at a point in time where, because of expiring 360 day -- 364-day facility, we feel it's prudent to address and provide for capability or capacity.

While on the other hand, if the deal was completed, we would probably be doing different things, but we are where we are, and we need to take prudent actions to respond to today's situation.

That sort of suggests that the deal, the timing on any deal is being pushed off or --

I wouldn't say that, necessarily, Steve.

I think -- I would tell you personally, that there are two things that are essentially taking all of my time.

And they are both the deal and financing.

And so, they are ongoing together.

I just don't know that we'll get the deal done in time to reflect it in the 364-day maturity.

We may.

That would be the ideal situation.

But, as you know, it takes a number of weeks to get those -- to get these financing arrangements briefed through all the bank's credit committees, and just that entire process, and we have to start now.

We can't wait.

Sort of wondering, maybe you can't answer this.

We've heard about the deal -- potential deal for a while.

Where is the bottleneck on this thing?

Is it Ford?

Is it you?

Is it the union?

What's the hold up on this thing?

Steve, I would just -- I guess my suggestion would be that the more complex and comprehensive the deal, the more time it takes to iron out all the wrinkles, and that's what we're working on.

I don't know that it's a bottleneck, per say.

What we're addressing is a significant arrangement, and it's very comprehensive and it's very complex, so we want to make sure that we get it right and that all parties are in agreement that it's absolutely the right thing.

And because of the complexity, it's taking a little more time then what we had hoped.

Thank you.

Our next question comes from John Casesa with Merrill Lynch.

Please, go ahead with your question.

Thanks very much.

I wanted to follow-up on Steve's question about the deal.

I know there is only so much you can say.

But, Mike, I wanted to ask you about this line in the Press Release that says your work continues on identified concept that would achieve the goal.

Can you, at all, clarify for us, what this identified concept is?

So we can get a sense of the kind of potential trade-offs that will be made here?

John, I wish I could, and I really don't feel comfortable doing that.

I think we have to look at the comments made by Ford where they said they expect to get a deal done, and they expect to take some charge on it.

But it's yet to be determined so, I would just say that it's comprehensive and that we have identified a concept that we think is the right one, and we're working on that.

Okay.

I would add to that, that the message, essentially, that we're trying to send is that it's not as if we're all over the map.

It is that we have been working on a concept for a while.

And we're really down into working the details of that concept.

Okay.

Well, that's fine.

I appreciate it.

Thank you both.

Our next question comes from Chris Ceraso with CSFB.

Please go ahead with your question.

Thanks, good morning.

I have a couple of items -- maybe this is a follow-up to John's question.

Is it fair to think about a potential agreement along the lines of what you did with the seating business with Johnson Controls?

Chris, I wouldn't draw a parallel.

The only thing, I guess, that's running at all parallel with sit the length of time and that was one plant, one product and it took quite a while.

This is, obviously, we've -- both parties have been talking about these discussions for some quarters now and it's very complex.

But I would not draw a parallel to the seating deal.

Okay.

With regard to the non-Ford business, given how rapidly and how steeply the financial performance has slid in the past couple of quarters, are you coming up with any resistance in winning additional non-Ford business?

And then, on the back of that, maybe if you could just frame the pipeline of non-Ford business at this point.

And, then, one last item -- how much of that is this assembly business that you mentioned here in the quarter?

Okay, Chris.

First of all, the non-Ford business wins continue.

We're running, actually, just slightly ahead of where we were a year ago.

We are keeping the customer base informed of our -- at least to the extent we can.

And I've committed to keep them updated as things develop with Ford.

And I would just say their message is consistent with yours.

Let's get an agreement and get on, and we can all get out on it and communicate what we're going to do going forward.

As far as the pipeline goes, we're literally right on top of what we've seen in new business wins for the last couple of years, at this point in time.

And the only texture I would give to that is virtually, all -- I mean, high 90% of these wins are in Interiors, Climate and Electronics; and are very high percentage of it is outside of North America.

As far as how much of it goes through regional assembly plants, I would say less of what we're seeing right now and at least in the recent wins, is through what we call the V-wraps.

More of it is more traditional types where we're doing the production.

In some cases we're doing the production and the assembly.

And so, I'd say a little bit of a move away from just the poor -- the regular V-wrap kind of business.

Okay.

