Visteon Corp (VC) 2005 Q3 法說會逐字稿

Good morning and log on to the Visteon Third Quarter 2005 Conference Call.

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

As a reminder, this conference call is being recorded.

Before we begin this morning's conference call I would like to remind you that this presentation contains 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 statements.

Please refer to the slide entitled Forward Looking Statements for further information.

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

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

After the speaker's remarks there will be a question and answer period. [OPERATOR INSTRUCTIONS]

I would now like to introduce your host for today's conference call Mr. Derek Fiebig, Director of Investor Relations.

Mr. Fiebig you may begin.

Thanks Judy, and good morning, everyone.

I'd like to provide my welcome to the Visteon third quarter call.

Joining me on today's call are Mike Johnston, our Chairman and Chief Executive Officer, and Jim Palmer, our Chief Financial Officer.

In today's presentation, we'll provide our preliminary results for both the third quarter 2005 and year-to-date results for 2005 as well as the comparable periods for 2004.

These reflect an estimate and impact of adjustments identified to date, including those related to the recently concluded independent review and are subject to change.

Quarterly information for the first nine months of both 2004 and 2005 will be presented in our 10Q filings with the SEC.

In conjunction with these filings we will provide pro forma information on Visteon reflecting the Ford transaction.

I will remind you that in today's presentation we will present some non-GAAP information, specifically free cash flow and EBITDA.

Please refer to the use of non-GAAP financial information and reconciliation in the supplemental pages of today's presentation.

And with that I will turn the call over to Mike.

Thanks Derek.

On today's call I'll provide you with a business update and then turn things over to Jim who will take you through the financial information.

And after our formal remarks we will open up the lines and take your questions.

I thought it would be helpful to provide an overview of where Visteon is going.

Visteon is focused on the growth of our core products of electronics, climate, and interiors.

These are the areas in which we continue to win a significant portion of our new business, some of which I will share with you later on.

We've done a solid job of diversifying our sales base and going forward our product based sales to Ford will represent less than half of our total sales, but we need to continue to grow our business with other customers.

And our Ford revenues are now split about equally between North America and Europe.

We're well positioned with our operations to support our global customers.

We've been expanding our footprint in leading cost competitive countries and will continue to make improvements going forward.

Many of our nonstrategic operations here in North America have been addressed with the Ford transaction however, we still have some underperforming and non-strategic facilities here in North America as well as in Europe.

The agreement with Ford effectively reduces some of our overhead structure as we are now being reimbursed for workers that are supporting ACH.

However, as we said before there remains a need to continue to improve our operating and overhead efficiencies even after the agreement with Ford.

Some of these actions will be fairly significant in their size, other actions will not be as large, but when added together can lead to substantial improvements.

In this business there are not too many home runs or extra base hits, the key is finding ways to score runs by doing the little things right.

Through our actions Visteon will become a leaner organization that continues to support our global customers.

We'll continue to focus on cash flow generation improve financial results will be able to reduce our debt levels over time.

The goal for Visteon is value creation, both for our customers and shareholders, leading to sustainable growth.

Now on the Ford transaction, it definitely improves Visteon's position, leaving us with a very competitive global manufacturing and engineering footprint, which we continue to improve.

Next week, we will celebrate the grand opening of our China Technical Center in Shanghai.

The new CTC will be Visteon Center of Excellence for vehicle interior and electronics technology for Asia Pacific and the key element Visteon's overall strategy to strengthen its global engineering resources to support customers world wide.

The facility is designed to house 1,000 employees including 650 technical professionals.

It will feature product development and lab facilities, as well as significant testing capabilities to support interiors and electronics for both global and regional applications.

We also continue construction on our two new compressor plants in [Complesa], Mexico and in [Dowein], China.

We're also constructing a new climate control manufacturing facility in Slovakia that will support Kia.

Visteon's Just In Time focus factory will deliver climate control components to Kia for future vehicle models produced for the European market.

Start up production is planned for December '06 and Kia is the second customer that Visteon will supply out of Slovakia.

We also recently announced a joint venture in China for a complete engine management system development, including systems design, calibration and validation, and manufacturer of electronic control units, air induction system intake manifolds, and other engine control components.

In March, we launched two joint ventures with Tako, an affiliate of the Indian automotive manufacturer, Taka.

The first JV will employ about 400 people in the coming years to manufacture air induction systems and lighting components for the local market.

The second JV is an engineering services company ramping up to about 250 engineers by 2009, and that will develop products for local and regional markets.

There's a lot going on as we seek to more fully utilize lower competitive cost countries and increase our new business wins in expanding markets.

Turning to some other recent developments on the next slide, we have some very significant developments during the quarter.

First and foremost we reached definitive agreements with Ford and closed the transaction on October 1st.

We have also made some changes to our organizational alignment under Don Stebbins that will keep our focus on the customer while providing additional accountability for products and performance deeper in the organization.

We believe these changes will allow us to improve our operating performance in the future.

We also announced that the independent accounting review has been completed and Jim will take you through that in further detail.

In our continued focus on core business has led to additional, announceable, wins.

And some of those include major we recorded several third quarter climate business wins with Hyundai and Kia, including being sourced significant content on a new passenger vehicle.

