Visteon Corp (VC) 2006 Q3 法說會逐字稿

Good morning, and welcome have the Visteon third quarter 2006 earning release conference call.

As a reminder this call is being recorded.

Before we begin this morning's conference call, I would like to remind you, 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 website this morning.

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

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

Mr. Fiebig, you may begin.

Thanks, Courtney.

And good morning, everyone.

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

Following formal remarks by Don and Jim, we'll be happy to take your questions.

And with that, I'll kick the call over to Don.

Thanks, Derek.

This morning I will provide you with an overview of the operations before turning the call over to Jim to cover the financials.

During the third quarter we continued to make significant progress on the implementation of our three year plan.

We enhanced our global footprint shifting both manufacturing and engineering of our operations to lower cost countries.

This included the September opening of our new 110,000 square foot software engineering center in India, and new climate-controlled facilities in China and Turkey, and a new interiors and climate facility in Slovakia.

We are improving our base business, and this year's solid new business wins will help us to grow the business profitably in the future.

Although we are making solid progress on the plan, the challenging current and near term production levels are severely pressuring our results.

To mitigate the impact of these results, yesterday we announced additional cost reduction actions, which will improve Visteon's results going forward.

Additionally, we have our financing in place and the escrow account is available to fund restructuring activities.

As I mentioned, our third quarter results were significantly impacted by lower third quarter production by our largest customers.

Ford North America was down 12% year-over-year and is expected to be down 21% year-over-year in the fourth quarter.

Ford of Europe was up 13% year-over-year while PAG was off 11%.

Additionally, we've also seen a decrease of about 25% in our orders from the Ford customer service division which had an adverse impact on the results in our aftermarket group.

Nissan North America was also down 12%.

And for the fourth quarter, Nissan North America's expected to be slightly lower than a year ago.

In Europe, we saw volumes at PSA fall 17% year-over-year.

We project that PSA will be flat year-over-year in the fourth quarter.

Renault volumes fell 9% in the third quarter and we expect they could be down 10% year-over-year in the fourth quarter.

Additionally in the quarter, we lost 80,000 units of production to the Hyundai strike in Korea.

Slide 4 provides a financial summary for the third quarter and nine month results.

For the third quarter, we reported a net loss of $177 million or $1.38 per share.

EBIT-R was a negative 127 million representing a $10 million improvement from the third quarter last year.

Free cash flow was a use of 116 million improving by 137 million from the same quarter last year.

For the first nine months we reported a net loss of 124 million or $0.97 per share.

EBIT-R for the first nine months was $64 million.

This represents an improvement of $339 million from the first three quarters of last year.

Free cash flow was a use of 223 million through the end of September, which compares with the use of $25 million last year, as last year's nine month results included the benefit of the accelerated payments from Ford as part of the funding agreement.

Slide five shows the three pillars of our three-year plan.

Restructuring our facilities, improving our base operations and growing our business.

All of which we are executing concurrently in order to make Visteon a more successful supplier.

As we've highlighted in our quarterly calls, our restructuring activities are well underway and we're making solid progress.

We are also improving the business by working on the base operations.

We are also aware that we need to grow the business, cost cutting and restructuring will bring us to a certain level of success.

But in order to ensure long-term success, we need to grow the business profitably in our core products and so far this year, we've made excellent progress.

Slide six provides an update on the actions we laid out in January as part of our restructuring plan.

In the plan, we identified 23 plants that would be fixed, closed or sold and 11 were scheduled for completion during 2006.

To date, we have closed five of the six identified facilities with the one remaining facility to be closed later this month.

Through our targeted operational [efforts], we have significantly changed the profitability of one of our facilities as we had planned.

We will also continue to discuss with labor, our customers and potential buyers, the possibility of divesting four other facilities as part of our three year plan.

In addition to the original plans for 2006, we also exited our Mexican Glass joint venture during the third quarter and we announced our plans to close our Chicago facility next year.

Both actions will improve our profitability.

At the start of the year, we also discussed moving more of our engineering and manufacturing to lower cost areas.

So far this year, engineering head count in lower cost countries has increased by 7 percentage points to 32%.

This represents approximately 1/4 of the total movement expected to achieve the targeted 50/50 split by the end of 2008.

On manufacturing head count, we've increased our low cost percentage of the total work force by three percentage points to 68%.

Our goal is to have about 3/4 of our overall hourly manufacturing personnel in lower cost countries by the end of 2008.

Our progress will come in less of a linear fashion than the movement of our engineering as the head count is tied to specific plants that will be addressed over the next few years.

Year-to-date restructuring expense is $35 million.

This is lower than our earlier estimates for a number of reasons, including lower than anticipated severance costs due to the structure of our programs, and attrition that has allowed to us reduce costs without incurring expense.