And then, I guess you may have touched on this earlier.

But only a handful of folks left under the voluntary separation program in Q1.

Is that something that you look to accelerate, or are you going to kind of back-burner that until you get an agreement , and then go after things like that more aggressively?

I think in total we had just under 400 people, like 375 or 380 people or so leave.

But they were staggered out.

Some were in the fourth quarter of last year, and as Jim said, some of them were out throughout the first quarter of '05.

Therefore, we won't see the full benefit until we get into the second quarter.

Actually, we had more people leave in the month of March then any other month.

And that was planned as part of the deal -- of the separation agreement that we entered into in December.

Okay.

All right, I'll follow-up.

Thanks a lot.

Our next question comes from Darren Kimball with Lehman Brothers.

Please, go ahead with your question.

Hi.

Hello, Darren.

What was the bottom line for the second quarter outlook?

I mean, I think you were suggesting that there's no sequential improvement in the losses, is that fair?

Darren -- I think what would be fair is -- we have said that we're not giving guidance for the quarter, and what we have tried to do is give you a perspective on some of the trends that we are seeing and let you make your own judgements about how those trends stack up on a quarter-over-quarter basis.

Okay.

The only positive thing I heard was the $50 million incremental on the Ford labor reimbursement.

Everything else was negative.

Is that the right interpretation?

Or negative or neutral.

Negative or neutral, I think that's not -- yes.

Okay.

The cash burned in the second quarter, you don't have the same benefit that you did in the first quarter with regard to the interim agreement.

And also, I don't know what your plans are for the receivable sales, but if you strip that out, second quarter cash burn is going to be much more significant then the first quarter, right?

I don't think that's necessarily true.

The -- just thinking about Ford production levels, for example, they're relatively flat quarter-over-quarter.

Yes, as I mentioned, we do expect to continue to sell receivables in Europe, and again, my comments about increasing your management attention on cash flow and pre-cash flow, clearly, capital expenditures getting a lot of emphasis.

At this point, I don't know that I see a need for significant cash burn in the second quarter.

Okay.

Well if you --

And what we did say is that material cost reductions tend to -- we give price reductions at the beginning of the year, and we tend to realize cost reductions during the the year.

It has become more difficult, but I would expect that we'll get more material cost reductions in the second quarter then we did in the first.

So, there are a number of positive factors in addition to the labor reimbursement and I -- I don't think we're going to see the same rate of increase, for example, in the commodity prices that we have in the past as well.

Right.

But you're saying that the old 18% price-cut over three years that you were demanding from your suppliers, is basically out the window because of the level of financial distress?

Can you outline a little bit, the distress supplier situation?

Is that probably -- is it pretty significant risk to your statement that you expect the material cost reductions to keep increasing as the year goes on?

I guess I wasn't really trying to allude to distress supplier base, although, there are, as you know, some -- there are distress suppliers.

What I was trying to say is essentially, the industry has significant volume declines that they have experienced over the last couple of years.

And if you look at our major customer, in particular, they have been significant.

The supply base, we being part of that, and our suppliers have all realized that reduction.

When you're in an increasing production mode, generating savings is easier then when you are in declining production modes, that's the situation that we're faced with.

Right.

But can you speak to the distress supplier situation.

I imagine you grade your suppliers.

What portion of your buy is in the red category now?

I don't have any numbers here with me.

But suffice it to say, it would be greater then it was a year ago.

I think that's true for the industry as a whole.

Yes.

Okay, thanks.

Okay.

Your next question from Mike Bruynesteyn from Prudential.

Please go ahead with your question.

Yes, guys, thanks a lot.

Could you give the cash from operations and free cash flow excluding the sales receivables and the cash assistance you got from Ford in the quarter?

Well, if you go back back to that slide, you can actually

-- it's $178 minus the $120, minus, what sale receivables was about $50 in total or something like that?

That would get you to about zero for the CFO, is that right?

[ Laughter ] Yes, but at the same time, Ford day-sales were unchanged from year-end.

And so, you can pick on individual line items and say that's the whole impact of the change, but that's not the right way to look at it.

Okay.

So, how should we look at it, then?

I think you ought to look at it at the numbers as reported.

There are pluses and minuses that affect cash from operations.

Those are two of the items that affected it.

There are, also, other items, as well.

Okay.