We also won climate business on the Kia Carons, which will be assembled in Malaysia, the Hyundai Tucson to be assembled in Taiwan, and the Hyundai Iberna, which will be built in Turkey.

Visteon has been selected as a North America air induction system supplier at Hyundai for their Alabama plant.

We'll build the existing design at our facility in Elda, Alabama, about 40 miles south of Montgomery, bringing cost savings to Hyundai versus importing the parts from their original supplier in Korea.

We won our first lighting program from the Chrysler group, an exterior rear lighting program on a 2008 model vehicle.

Visteon also won new business with GM in the third quarter, including a front lighting win on a 2007 Chevrolet Cobalt.

And in Europe we won the cockpit business on Land Rover's replacement vehicle for the Freelander.

And this marks our first cockpit business with Land Rover and the first application of our thermoplastic urethane skin technology in the European market.

The OE's continue to recognize our strength in our core products and our wins are solid.

Turning to the agreement with Ford.

The transaction closed on October 1st and there were no significant changes from the MOU we announced in May.

Under the agreement we have transferred 23 facilities and more than 18,000 UAW employees to Ford.

This total includes the Ford UAW Master Agreement workers as well as a supplemental UAW workers who were Visteon employees.

We issued warrants to purchase 25 million shares of Visteon stock to Ford, and under the agreement approximately 5,000 salaried employees are now leased to ACH.

The total represents Manufacturing, Engineering, as well as Administrative personnel, who are supporting about $7 billion of transferred business, and to support this business we established Visteon Services.

We also received $311 million for the transferred assets.

This amount is subject to normal post closing adjustments.

We will recognize the significant gain higher than our original estimate related to the transaction and Jim will cover that in additional detail.

And importantly, we have a total of $550 million of cash available to us to restructure Visteon going forward, and I'll describe to you that on the following slide.

The funding of restructuring is divided into two pools, one for the businesses retained by Visteon and another for the divested or transferred businesses.

For the retained businesses, a total of $400 million has been funded by Ford into an escrow account and will be used for Visteon specific restructuring actions.

The escrow account will fund 100% of the first $250 million out of cash restructuring actions and would match Visteon dollar for dollar for up to an additional $150 million.

The escrow account has a term that ends in 2012, so we have 250 million available now to begin to improve our results through restructuring actions.

Ford would also reimburse Visteon for up to $150 million for the cash expenses associated with the separation of Visteon salaried employees supporting ACH in the event that these employees services are no longer required by the business or by a subsequent buyer.

Ford will fund the first 50 million and then match Visteon dollar for dollar for up to an additional $100 million.

The term for these funds is not until 2009 or the date at which there are no longer any Visteon salaried employees at the business.

Any residual interest in either pool would belong to Visteon and although we would fully expect to utilize the aggregate $550 million pool for restructuring activities.

So in essence, we have 550 million of funding for the cash restructuring costs of $800 million.

On the next slide I'll take a look at our global workforce before and after the transaction.

Before the transaction, Visteon had about 17,000 salaried employees globally with nearly 8,000 in the United States.

After the transaction, we have under 3,000 salaried employees in the U.S. that are dedicated to Visteon as approximately 5,000 employees are supporting ACH.

On the hourly side, our headcount is reduced by about 18,000 employees, reflecting the UAW workers at the transferred facilities, plus another 1600 from the Mexican facilities that were transferred to ACH.

We will continue to improve our manufacturing and engineering footprint and to reduce costs.

Also we realize the need to keep our salaried work force as competitive as possible without sacrificing relationships with our customers.

On the next slide I'll provide some color and what is changing with our content per vehicle for Ford products as a result of the transaction.

Before the transaction our average content per vehicle was about $3,000 in total and was about the same on average for both cars and trucks.

Following the transaction our average content is about $850 per vehicle.

On cars the average is about $1,000 and contains a significant amount of what is now become pass through content, principally on the vehicles in Chicago, as much as the content on the fully loaded cockpits that we supply from this facility now comes from facilities at ACH.

On the truck side, our content is nearly $700 per vehicle.

Part of the reason the truck content comes down so much as the exit of the axle business which was a fairly significant contributor to previous CPV.

In Europe our content remains up about $1250 per vehicle.

Now turning to our restructuring and improvement actions on the next slide.

There is a lot of interest in what our plans are for restructuring the business going forward.

We continue to work in the development of our restructuring plan and we will provide additional information when practical.

We plan on providing more information on our plans and outlook at our presentation during the Auto Show in January, but some of the actions will be quite sensitive in nature and we won't provide specifics on the actions until it's appropriate to do so.

But we have identified more than 20 facilities as either under-performing or non-strategic.

These facilities will require significant management attention and focus and find a long-term solution for the sites.

We've already offered voluntary separation packages at one of these facilities in Europe.

We expect additional announcements regarding our corporate overhead and we continue to evaluate employee benefits for both salaried and hourly employees globally.

We're also pursuing numerous cost-reduction and other improvement actions with our suppliers and service providers.

Clearly the restructuring of Visteon over the coming years is one of our top priorities.

We know we need to take additional actions here at Visteon to get results to where they need to be and now we have the funds available from the Ford transaction to make that happen.

With that I'll turn the call over to Jim.

Thanks Mike and good morning ladies and gentlemen.