Spending is also lower in the U.K. where we continue to negotiate with the national U.K. labor unions.

However, savings are on track to meet our original estimates.

As we've said all along, there'll be some ebbs and flows in the timing of our restructuring and we view it as a top priority to make the best use of the restructuring funds available in the escrow account.

Yesterday, we announced internally to our employees that we intend to reduce our salaried work force by 900 employees.

As you are aware, we have employees that are shared or leased to ACH and they are not part of this initiative.

Looking at our employee census, excluding the employees supporting ACH, these reductions will reduce our salaried head count in higher cost countries by approximately 13%.

It is expected to yield annual savings of approximately $75 million.

And we estimate the cost of this census reduction will be about $65 million and that these costs qualify for reimbursement from the escrow account.

We expect to complete the substantial majority of these actions before the end of the first quarter of 2007.

On slide nine, in terms of the second leg of our three year plan, improving our base operations, our quality as measured by our customers and effective parts per million improved 65% since last year.

While the safety of our employees as measured by the lost time case rate has improved 45% since last year.

Our capital expenditures are 35% lower than originally planned.

And we expect to spend $200 million less than last year.

Premium freight is expected to show a 20% improvement from last year despite substantial premium costs associated with the European plants that we-- have been identified for restructuring activity.

The third pillar of our three year plan is growing our business profitably.

And through the first nine months of this year, we're close to $1 billion of new incremental business win.

Over 20% better than our internal target for the year.

These wins come from all of our core product groups and from an increasingly diverse customer base in all regions of the world.

And although most of the business will launch post 2008, over $200 million of this business will launch in 2007.

Again, showing that we can act quickly to assist our customers.

As we look ahead, the new business wins will continue the diversification of our customer base and increase the profitability of the Company.

We are making significant progress and improving our base operations and we continue to execute the restructuring piece of our three year plan.

As I mentioned, we're taking additional actions as a result of the significant volume declines we are seeing from our major customers, and importantly, our financing is completed with no significant maturities until 2010.

And we have $336 million in the escrow account to fund the restructuring.

Now I'd like to turn it over to Jim for the financial review.

Thanks, Don.

Good morning, ladies and gentlemen.

This morning, I will take you through our financial slides, provide some comments on 2006 guidance, and then we'll open the lines up for your questions.

Given the substantial change in our business since a year ago, driven largely by the ACH transaction, I'm generally going to be discussing our results by comparing the current quarter to the results for the first half of this year as I have done for the last couple quarters.

That impact is most apparent on slide 12 where product sales decreased from 4.1 billion in Q3 '05 to just under 2.5 billion in the third quarter of '06.

The 2005 amount is not adjusted for the ACH transactions, which we estimate would have lowered Ford sales by 1.56 billion and nonFord sales by 177 million.

Year-over-year currency increased sales by about 90 million as the U.S. dollar weakened against the Euro, the Korean Won and the British Pound.

By the third quarter of '06, nonFord sales totaled 1.4 billion and Ford sales totaled 1.1 billion.

Ford North America now represents 20% of our sales for the third quarter of this year, down from about 50% or so third quarter last year.

Third quarter '06 nonFord sales adjusted for currency increased by about $50 million from the third quarter of '05 pro forma amounts, as revenue from new program starts largely in Asia, more than offset production declines at a number of our customers and pricing.

Slide 13 looks at product cost of sales and gross margins.

Cost of sales was 2.4 for the third quarter representing, or resulting in a gross margin of 1.8% of sales.

This is down substantially from the first half of the year for a number of reasons.

First, the third quarter is always negatively affected by the normal, low seasonal volumes due to summer shutdowns around the globe.

However, these shutdowns were extended at a number of our facilities this year due to a very low production environment at a number of our customers.

In addition to the low volume, we also suffered from poor performance at a number of facilities in western Europe that have been identified to be addressed in our three year plan and for which we've been in discussions with labor.

The performance included a number of labor disruptions, which led to additional premium freight and other cost.

Almost $11 million of premium freight that we've incurred thus far this year has been related to these facilities.

For the quarter, material costs were unfavorable reflecting continued commodity cost pressures, some distress in the supply base and a difficult negotiation environment stemming from the lower OE production levels, as well as new program launch costs in the third quarter were greater.

We also had weak performance in our aftermarket operations.

As Don mentioned the volumes from Ford customer service division were down about 25% versus last year, leading to a fall off in profitability.

And then we also had the litigation settlement for $15 million that hit in the third quarter.

When comparing the first half of this year to the third quarter, the third quarter obviously did not include the favorable adjustments to OPEB and pension and some commercial items that benefited the first half by about 170 basis points.