Obviously, the biggest impact -- let's get right to the issue.

Improving profitability is the key.

Right.

Okay.

And then, could you recap your head count reductions -- where you are now, and going to be in the next couple of quarters?

Let me just take a shot at -- the head count in -- let's say, North America and Europe, may flex down and then be offset by increases in some of the leading competitive countries where we've added.

So, there's a lot of noise up and down in there, but if typically, we report on the UAW master agreement headcount, and in the first quarter, that's down just over 200.

And the year-over-year change is right around 2100 down.

So, to what level does that get you now?

We're at 17,500.

Okay, great, thanks very much.

Sure.

Our next question is from Joseph Amaturo with Caylon Securities.

Please go ahead with your question.

I was just wondering if you could give us color with respect to the noncore business sales in in 1Q '05 versus 1Q '04.

I don't think we ever split it out on a quarterly basis before.

I would just say that the -- if you consider that virtually all of the new business -- incremental new business is in core, you could do some math around that.

And most of the noncore revenue, traditionally, has been strictly with Ford and, therefore, if you look at the Ford production being down in all 100,000 units, you can probably start to box around that.

I'd also just add that our Ford content per vehicle, is virtually unchanged from that $3,000 number.

Even post-agreement with the price downs?

If you take the first quarter and just take the production numbers, I think you get to like $2,980 per vehicle, which is as close as we can get to the $3,000 number we've been using.

I might have missed this -- what is the capex forecast for 2005?

And again, since we haven't given a forecast for 2005 we haven't talked about that.

What we have said is reduced capital expenditures is where our focus is.

To the extent of the -- of what was discussed in the agreement -- the initial portion of the agreement is fair or --

Yes.

Okay.

That's all I have, thank you.

Thank you.

Our next question is from Jeff Skoglund with UBS.

Please go ahead with your question.

A couple questions on your liquidity.

Of the $809 million in cash, how much of that was domiciled overseas, and what tax or other limitations do you have in accessing that cash for your domestic operations?

Probably about in round numbers, two-thirds or so is domiciled overseas, and it really varies on an entity-by-entity basis on issues or tax considerations in bringing the cash back.

Okay.

And then, in terms of refinancing your bank deal and, obviously, it sounds like it will be a secured deal.

Is your goal to avoid exceeding the limitation on [inaudible] carve-out in the bonds, which I think is probably around 940 or so -- ? 940 or 950 at the end of the quarter?

Jeff, the -- unfortunately, the market for a credit of -- a company with our credit rating is a secured marketplace today, so, yes, it does, in all likelihood mean that we'll be in a secured financing mode.

And, obviously, the capacity available under the carve-out under the bond deal will influence exactly what we do and how we do it.

Okay.

Fair enough, thank you.

Our next question comes from Brett Hoselton with KeyBanc Capital Markets.

Please go ahead with your question.

Good morning Mike and Jim.

Good morning.

Jim, I was looking at note number four.

It talks about your salary separation program, and it looks like about 374 left during the fourth quarter and another 35 during the first quarter of '05.

In reading that, I guess I'm trying to think about the impact on your expense line.

It seems like -- you seem to suggest that the first quarter you saw very little savings associated with that, and the second quarter we ought to see a fairly significant ramp-up.

Can you talk about the timing of that?

And the potential saving's there?

Let me clarify, first of all, the 374 people in the fourth quarter are how many people accepted the program.

There were another 35 people that accepted the program in the month of January, so, in total, roughly over 400 people involved in the program.

Less then 100 -- and I don't have the numbers here -- maybe -- less then 100 left in the month of December.

Most of the employees left in -- subsequent to then, and most of the employees left in the month of March.

So, although the cost, the Voluntary Separation Program costs were accrued in December and in the first quarter -- $7 million in the first quarter -- the reduction in headcount will occur -- or has occurred during the first quarter and a little bit into the second quarter.

So, the real reduction in ongoing operating costs will be experienced more so in the second quarter then in the first.

And you guys can do the math as well as I can on 400 people and average salaries and benefits and what that could save.

I mean, would you say that $100,000 per person is a good rough number to use?

Or is it significantly lower or higher then that?

On a fully burdened basis that's probably not a bad number.

The $139 million in savings that you talked about in slide 14, is that generally -- is it safe to assume that occurred in the Ford sales side?