I thought I would start my comments with a reminder of the recent update we gave you on the status of the internal accounting review.

As we have discussed with you before, in May 2005, the audit committee commenced an independent review of accounting for transactions originating in North American purchasing activities.

On August 1st, several preliminary conclusions were announced and then on the 21st of October, we announced the completion of the independent accounting review, and that Visteon would restate its financial results for 2002, 2003, and 2004.

We expect to file are amended 2004 10K and the 10Qs for 2005 in the fourth quarter.

On Thursday, we will be filing a notice with the SEC that we will not file our third quarter 10Q on time.

As I have said, we will bring all of our SEC filings current in this quarter.

The restatements are expected to increase our after-tax losses in 2004 by 35 to 40 million -- our 2003 loss by 20 to 25 million, and our 2002 loss by 10 to 15 million.

Because we are in the process of working through the restatement, our results for the third quarter as well as our year-to-date results should be viewed as a preliminary.

However, we felt the status was far enough along to provide complete financials without the footnotes.

So on the following slides I will discuss the third quarter preliminary financial information.

Non-ford sales totaled 1.5 billion for the quarter up 108 million or 8% from the third quarter of 2004 and now represent 36% of total sales increasing 3 percentage points year-over-year.

Foreign currency increased non-Ford sales by about $30 million.

Ford sales on the other hand, were down 123 million as favorable currency of about 20 million were more than offset by about a 2% unit reduction, year over year, in Ford's North American production volume slightly lower production in Europe and pricing in mix.

Revenue from content that is integrated into our products and shipped to both Ford and non-Ford customers from Just In Time assembly facilities increased by about $100 million year over year.

As we had discussed before, these margins associated with this revenue are lower than the margins we have on the products we manufacturer but the capital required is much less and the asset and inventory turnovers are both better.

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

Cost of sales decreased $341 million with relatively flat revenue year-over-year.

This can be explained by several factors.

On the positive side, third quarter 2004 results included a $314 million asset impairment and $22 million of cost primarily related to a represented work-force early retirement and flow back incentive agreement which were not repeated this quarter.

This quarter, our labor reimbursements to Ford were reduced by about 70 million as part of the Ford Funding Agreement.

Depreciation and amortization in the quarter were reduced by about 60 million year over year, largely reflecting the asset impairments we took the second quarter on the businesses to be transferred to ACH and then finally we had operating improvements as well.

On the negative side, we did not have the benefit of a few key items that reduced third quarter 2004 expenses.

Namely a $49 million product recall accrual reduction or the $20 million annual incentive compensation accrual reduction as well.

[OPEB] was about $18 million higher year-over-year.

And finally 2005 results include $11 million special charge for non employee -- non-U.S. employee actions.

Let's turned to the next slide on G&A.

G&A was up $14 million or about 40 basis points as a percent of sales.

Essentially the increase can be attributed entirely to the non-recurrence of the $15 million reduction in the incentive compensation accruals in the third quarter of 2004.

Costs associated with the Ford transaction in the third quarter of 2005 and adverse economics were offset by cost efficiencies.

Now let's turn to after-tax results on the next slide.

Our net loss for the quarter was $200 million, including $11 million of special charges.

This loss is more than $1.2 billion lower than the third quarter of 2004, primarily due to lower special charges.

So from an operational results standpoint, our results for the quarter were about flat.

For the quarter we had tax expense of $21 million, and this is lower than the 25 to 30 million if we had discussed as a normal quarterly tax rate for expense, due to the lower profit before tax in the profitable regions resulting from normal seasonal shutdowns in the quarter.

For the fourth quarter our normal tax expense should again be about $5 to $10 million higher, reflecting higher profitability as volume recovers in those jurisdictions where we do not have full evaluation allowances.

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

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

Given this continued situation we believe it is helpful for investors to examine our results using an additional metric, EBITDA.

So on the next slide, we've included this non-GAAP financial measure as we know many of you calculate it.

EBITDA for the third quarter was negative $24 million including $11 million of special charges.

Depreciation was 99 million for the quarter, while amortization was 18 million.

As I said earlier those amounts were reduced from the prior quarterly amounts due to the impairments we have recorded in the second quarter of this year principally related to the Ford transactions, and as I have stated in the past, we believe depreciation and amortization on a go forward basis will be about $500 million annually.

Obviously our third quarter EBITDA, is not where it needs to be.

The third quarter generally is the lowest quarter in terms of EBITDA and we expect it to turn positive in the fourth quarter.

The next set of slides provides an update on year-to-date results.

Non-Ford sales for the first nine months totaled nearly $5 billion, up 907 million or 22% from the comparable 2004 period.

Non-Ford sales now represent 35% of total sales increasing 6 percentage points year-over-year.

Foreign currency increased non-Ford sales by about 200 million so our organic growth was about 700 million, or 17%.

Ford sales of 9.1 billion were down 774 million as favorable currency of about 100 million was more than offset by lower production principally in North America, where Ford North America production volumes have decreased by about 6% year over year.

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

Revenue from content that had integrated into our products and shipped to both Ford and non-Ford customers from Just In Time assembly facilities increased by about $400 million.

And as I said before the margins associated with this revenue are lower but the asset turnovers are better.

Turning to the cost of sales on the next slide, cost of sales increased by 1.2 billion on $133 million sales increase year over year and can be explained by several factors.