We expect gross margins for the year to be slightly less than 7% of sales.

We had said 8% in the third quarter.

Reflecting the lower sales volume and performance issues that I just described.

And as we had previously mentioned, we do expect to incur a pension settlement cost of about $20 million for the Markham, Ontario facility in the fourth quarter that we exited a number of years ago.

Turning to G&A on slide 14, total expenses for the third quarter was 177 million or 7.1% of sales.

Included in expense in this quarter were $9 million of financing-related fees for our European securitization program that we completed during the third quarter.

Without these fees, G&A would have been 6.8% of the sales for the quarter, which is down about 12% from the second quarter and in line with 168 million of G&A that we had in the first quarter of the year.

We continue to work on driving G&A costs down and the salary reductions we have just mentioned, although not limited to the G&A line, will help to reduce our costs going forward.

On a year-to-date basis, G&A costs on an absolute dollar basis are down a little over 8% when compared to the number that 2005 pro forma amounts on a year-over-year basis.

For the full year 2006, we expect G&A to be about 6.5% of product sales.

Our organization clearly is focused on at least holding G&A constant as a percent of revenue in a declining near term revenue environment.

Our long term goal is to further reduce G&A costs but in the near term we are willing to spend in the current range to help support and grow our business with our global customers.

For the third quarter, we reported a net loss of 177 million and a net loss of $124 million for the first nine months of the year.

The third quarter results did include the financing fees as well as the litigation settlement that I mentioned on the previous slides, and it did not include any of the OPEB or pension gains that we had in the first half of 2006.

However, the biggest drivers in the third quarter loss were the low production volumes, poor performance at factories being addressed in the three year plan, material cost performance and seasonably high new program launch costs.

Taxes for the third quarter were 10 million, a little bit lower than the 25 million or so that we would normally see, with the difference being attributed to the tax benefits recorded for changes and other comprehensive income.

For the year, we would expect tax expense to be in the range of 85 to $100 million with cash taxes essentially in the same range.

As you know, in addition to the traditional GAAP measures, we are measuring ourselves using a nonGAAP measure of EBIT-R due to the significant amount of restructuring that we anticipate over the next three years.

EBIT-R for the third quarter was a loss of 127 million, a $10 million improvement from the same period a year ago.

The improvement from the absence of the ACH plants, lower OPEB and D&A and continued improvement in operating performance was largely offset by material costs, new program launch and tooling cost, premium freight and the poor performance at a number of the western European facilities, and aftermarket that I mentioned previously.

For the first nine months, EBIT-R is a 64 million-- EBIT-R is $64 million, an improvement of 339 million from a year ago.

The benefits of the ACH transaction were a big part of that improvement as we estimate the loss from the ACH facilities was 224 million for the first nine months of 2005.

But even without the benefit of the ACH transaction, EBIT-R improved substantially.

The improvement was driven by improved operating performance, lower post employment benefits, MD&A, and the absence of the Collins & Aikman bankruptcy bad debt that we had last year.

Material costs, higher new program launch costs were partial offsets.

The next slide looks at free cash flow.

As expected, free cash flow for the quarter was negative, or a use of $116 million.

Year-to-date, it is a use of $223 million.

Third quarter free cash flow does include an increase in receivables sold into our new European securitization facility benefiting the third quarter free cash flow by about $65 million.

Year-to-date, we have returned to the same levels of receivables sold as of year end '05, so year-to-date cash flow has not been affected.

Capital expenditures were $82 million for the third quarter and $265 million for the first nine months.

The disciplines we have put in place on reuse of existing equipment and approval for new projects continues to result in lower than expected CapEx.

The third quarter has historically been a difficult quarter for us in working capital performance.

In fact, we have never in our history had positive free cash flow in the third quarter due to the summer shutdowns around the globe.

However, the fourth quarter is historically our strongest quarter of the year and we expecting working capital reduction to be a significant source of cash in the period.

Firm plans are in place to reduce inventory levels.

Those plans are being monitored on a weekly basis.

Although, we are projecting an improvement in DSOs from the seasonably high level at 930, simply due to the timing of sales occurring more in the latter half of the third quarter than spread evenly throughout the quarter, that improvement takes us to the more historical levels at year end when fourth quarter sales occur earlier in the quarter rather than later in the quarter as they did in the third quarter.

We are not projecting any improvement in DSOs net of DPOs from last year's levels at this point, although, we are clearly focused on this area.

As I've said before, we know we have some work to do in improving our cash flow, but as you're aware, our leadership team is committed to driving improvements in working capital.

Our outlook for the second half of 2006 has changed significantly since our second quarter earnings call.

So I want to spend a few minutes discussing some of the factors.