I'm sorry?

The -- you had talked about $139 million of savings associated with, I think it was the Ford program --

-- the efficiencies --

Yes.

And I'm assuming that accrued primarily to the Ford side of the house.

Is that fair, or is it more of a split?

It's more of a split.

Generally more split.

Okay.

Any idea on the cash savings per quarter or annually, associated with the capex savings with the Ford funding agreement?

Is $25 million a quarter -- is that a reasonable number to use going forward, or is it significantly higher or lower?

I know it's just a rough guess.

What we have -- in looking at historic trends we thought it could be in the range of about $150 million.

It was -- and it's our capex, as you know, is never spread evenly across the quarters, and it wasn't a third -- or rather, a fourth of that saved in the first quarter

As you know, that depends on program timing of the customer.

And so, as Jim said, it really does vary quite a bit, typically, quarter to quarter.

$150 million, Jim, is that an annual number or a quarterly number?

Annual number -- I'm sorry.

And then finally, Mike, when you look at the directed buy, the integration business, it sounds like what you're telling us is that going forward you don't necessarily see that as being a increasing portion of your business.

It's probably going to remain about the same percentage as you're seeing today.

Is that a fair statement, or do you see it increasing or decreasing?

No.

It's actually -- it probably goes up in terms of the assembly operation because what we're doing is establishing just-in-time assembly facilities next to the assembly plants, and that's pretty typical in the industry.

The mix of what we produce that goes into that -- those assembly plants -- would look to be improving.

So, there should be less directed buy and more Visteon manufactured components going into those regional assembly plants.

At least that's what we're seeing right now.

Excellent.

Thank you very much, gentlemen.

Our next question comes from Rod Lache with Deutshe Bank.

Please, go ahead with your question.

Good morning, everybody.

Good morning.

A couple of questions.

I thought you had given out rough estimates of the core business, the HVAC, electronics, lighting and cockpit previously.

Am I incorrect?

Rod , what I said is we hadn't done it on a quarterly reporting kind of basis in the past.

We had thrown numbers out there that said, I think, somewhere in the $6 billion range.

And $6 to $7 billion in -- that's for round numbers, that's still a good number.

Okay.

Thank you.

And just, also on the -- you made a statement, a couple of statements about the non-Ford business and it sounds like you would still characterize that business as profitable.

I wanted to confirm that.

That's correct.

Okay.

And does the tax expense give us any indication of the profitability outside of the U.S.?

Or is there a lot of state and local taxes in here that kind of makes it difficult to isolate?

Well, it does give you an indication of the profitability outside of the United States, but actually, the rates as you might guess, vary significantly by jurisdiction to jurisdiction.

So, it does give you an indication, I don't know how you can interpret that into anything else, frankly.

Right.

But is it safe to assume that the tax rates are maybe, 30% or 40%, something like that, outside of the U.S. -- ? -- generally in that range?

I don't know.

I don't have my tax guys here to answer that question.

I can't -- and I don't have the data, so I really can't you an indication one way or another.

Okay.

And you may have said this -- I think I may have missed this.

Did you say what the receivable securitization factoring in the GE facility did basically balances from Q4 to Q1?

The GE facility was, essentially, paid off during the quarter.

So, one other person asked this question about cash flow.

And that is one of those uses of cash flow buried in there -- buried in the quarter.

And then, the receivable securitization is up, I believe, it's about $70 or $75 million from the first quarter over the year-end numbers, and the GE facility is down, roughly, $80 million or so -- on a quarter-over-quarter basis.

Sequentially?

Yes.

Okay.

That's helpful.

And just one last question.

Can you give us a sense of what the R&D spending expectations are now?

How is R&D -- what level is it at now, versus a year ago on the first quarter?

It's relatively flat.

Much more focused on the core businesses.

So, a pretty significant shift in where that spend is going.

Flat on a dollar basis?

Correct.

Okay.

And I think you guys have said that by $900 million a year on R&D, that's still the expectation?

In that range.

In that range.

Great.

Thank you very much.

Okay.

I'm showing 11:00.

I'd like to thank everyone for participating in the call today.

I'll be around the office all day to answer questions.

Thanks.

Ladies and gentlemen, this concludes today's conference call, thank you for your participation, you may disconnect at this time.

Good day.