First, special charges were $839 million higher, primarily due to the second quarter 2005 charges associated with the Ford transaction.

Revenue from Master Agreement UAW plants and certain other legacy plants with high fixed cost structures were lower year-over-year by about 10%.

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

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

On a total cost basis the lower level of capacity utilization at these legacy facilities and the increasing albeit lower costs at new facilities supporting the non-Ford business created unfavorable utilization.

The favorable impact of foreign currency on the sales line also translated to about a $300 million increase in cost of sales.

And OPEB expenses we're about $50 million higher year-over-year.

Net efficiencies, including the benefit of the Ford Funding Agreement, lower depreciation and amortization, material cost reductions, and labor efficiencies were partial offsets.

These factors, as well as customer price downs and the increased sales activity associated with lower margins and higher turnover [INAUDIBLE] assembly facilities, pressure margins.

The first nine months of cost of sales obviously include the results of transferred business as well as the benefit of lower labor reimbursement since March from Ford and the lower depreciation and amortization in the third quarter.

Let's take a look at SG&A on the next slide.

For the nine months, SG&A of $763 million was $35 million increased year over year, on sales of about 133 million increase.

So on a percentage basis they will sell off about 2/10 or 20 basis points.

The change can be explained largely by higher bad debt expense related to customer bankruptcies.

In our second quarter conference call we discussed with you, one tier one customer bankruptcy that itself resulted in a $30 million charge.

Long-term and incentive compensation accruals and other wage economics currency translation, and Ford related transaction costs were also increases and spending controls were a partial offset.

Year-over-year expenditures for IT are lower as the bulk of the spending for the clone initiative took place in the first half of 2004.

We do expect lower SG&A for the fourth quarter associated with the actions we've taken and the reimbursement for employees of leased to ACH.

However our actions related to SG&A are ongoing with further benefits to be realized in 2006 as well as additional actions being pursued.

So with that let's take a look at after-tax results on the next slide.

Year to date, our loss is 1.6 billion versus 1.4 billion loss for the same period last year or an increase of 200 million.

Both periods include special charges of about $1.2 billion, although they were slightly lower, $28 million in 2005.

These year-to-date results reflect a significant fall off in our results in the first half of the year with better comparable results in the third quarter of this year as third quarter for North American production volume was down a little more than 2% in the third quarter ,while it was down in the first two quarters 10% and 5% respectively.

For the first nine months of the year, our provision for taxes was $41 million and the 2004 results obviously reflected deferred tax asset valuation allowances that were established in the third quarter.

The next slide looks at EBITDA for the nine months and EBITDA for the nine months was a negative 989 million after the special charges of 1.2 billion or including the special charges of $1.2 billion.

Taxes totaled 41 million and net interest expenses 98 million.

Depreciation and amortization was 473 million combined with the D&A -- and combined, D&A averaged about 180 million for the first two quarters but came down to 117 in the third quarter, reflecting the asset impairments taken in the second quarter of 2005.

As I mentioned earlier, these results included the 1.194 billion of special charges as well as some bad debt expense in the second quarter of 2005 associated with the tier one customer bankruptcy, both of which are excluded from our bank covenant calculation.

Under the revised credit agreements, we have a net debt to trailing four quarter EBITDA covenant for the third quarter of 5.1, or 5.0 to 1 as we have yet to complete the transaction with Ford, and we were well within the limit of the covenant for the quarter.

The next slide takes a look at cash and debt.

At September 30, cash was almost $900 million in debt was 1.955 billion, results in a net debt level of 1.057 million which is a decrease $212 million from December 31st and $41 million from June 30 of this year.

A major positive factor contributing to the lower net debt in the quarter was the $311 million deposit received for the business to be transferred to ACH.

Payment terms from Ford are favorable for the year, but were negative for the third quarter by about 100 million as we move from -- as we move to 22 days from 18 days previously.

Receivable sales were positive for both the quarter and year to date.

And OPEB accruals are about $199 million higher than cash payments.

Year-to-date depreciation and amortization expenses is about 70 million greater than capital expenditures and normal seasonal working capital usage in the third quarter and cash restructuring payments were negatives for the quarter as well.

At quarter end about 40% of our cash was in the United States.

On the next slide I have a few comments on free cash flow.

Cash flow from operating activities was 375 million for the nine months of 2005, an improvement of about 150 million from 2004.

The improvement is driven by trade working capital which was a source at $23 million or a $400 million improvement over 2004.

A portion of this improvement is due to the change in payment terms from Ford, but we also improved our non-Ford receivables by about $100 million.

The other line in this cash flow statement is primarily related to cash accruals, which pension and OPEB account for the majority of the dollars.

Capital spending is $400 million, or 169 billion lower than the same period a year ago.

The reduction reflects lower infrastructure spending for the Village and IT and focused spending on our core products.

Finally, our free cash flow represents a $321 million improvement year over year but is still a negative $25 million.

On the next slide I have a couple comments on our liquidity.

As I said cash was about just slightly under 900 million at the end of the quarter.

We have 300 million drawn on our multi-year and short-term facilities.

And as many of you know, the existing short-term facility expires in December and we are in the process of pursuing alternatives for that facility at this point.