In mid-August, Ford announced reductions in its third quarter North America production.

That announcement was followed by another announcement in September of further significant production cuts for both the third quarter and the fourth quarter production levels.

Other OEs have also announced production cuts.

Production volumes are now significantly below our plan, whereas Ford North America production for the first and second quarter of this year were actually above our plan.

Hence our expectation of what was a conservative production estimate for the second half, based on our experience in the first half, has not come true.

Additionally, as Don and I have both mentioned, we are experience operational difficulties at a number of our facilities in western Europe, where we are addressing as part of our three year plan.

These difficulties have included work stoppages and poor performance that have led to increased labor and premium freight costs.

Our materials management performance is coming in weaker than we had anticipated.

There are essentially three pressure points in this area.

As you all know, commodity price pressures continue.

Lower OE production levels are apparent and those lower OE production levels have caused some distress with some of the supply community.

So all in total, those items are making it more difficult for to us realize our material cost reductions.

We are having more success in surcharge recovery than we did last year but they continue to be a net drag on our results.

Here in North America, the results of our aftermarket group have also been a disappointment, largely driven by lower volumes, but also affected by issues surrounding duplicate labor costs as we transition our manufacturing operations from Buffalo to Mexico.

And then finally, as we have talked about, we've had some nonoperational items, the litigation settlement and securitization fees, that impacted our results in the third quarter and thus will affect our guidance for the year.

But slide 20 takes a look at our guidance for the full year of 2006 as compared to 2005 actual results.

We now expect product sales to total about 10.9 billion for the full year.

This is down from the as-reported 16.8 billion in 2005 but just about at the same level of revenue as we would have incurred in 2005 excluding the plants that were part of the ACH transaction.

Flat revenues essentially reflects lower Ford North America production volumes and customer pricing offset by revenue from our new program starts.

EBIT-R is expected to be between 40 and $50 million for the full year, reflecting a small EBIT-R loss for the fourth quarter this year, which will represent a significant or solid improvement when compared to the fourth quarter of last year when it was negative $102 million.

Fourth quarter over third quarter EBIT-R improvement will be driven by increased nonFord North American production volumes, lower new program launch and tooling costs, and better labor efficiency resulting from actions that we've already taken.

However, for the fourth quarter, we are projecting continued historically high material costs, aftermarket weakness and little recovery in our western European facilities being addressed in our three-year plan.

Even so, EBIT-R is still expected to improve by more than $400 million year-over-year.

Free cash flow is now projected to be a use of $100 million, improved substantially when compared to 2005.

Essentially the change in our free cash flow guidance is all due to lower EBIT-R offset by a smaller improvement in CapEx of about $20 million.

We are forecasting positive free cash flow in the fourth quarter consistent with our historical experience with positive EBITDA and trade working capital reduction offset by CapEx at a level that is a little bit higher than what we saw as an average for the first three quarters of this year.

So before we turn it over for your questions, I will close with a slide that provides some perspectives on Visteon.

First, the current production environment clearly highlights the benefits of the ACH transaction that we completed last year.

And despite the reduction in key OEM production levels, our EBIT-R results are expected to be improved by over $400 million from 2005 results.

Likewise, free cash flow is improved but neither EBIT-R or free cash flow is yet to an acceptable level.

And both of these issues have our undivided attention.

As Don mentioned, we are winning a great deal of new business in our key product areas even with our more stringent approval process.

We have restructuring plans and funding available to improve the business.

Our financing is in place with no significant maturities in 2010.

The production environment is making it more difficult, but we are taking the steps necessary to offset the declines with the recently announced 900 head count reduction.

Although we are unhappy with the results, this leadership team is committed to driving operational improvement.

Now Derek, with this I think we'll turn it over for questions.

Courtney if you can remind people how to get in the queue for questions please.

Thank you. [OPERATOR INSTRUCTIONS] And our first question comes from the line of Chris Ceraso from Credit Suisse.

Well thanks, good morning.

Morning Chris.

I'm hoping Jim you can help us maybe frame some of these items that hurt you, maybe in the context of a walk from Q2 to Q3, for example, the material cost delta, the western European issues, the cost of distressed suppliers, the hit from the aftermarket in terms of profit, the launch and engineering and tooling costs.

Maybe if you can give us those figures, just rough numbers in a delta versus where they were in Q2.

Well first of all, Chris, volume is a factor from Q2 to Q3.

Sure.

The after-market piece is a piece as well as is the inefficiencies or the problems in the western European facilities.

Volume is clearly the biggest piece.

The inefficiencies in the western European is second.

Aftermarket is-- would be about third.

And then finally, the material cost is probably the fourth item.

Now, would you say that the hit from volume was it, if we think about it in terms of the revenue decline from Q2 to Q3, was it maybe a 40 or 50% hit or 40 or $0.50 per dollar of lost revenue?

Is that the right magnitude?

You're a little high on that.

Okay so more like the normal 30 to $0.35?

Yes, more like what I would say is a 30 to 35.

Okay.

And then what exactly goes away or maybe the same context those same items as you roll in to Q4, because the Ford volume in North America will be down sequentially presumably the material costs will remain difficult.

And it sounds like some of the items that go away are smaller in magnitude, but you're talking about a pretty big improvement in EBIT-R.

The walk essentially from fourth quarter to-- or from third to fourth quarter is first of all volumes, although Ford North America is down.

Total volume, if you look at our guidance for total revenue for the year versus year-to-date revenues, you'll see that revenues is-- are up in the fourth quarter.

That drives a variable contribution.

That is the biggest element.

And is that maybe $0.15 on the dollar on the way up?

No, it's not quite as much as the way down, but it's in that kind of range.

So 25 to 30.

And then we do have the third quarter, as I mentioned, has higher launch costs just due to its seasonal nature and those reverse into the -- in the fourth quarter.

We do have some labor efficiency from actions that we've taken already in some of the plants.

And then I do expect some improvement quarter-over-quarter in material costs.

And then finally G&A.

Now, in the first half, you had some favorable commercial settlements with regard to pricing.

Did that swing the other way or did it just not recur in Q3?

It just did not occur-- reoccur.

And the last one, just I apologize if I missed this, did you say that the securitization helps working capital by 65 million in the quarter?

In the quarter, year-to-date has no impact.

Okay.

Thanks a lot, Jim.

All right.

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

Good morning.

Hi, Joe.

A couple of questions.

First off, the 65-- the 900 million -- the 900 workers, do you expect to pay that 65 million in '06 or in '07?

It's going to be spread between '06 and '07.

Clearly we are focused on getting people out, we'd like to get people out as soon as possible.

That clearly is the area of focus.

As we look around the globe, different labor laws in different countries will affect some of the timing.

So some of it will occur in '07 but we are clearly focused on doing as much as we can as soon as we can.

Any guess on what piece gets paid in '06 versus '07?

Just a rough guess would be, maybe half.

But it's only rough guess at this point.

Okay.

And then if you could just explain -- I mean, I guess some of the confusion among investors are that you only took your revenue guidance down by $1 million, yet your EBIT-R guidance came down more substantially.

Could you just bridge that for us?

Well, essentially, I know you all hate to hear this, but it's mix issues that run through the total enterprise.

So we-- Ford North America revenues are down.

We are up in Asia, we are up in Europe, actually.

But it also then goes to product mix.

Okay.

And then just lastly --

And then finally, I would also say there's some currency impact on the revenue comparison, but I don't know that that's the biggest --

Could you just remind us if you-- is there any profit association with the $90 million benefit from foreign currency movement?

There's a small amount because essentially you're translating revenues and cost of sales at the same rate, so you're really talking about the margin impact.

Very nominal.

Okay and then lastly, you had finance fees of $9 million in the quarter, and litigation fees of 15 million.

Just, are those part of the guidance that you--?

Yes, they are.

That was rolled into the guidance.

So those are two of the items that result in the lower guidance.

So on an operating basis, I mean, probably more appropriately it is-- we should be looking at this as a-- the loss is $24 million less than what you put out there on the slide for the third quarter?

A little bit less than 24 because we had some amount accrued for the litigation settlement.

How much was that accrued?

Six.

Okay.

Okay, thank you.

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

Hi.

This is Jairam Nathan for Ron.

When I, when I-- can you hear me?

Yes, we can.

When I look at the 30, 35% available margins on the down side, how much of these cost reduction-- restructuring that you're taking is just to cut that variable margin?

And how much of that would typically fall into the bottom line?

Could you ask that question again?

I'm sorry.

It looks like some of the restructuring expenses that you're taking-- charges expenses you're taking would probably help you reduce this 30, 35% variable margin.

Let me try it this way.

Whenever volume -- we look at our manufacturing operations as a variable piece and a fixed piece and we work hard to control both pieces of fixed and variable.

But when you have a volume decline in a quarter, obviously, you don't get as good of labor absorption in that quarter.

So when you have declining revenues in a quarter, your labor efficiency is not as good, just generally not as good as a quarter that is more stable or increasing.

So we do use restructuring funds to size our production facilities based on our estimate, our-- the current estimate.

Not the quarter but a longer term estimate of the production capability or needs of each facility.

But on a quarter-to-quarter basis, you will have hung up costs, if you want to call it that or unabsorbed costs, just simply because of the fluctuation and production volumes.