We currently expect to be seeking long-term solutions for our capital structure in the first half of next year.

And next, I thought I'd add a few comments to Mike's prior comments on our action plans.

Believe me, we are keenly aware that we must be taking action to improve our business so that we compete in the automotive environment.

In our view, those actions are ever-changing and never complete.

They must always evolve and be updated to the latest challenges we face.

Nonetheless, we wanted to share with you some of our current plans.

I've grouped them into categories and I will share some thoughts on each of the categories.

The first for completed activities.

The most important, obviously is the Ford transaction, but as you know we've also announced reductions in our salary OPEB plans to be in line with our competitors.

Secondly, as Mike explained, we have identified more than 20 under-performing or non-strategic facilities and are putting in place plans to address them and the negative effect they have on our operations.

We continue to emphasize the importance of leading cost competitive locations can have on Visteon.

As an example, today, about 30% of our European accounting activities are performed in these leading cost competitive locations.

The biggest opportunity for Visteon, though, is likely in the plans, that we are putting in place now.

For high-cost countries in which we will likely always have some presence we are challenging the Visteon leaders to reduce their cost structures in those locations.

We have recently begun a study and analysis of our world wide purchasing and sourcing activities.

Based on the ongoing third-party consultant study there should be significant opportunities for improvement.

We're also putting in place tools that will allow us to better manage our worldwide utilization of our manufacturing footprints and Don Stebbins and I have become more involved in our new business quotes and capital expenditures and pre-launch program reviews to bolster the financial disciplines and our decision making process.

Finally, our emphasis is on infrastructure right-sizing, the competitiveness of our employee benefits, our compensation structures, and the sales of excess assets.

And then finally, as Mike discussed we continue to add facilities in leading cost competitive countries in support of our countries -- our customers.

Although we're not providing specific guidance for the fourth quarter, I thought I would comment on some of the trends we see on the next slide.

As you know, the automotive segment remains very challenging to say the least.

Fuel prices continue to affect consumer demand as well as commodity prices.

OE sales, in some cases which have been driven up significantly in recent months by sales incentive programs, have had a payback in recent weeks as near-term consumer demand has wavered.

The verdict is still out on what the underlying demand actually is, as comparisons are very difficult due to the early clear out of previous model year inventories.

Rising health-care costs are a concern and the automotive supply base remains troubled as evidenced by recent bankruptcy filings.

All these factors contribute to the uncertainty in this segment making it very challenging.

Now, turning to Visteon.

Our fourth quarter sales are expected to be down for automotive and glass by about 40% year-over-year reflecting the business transferred to ACH.

Non-Ford sales are expected to represent more than half of our product sales in the quarter.

The Ford transaction will result in a gain of 1.7 to $1.8 billion in the fourth quarter, with an overall net gain for the transaction in the $8 to $900 million range when the second quarter asset write-downs are taken into account.

Operating results for the fourth quarter are expected to be aided by the Ford transaction, a seasonal increase in production volumes and cost reduction initiatives.

However, commodity -- continued commodity and customer pricing pressures combined with remaining legacy manufacturing and infrastructure costs will continue to pressure results.

Based on these factors, we expect to reduce our operating loss when compared to the third quarter but we do not expect to achieve operating profitability in the fourth quarter.

This operating loss in the quarter combined with the rolloff of trade working capital associate with the transfer business is expected to result in negative cash flow from operations for Visteon in the fourth quarter.

We are focused on our future and the actions necessary to restructure our operations in a tough environment and through the escrow agreement we have the funds available to take actions and anticipate that those actions will lead to operational improvements in 2006 and beyond.

We intend to discuss our prospects and view of the industry our plan and outlook for 2006 and beyond at the Detroit Auto show in January.

And Derek, with that I'll turn it back over to you and the moderator for questions.

Judy, if you can please remind people how to get in queue for questions.

Yes sir. [OPERATOR INSTRUCTIONS] Our first question comes from the line of Darren Kimball with Lehman Brothers.

Hi guys, how are you?

Hi Darren.

I thought there with some discussion of the potential for couple billion more in asset sales?

This is Mike.

I think what you maybe saw was that we have a couple billion dollars in non-core revenue around the world and we had said that there were a number of possibilities in front of us to either improve or restructure or divest those.

Those facilities -- but all of those are options are open and we will pursue whatever the proper action is.

It's a very intense review right now by the local management with a number of options that we can choose from, I think there was a quote that said we were really only looking at one option and that is not correct we are looking at all options and we're in negotiations around the world to come up with the right solution for that non-core business.

And so that's a subset of the 20 sites?

Yes, that's correct.

Okay.

Let me ask a couple questions about commodity costs.

You haven't said much about what kind of exposure you have in the NewCo, could you give us a sense of what kind of run rate you're experiencing in terms of unrecovered commodity pressures?

Darren, as you probably know is dramatically reduced.

Our steel exposure is the area that is the biggest reduction with the transferred business.

We do still have exposure to oil prices or resins in the interior business on a go forward basis, but it it's fairly significantly reduced.

And yes, there are still some uncovered or unrecovered commodity prices.

And is that -- I mean, is that could be a drag on a performance bases in 2006?

Believe me, we are attempting to recover every dollar we can on those commodity prices but it is as you expect, in a negotiation process.