So how should we think of this variable margin going forward on lower volumes?

Should it kind of come down or should it-- do you think it kind of stays at that level?

Well clearly, we work to control it at our historical levels.

We are look-- part of the reason for our 900 head count reduction across the total salary work force including manufacturing, engineering and G&A is based on our expectation of future production volumes.

Frankly, the announcement by Ford North America of their volumes for next year was not a surprise to us.

It had been included in our thinking, and we sized up that head count reduction to take into account not only those volumes but our volumes at other major customers.

Okay.

So historical variable margins you think's probably in the 20, 25% range or -- like when you said historical -- ?

Again, they are product dependent and they vary by geographic area as well.

Okay.

All right.

Okay, thanks.

Your next question comes from the line of Robert Barry with Goldman Sachs.

Hi.

Good morning.

Good morning.

There's been a lot of speculation over the past couple of months that there could be a transaction on the table involving all of Visteon, it's caused a tremendous amount of volatility in the stock.

Would you be able to comment just kind of definitively whether or not that is a possibility or not?

Robert this is Mike.

We will definitively have no comment.

We've held to that position when those rumors were out there in different spikes and volume of rumors and so on, and so we just stay with that position.

We wouldn't comment on anything.

Not then and not today and probably not in the future.

Okay.

So the only official position is that you're still planning to close the four facilities by the end of the year?

That's correct.

As part of the plan, we've got four facilities that we're in process right now where we're -- we've received bids for the facilities and we're working with the customers and labor as well as the potential acquirers of those facilities to get those things in the barn by the year end.

Okay.

We'll continue to work that as aggressively as possible, and ultimately, our decisions will be made based on a -- from a shareholder return perspective as to whether or not we find the transaction that makes sense.

Okay.

The 20 million pension charge related to the facility in Ontario, is that included in your EBIT-R guidance?

Yes it is.

So if we stripped that out, the EBIT-R guidance would actually be 20 million higher?

Yes.

Okay and then just wanted to recap a couple of the items in the cash flow lot.

Can you just-- cash taxes, is that still 110 for the year?

No, you're a little high I believe.

What I--in my comments, I think I said that our expectation for tax expense is in the kind of 85 to $100 million range with cash taxes about the same.

Okay got you.

And then the interest-- the cash interest, is that still about 155?

Yes.

Yes, again, expense and interest -- expense and cash interest are about the same.

There is some fluctuation timing of when that interest is paid.

For example, the bonds, I've semi-annual interest payments.

But on a full year basis, essentially cash interest and interest expense are about the same.

Okay.

And then the CapEx, is that still about 400 or did you imply it might be --

I implied it would be 380.

380, right.

And then I guess the implied lower impact from working capital, that just have to do with the fact that the supply base is under more stress and it's harder to realize some of those gains this year on the working capital front?

No what I was trying to say is first of all, how do we get there from the third quarter?

And how we get there from the third quarter is, again, the fourth quarter is historically a positive or working capital reduction quarter.

It stems simply-- think about it from this perspective.

In the fourth quarter, the shutdowns occur around the Christmas season.

So the production occurs earlier in the year, earlier in the quarter and by the end of the quarter you collect more of the receivables.

Compared to at the third quarter, summer shutdowns occur the first couple of weeks of July, production occurs the latter part of the quarter.

So you have more receivables at the end of the third quarter than you will have at the end of the fourth quarter, simply because of the timing of when the sales occur even if sales were exactly the same quarter-to-quarter, you'll have more cash being generated in the fourth quarter than the third.

Right --

And what I also tried to say is that we were not being overly aggressive in our assumptions about working capital reduction in that we came back to net DSOs, DPOs consistent with what we had last year.

Right, right.

Yes that's what I was getting at.

It still seems like it's a big positive lift, it just maybe not as much as it was a quarter ago expected to be.

Again, I feel pretty good about or confident about our ability to generate significant trade working capital reduction in the fourth quarter.

Okay, thank you.

Your next question comes from the line of Eric Selle with JPMorgan Chase.

Good morning.

Hi Eric.

Looking at your bank facilities, both the ABL and then the securitization, could you give us what's outstanding on that, including LCs, and then what's available on both of those?

The U.S. facility has $25 million drawn on the ABL, the U.S.

ABL facility.

There is round numbers $95 million of LC against it.

The total facility is 350.

Okay.

The European facility was -- is 325 and there's roughly 65 million of receivables sold into that facility.

Okay.

And there's no borrowing base restrictions on the ABL, so basically that 350 less the 120?

So you probably, you have about 230 available on that?

You got to go through all of the borrowing base formulas, percent of eligible receivables and all that but, Derek and our guys can walk you through it.

Okay.