Our intent is to recover, as I said every dollar we can.

Yes, I'm not sure that addresses the question though.

Obviously the market prices for some of these things are way up, so a lot of companies are signaling that commodity costs will be higher in '06.

I wish I knew where oil prices is really going to be.

Okay.

And let me just as one more thing on revenue and then I'll give somebody else a shot.

Your second quarter was very encouraging in terms of your non-Ford growth.

You had about 24% comp, excluding the foreign currency and that looks like that has dropped down to a single digit sort of number.

What's going on there?

It looks like your fourth quarter guidance is for a similar low in non-Ford sales growth and what can you say about that and maybe the 2006 outlook?

Well, I think what you saw essentially through -- beginning in '04 and continuing through 05 was the launch of a number of wins in the earlier years non-Ford businesses.

We have in process a number of other non-Ford wins that will come on stream in 2006, and '07, and '08 and as well, there are some non-Ford sales that go away with the ACH transfer, both in automotive and glass.

So it's a combination of those two things that you see going on.

Darren, I would just add that our win rates continue.

We're running in the non-Ford revenue in '05, we're running ahead of the wins that we had in '04 and I would expect that trend to continue.

Okay.

So I didn't miss it, right?

You're not putting any numbers on the backlog, this is something you're going to do in January?

Yes, I think at the Auto Show, Darren, we will give you a much more comprehensive view of what we see coming at the business over, not just 2006 but we're going to be executing a multi-year plan here, will give you a view beyond '06 as well.

Okay, and lastly on the revenues, how much of your revenue mix relates to pass through sales?

Pass through sales for the nine months are in the range of -- well, about 300 million a quarter looks like another run rate it looks like is kind of the run rate, a little bit more or less dependent upon volumes in those quarters, but it's been running about 300 million are so.

I'm sorry, Jim, is that going to be comparable to sort of your go forward?

It would be a little bit less because of some of the transfer business.

Okay.

So something in the range of $1 billion a year as pass through?

Yes.

Okay, thanks very much.

The next question comes from the line of Chris Ceraso with Credit Suisse First Boston.

Thanks, good morning.

Good morning Chris.

The first one just a follow-up on that.

The 20 under-performing plants is that what you're saying is about 2 billion in revenues or it's it a bigger number than that?

It would be in that range.

Now, some of the non-core business is not under-performing, it's just non-core, so you actually have a mix in there and you can't just take 20 plants and 2 billion and say it's clean.

It's not as clean as that.

But in round numbers its 20 locations that we feel are under-performing that definitely have a lot of focus and we, as we said earlier, we've got the money to take a restructuring actions that we plan to take.

So think of that as one universe of opportunity.

Then the other is the fact that we have roughly $2 billion of non-core revenue.

Some of those plants are performing well, but they happen to be non-core for us.

So it's not as pure as you first asked, Chris.

So there's some overlap?

Yes.

Can you give us a feel of those 20 under-performing plants with aggregate operating losses?

We would -- no.

That we wouldn't disclose nor would we identified a particular plants because of the local discussions that are ongoing right now.

Okay.

And then maybe just on the restructuring actions if you could just mad about the timing, how you expect to be spending this money for restructuring?

Is it something that will carry through, I guess you said, maybe through 2009 but what is the cadence for that, is there a big chunk of that up front, do you get rid of a bunch of salaried people right away?

Could you give us a little more color on that timing?

Well first of all, on the salary people, we wound up with a large number of folks supporting ACH and services.

So there's about a little more than 5,000 people doing that and then we have also under 3,000 people on Visteon Corp.

The numbers are probably the right numbers but we may have some people in different disciplines where we're short of folks and some that were over.

So that won't be a major, like, event.

It will be something that we work on in the very near term window.

I could tell you that if we could spend all of the $800 million in '06, we would do it.

It's that kind of priority We want to give as much restructuring in place as fast as we can.

I think we've had good experience in terms of what we paid back on the restructuring actions we've taken.

In some cases were restricted in terms of how fast we can move because of capacity or because of customer commitments and so I would expect that this one to be spread out over several years and again, in January, I've think we can probably give you better a flavor for the timing of how fast we can move on some of these actions but it's a very, very high priority for Don Stebbins and his organization as well as Jim.

It's instructive at all to look at the fourth quarter versus the fourth quarter of last year or, I mean, why did you choose to compared to the third quarter because of the underlying wage rate is lower?

How would compare to the fourth quarter last year with a slightly lower?

Volumes are going to be more similar, maybe slightly lower at Ford.

Volumes, Chris, you're right volumes are going to be lower than they were last year.

Frankly, almost all of our attention is focused on what do we need to do to make this Company successful in the long term.

We chose really not to focus on the fourth quarter and to give guidance on the fourth quarter.

We're really working on what are the things we have to do to make this Company successful in 2006 and beyond and so that's really what we're trying to work on here.

Okay, thanks a lot.

The next question comes from the line of John Casesa with Merrill Lynch.

Thanks very much.

Two questions.

Jim, just to understand this, we won't then see pro formas for this Company, I guess we won't until the fourth quarter report, we won't see what the Company looks like after the Ford deal is that correct?

We will have pro-forma as filed with the SEC as we bring our filings current.

You will.

So we will see what those pro forma numbers yield just in compliance with those regulations and we could probably have a debate about how representative that is of the results on a go forward basis, but we will have pro-forma results filed here in the fourth quarter.

Okay and then secondly, maybe for Mike.

Mike, what is your exposure should Ford begin a major capacity reduction program?

Given their new profile, could thus result in restructuring beyond what you are alluding to in today's call?

I wouldn't rule out any additional restructuring, anywhere, but again, we have the funds to do that.

Obviously, we shifted the bulk of our exposure back into the LLC and the ACH.

That was the bulk of the revenue that we have with Ford in North America.

As we pointed out earlier in our comments, our total Ford revenue drops to less than 50% of the total, but also within that number, about half of that is in Europe and half of that is in North America.

So to the extent that Ford has drastic actions in North America, our exposure certainly greatly reduced from where it was before and a lot of the revenue that we have for Ford today would come off of our Mexican operation.

So there are some other under-performing operations in North America that have to be addressed and I think we actually covered those, at least conceptually, when we talked about restructuring actions in 20 under-performing facilities and so on.

So I would just guide you that were in much better shape if given the transaction that we had, if Ford does in fact take some of the restructuring actions, we have the capital to address any issues that come off and I think our competitive footprint with our manufacturing production bases is pretty darned good to support Ford.

And Mike, I know with all the talk about restructuring and positioning, it may seem an odd question, but are there areas that you are targeting for acquisition growth right now?

I mean, besides geographic growth in certain markets you've identified, but are there product lines were you to find the right purchase you make it now?

There actually there would be we don't have any that we've identify today but we are in a unique window I think in the industry where, as Jim and I have been saying, we're clearly focused on improving the performance of the base business, but there's also a lot of opportunity in the industry today on a global basis to make some strategic moves.

And we focused our business on the three core product lines and the people running those product lines have certainly targeted opportunities of acquisition or alliance or merger or any other form to strengthen their technology footprint and strengthen their capability to serve customers.

So it's not a bad question we wouldn't rule it out.

I can tell you right now as Jim said, are for this is get to January, we can communicate what's going on for the next couple years feel we are not linked the opportunities that are out there.

Thanks very much.

Your next question comes from the line of Joseph Amaturo with Calyon Securities.

Good morning guys.

Good morning.

I was wondering if you could touch on how many of the non-core plants are North America of the 20, and how many are in Europe?

Joseph, we'd rather not do that.

I would, as we said and our comments, there are some that remain in North America and there really -- our attention is focused on what can we do to improve those plants, whether they're North America, or throughout the world to make them competitive.

Okay, and maybe as far as Ford revenue and non-Ford revenue can you break that out as far as non-core plants?

On the non-core plans,.

I would say on some of those non-core plants instead of calling the non-core think of them as other.

We got electronics in climate and interiors and other and some of those others are in different parts of the world.

Some are in Europe, some of them are very profitable, and there's a mix of customers that are in those other plants or plants that are producing other products.

So like we said earlier, it's not as clean as you might think is when we say 20 facilities and with other, what's core, what's Ford, what's not, clearly we have that information, but if I'm not sure there's much to be gained by splitting that out.

Okay, and then could you tell me who's holding the escrow account for the 550 million?

Well, the escrow account is actually for 400 million that is held by a financial institution, a third-party financial institution.

Okay, and did I hear you correctly, that if you don't use that that's it's Visteon's cash upon expiration?

The actual agreement says that is all ours unless there's a change in control and the funds are not used for restructuring subsequent to the change of control.

Okay, thank you.

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

Hi Ron.

Hey, good morning everyone.

Good morning.

Could you elaborate on the comment that we could debate how the pro formas are going to represent I guess your operations?

I mean, you guys -- are you still targeting breakeven for next year with the pro forma show you get to break even for next year?

I'm not sure what the pro formas are going to show because we're still in the process of completing those.

All I meant by that is the pro formas are a snapshot in time, looking back, and they may not represent what is really going to happen on a go forward basis.

As far as -- so that's the best of pro formas.

Clearly, we know we have to be profitable to be successful, and believe me, again, that is our goal.

That has always been our goal.

We're dedicated to that goal and we are focused on the actions that we have to take to get there.

And I do know we have to work through the short term to get to the long term.

Okay.

And we're right in the middle the planning process right now.

We're dealing with what are the OE production volumes going to be, what are commodity prices going to be, what are all our restructuring actions, and rather than rush to answer we wanted to take the time and come back to you all in January at the Auto Show and give you our best view of where everything stands at that point in time.

Does to be clear, that you'll do the pro formas in your 10Q, then?

I don't know if it's in the Q or the K and its in the filings.

Okay and in the fourth quarter comments, you said that you're not profitable, is it barely not profitable, are you firmly in the red?

You anticipated that one, I hope?

What we said in the press releases that the operating loss in the fourth quarter is going to show significant improvement over that in the third quarter and I would just leave it at that.

All right and then just on the -- it looks like in the quarter have about 70 million are so assistance from Ford and the negative mix and the negative cost performance kind of, at least with that much to offset it.

So I guess I've two questions.

Which was bigger, the negative net costs were negative mix in the quarter and how could you guys give us a comfort level that the restructuring that you're going to do is going to be incremental and not disclaim to be used to offset your price reduction?