Essentially that's the math, I believe.

Okay.

And on the European piece, we still need a little bit of the approval on the French, approval for the receivables but we're getting that wrapped up.

Okay.

And then looking at your guidance for new business, you guys said about a 20% of your net new business was coming in next year.

Is that, I mean, can I assume that, you're looking at year end revenues of 10.9?

Can I--is that incremental net new revenue incorporating a $200 million boost incorporating cuts at Ford?

I mean should we incorporate a 11, kind of one revenue base for next year?

Is that fair?

What we're trying to point out was that that $200 million will be on top, yes.

You'll take-- if you'll take the year end, what we're guiding to 10.9, then you're going to have to adjust down for volumes and currency impacts and all that other stuff.

And then on top of that, yes, there would be $200 million on top of that, that's correct.

Okay and then--

but it's not as simple as that right now.

I'd caution you on going there.

Yes I don't-- it is true that there is that additional couple hundred million dollars of revenue that goes into '07.

At the same time, I don't think anyone expects Ford North America production levels in '07 to be where they are in '06.

Okay.

And so that is two items that are going to change as well as our other OE production levels are going to be different as well.

So I-- I don't think you can just, as Don said, I don't think you can just do that very simple math.

Okay.

And then in the third quarter, what was the year-over-year impact of legacy expenses.

You guys said it was less than the first half.

Was there no benefit in the third quarter or--?

I'm sorry?

Basically, your OPEB and pension expense, how did that trend year-over-year in the third quarter?

Obviously it's down substantially year-over-year because third quarter last year still had essentially had the ACH/UAW related activities within them.

So again, Derek can get you those actual numbers, but compared to the second quarter, the comments that I tried to make were comparing to the second quarter of this year where the second quarter had a $49 million favorable OPEB settlement item in it-- settlement and pension item in it, that did not repeat in the third quarter of this year.

Okay.

Okay.

Then finally based on a prior question and I don't mean to beat a dead horse, but the materiality of some of these rumors that are going around on the M&A front, is there a timing when we should expect you guys to address those or are we going to basically go into a black hole towards the end of the year?

Yes, again it's Mike, I think we addressed it with our no comment.

I mean, our position is we won't comment on speculation and rumors, and so that's what's been out there, and we have no comment.

All right.

Thanks a lot, guys.

Your next question comes from the line of Joseph Von Meister with Jefferies.

Hi, guys.

Good morning.

Hi, Jeff.

The-- I guess I have a couple of follow-up questions.

Your AR balance outstanding was $65 million.

Is that correct?

AR, I'm--

Your accounts receivable security--- your securitization.

Oh, securitization, yes.

Again, that is off balance sheet.

It's sold.

So the way the program works is you sell receivables into the European securitization facility.

It's treated as a sale of receivables.

You receive the cash.

And so receivable balances have been reduced by that 65 million and the cash came in the door.

Got it.

And the cash left in your restructuring fund after the third quarter payments?

336, I think, was the number Don mentioned.

And in terms of EBIT-R, I mean, so far you've been including all sorts of nonoperating items in EBIT-R.

In the first half it was the benefit of OPEB reversal credits, which I think were noncash in nature; in the fourth quarter, there's going to be a $20 million hit.

Can you have some mercy on us and give us a clean operating number?

Well, again, what we have talked about is all of those items we specifically talked about them being included and disclosed what the impact is.

If you think you need to back them out, I'll leave that up to you to do that.

In 2008, are you willing to provide us with a revenue forecast similar to the presentations you were making earlier in the year?

When we are right in the middle of our normal operating plan process, all of that leads up to a December Board meeting, and then a presentation at the analyst conference here at the Detroit Auto Show in early January.

We will at that time be making those kind of forecasts as well.

Your margins are significantly below, I mean my observations, significantly below, basically what I would describe as a peer group of auto suppliers.

And I assume that is partly due to underutilization in a number of your plants, but you're changing that and leaning out your operations.

What kind of earnings power do you think Visteon can have in two or three years?

Well --

What kind of margins do you think you can generate?

I mean it looks like you're guiding to a $400 million EBITDA number for 2006 if you back out a number of the nonrecurring items.

That'd be a margin of 4%.

What do you think Visteon should be able to generate when it cleans itself up?

Well as I think we've said consistently, our goal clearly is as we complete all these restructuring activities over the-- and implement our three year plan, we see no reason why we shouldn't be industry average or better.

And no one's satisfied with being average, but there is not inherently anything different in our business that would suggest that we can't at least have average industry average margins.

As I said, no one here wants to be average.

So that would imply a significant improvement in margin over the next three years?

Yes.