Well, I guess what I would say on the latter is as we go through our planning process, we are clearly focused on A, what is the price reductions that our customers expect and that we're willing to give and how much can we achieve in normal cost reductions to offset any of those price downs that we may have to give.

And then, our we are focused on the underperforming facilities and what can we do to improve them.

Whether those facilities remain with us or transition over some period of time.

And as Mike said, those underperforming facilities are both in core products, our current product lines as well as others.

So making them perform as they should is a key priority for us on a go forward basis.

And then which of those two are bigger the net cost was bigger or the negative mix in the quarter, in terms of impact on gross profit?

I honestly don't know.

I'd have a Derek to get back to you with that answer.

Just one last thing, on the lease -- those employees that you leased to Ford, could it possibly cost you anything to get rid of those employees could Ford put them back to you and you would have to pay to help them leave?

Well, that is what the second pile of restructuring our pool of restructuring is for the $150 million.

That is intended to cover any separation costs that we may might incur in that process for salaried employees or for any employees, actually.

Including the leased employees?

Yes.

Okay, thank you.

The next question comes from the line of Rod Lache with Deutsche Bank.

Good morning everybody.

Good morning, Rod.

Couple questions.

Just going back the second quarter conference call, you guys said you were expecting around break-even once these businesses are shed.

I just wanted to clarify, was that on an EBIT basis or was that on the bottom line are and maybe if you can elaborate a little bit on what has changed since those expectations were put out.

Is this more volume issue or it commodities?

Maybe you can elaborate on this.

What I said, Rod was our goal was to get to a PBT break-even level.

Obviously, as I said today, we recognize we need to get to profitability so the goal remains.

What has changed obviously, the OE production involve, environment is I think much more challenge today than it was then and the real question is going to be what is it going to be in 2006?

And how does that affect us?

As Mike said, our exposure to Ford North American production volumes is now significantly different.

Our unit revenues are decreased significantly.

I do think mix is going to be important to us as we go forward.

So, again, understanding where the whole automotive space is going is going to be a key part of our thinking as we go into 2006 and then sizing our organization to fit that volume on a go forward basis.

Okay, and I guess a couple other questions at I have.

The -- can you maybe elaborate on what the -- we have three numbers here, what was the approximate EBITDA of the businesses that your shedding if we were to -- is there any way for us to sort of looked at the EBITDA in the third quarter and sort of normalize that?

First of all, we can't say we're going to shed these yet.

The business you're transferring to Ford.

Okay, got you.

No, you can't get that from any of the information you have here here.

And you're not going to provide it?

I think when you look at the pro formas you'll get some perspective on that.

Okay.

Can you comment on what the duration is of your lease deal on the salaried employees and also can you just clarify again, when you break down the funding, that's 50, 50 shared for example of the Visteon part, $150 million, 50- 50 share does that mean 75, 75 or does that mean that Ford's part is 150 and that you are managing that dollar for dollar for another 150?

Well, again there are two pools and the concept in both pools is the first dollars in the escrow agreement 250, in the leased employee pool, 50 million is first dollar, Ford reimbursement or escrow reimbursement.

After that, the next 150 million in the escrow agreement, they pay 150, we pay 150.

So for 300 million, I pay 150.

So I get a total of $400 million reimbursed from the escrow agreement for 550 million of costs.

The first 250 dollar for dollar, the first $250 is first dollar coverage.

The next 300 is split 50, 5o.

On the leased employees first dollar coverage is 50 million the next 200 million is split 50, 50 so that I get 100 million reimbursement.

Great, thank you very much.

Okay. and I think your other question was on term of the leased employees and I've forgotten if it's 2009 or 2010, but essentially the employees are leased for as long as Ford for the third-party buyer needs them.

Some conditions on third-party buyer, but no longer than 2009.

Okay, thanks.

Ladies and gentlemen we have time for one more question, and that question will come from the line of Michael Bruynesteyn with Prudential.

Good morning, guys.

Good morning.

With these restatements down on the past period, does that mean we're going to see an offsetting positive impact on '05, and would that be mostly in the ACH operations for Visteon NewCo or how would we split that out?

You're correct that the restatements move some dollars out of what was in the first quarter or other quarters into 2002, '03, or '04.

Essentially, the preliminary information that you see today, third quarter and year to date, reflects the anticipated movement of those dollars out of the third quarter and the nine month period.

Okay, great, and then what portion of the pension and OPEB goes away with the ACH?

Pension for OPEB comes down fairly significantly.

Give me a second here and I'll find a number for you.

Yes, OPEB costs, quarter to quarter, come down about $60 million, third quarter to fourth quarter.

And pension is?

Pension is less, obviously, more and the $30 million range.

And then finally what was the R&D in the quarter?

Well, depreciation and amortization was 117 -- I'm sorry, R&D, 216.

216?

Yes.

And I don't think last quarter you were going to give that number and didn't get around to it you know what it was for the prior quarter?

I don't and I'm going to have to ask -- about 207.

Thank you very much.

Okay, well thanks for calling in.

I will be available for the rest of the day to answer your questions.

So we'll talk to you later.

Thanks.

Bye.

Ladies and gentlemen if this concludes today's teleconference call.

Thank you for your for participation.

You may disconnect at this time.

Good day.