The last thing that I'd like to, this is more of a comment, but for us to be looking at Q6,-- 2006 results versus 2005 results without getting them from you guys on a pro forma basis is, it's not really indicative of the kind of reporting that I'd expect from the world class company that Visteon is.

Do you think you could give us pro forma comparisons?

The pro forma adjustments were filed in a 8K in October or November last year.

Your presentations -- your presentations are not apples-to-apples, they're--

And we have some FD disclosure issues around that and so we're trying to work around that by giving you guys some comments about what the pro forma results look at, but I can't just go to throw out the historical numbers and go to pro formas or I have FD issues.

Thanks, guys.

Your next question comes from the line of Adam Plissner with Credit Suisse.

Good morning.

Good morning.

Can you tell me if you guys are considering -- we've seen the market applaud accelerated attrition moves by Ford, GM, more recently American Axle.

Are you guys considering going ahead and looking at buyout programs to accelerate some of the facility closures?

No we just announced a 900 head count reduction.

I'm specifically referring to like on the [wades] front.

Can you actually go ahead and move forward depending plant-by-plant?

Is that a consideration just where you may have some union contracts that roll off in '08 and '09 and try to bring those forward and try to sort of catch up to some of the lost momentum you've had?

In terms of the actions that we've taken in some of the plants by year end, probably 1,000 hourly workers will have left Visteon throughout the facilities, and certainly in Europe we are working with the labor unions to make us more cost competitive.

We are working on that on a plant-by-plant basis.

But am I right to think about it somewhat of a waiting game until each of those contracts expire?

Is there a possibility you can go out and make offers to try to front load those closures?

We certainly do have some contracts where we do have minimum job guarantees, and like I said, we're working with the union representatives in each one of those plants to try to make us as competitive as quickly as we can.

Okay.

And then regards maybe just an update on the expected annual cost savings.

Have you guys given us a number that sort of discloses what you felt you've realized in terms of the cost savings so far year-to-date?

And then what this additional cost saving program in total would look like, and how that would be scheduled out over the next two, three years?

I mean you give us-- you gave us a cumulative cost saving in the past sort of 60 million in '06 and then add on another 90 million and so forth the next couple of years.

I guess the stuff that's moved around plus you've also realized year-to-date, I guess starting out what's the cost savings you realized year-to-date so far--?

Well as Don said in the comments, we are on track to realize our estimate of savings for 2006, although we have spent far less at this point than what we had estimated to spend for 2006.

When I look, and part of that spending less in 2006 actually is we incurred or spent some funds in the fourth quarter of '05 that when we did our plan last year we actually had in 2006 so we pulled stuff forward in the fourth quarter of '05.

So if I put the fourth quarter of '05 together with the 35 million of what we have spent so far, plus the actions that I know we have underway for the fourth quarter of this year, we are going to spend not 180 million, which was the estimate, but including the $65 million associated with the 900 head count reduction, we probably could be about the $150 million range.

Again, all of that will not be spent this year.

Some will spend in '05.

As I said earlier, my gut at this point is that about half of 65 could be spent in '06.

The other half will spill over into '07.

So again, the -- and when we talked about being on track for the restructuring savings for '06, we did not include our benefit of the 900 head count.

It was just from the, if you will, the normal planned activities.

And so we were accomplishing those activities with far less dollars being spent.

Frankly, as we had looked at our estimates over time, particularly a review the second half of this year, our cost estimates were coming in lower and our savings estimates were continuing to be at or above what we had at the beginning of the year.

So we are, as again I think Don mentioned, we are spending less than what we had anticipated due in part to attrition, due in part to changes in programs and just being really-- trying to be really prudent about how we spend the money.

So at this point in time, I would tell that you I think we're not only on track for this year but as we look forward as well.

That's helpful on the spend.

In terms of the realized savings year-to-date, is it fair to say through three quarters you're-- I don't really know the cadence of those savings.

I would expect it to be back-end loaded.

But is the fourth quarter going to be the bulk of those realized savings or through the year-to-date period would you say a substantial amount has already been realized?

Well again it ramps, it frankly varies quarter-to-quarter.

We did-- as I said we did some activities in the fourth quarter '05, we got those.

First half we didn't spend that much in the first quarter of this year.

We spent more in the third quarter so it is -- there are benefits coming in the fourth quarter but all of that has essentially been reflected in the guidance that I've given you as well.

That ramp.

All right, great.

Thank you.

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

And that question comes from [Frank Jarman] from Goldman Sachs.

Thanks, guys.

Just a couple questions.

One on liquidity.

Can you give me the cash split between U.S. and nonU.S. cash on hand?

The 740 is -- and we'll get actual numbers to you, but what I remember is about 150 or so U.S. and then the balance is essentially about evenly split between Asia and Europe.

But Derek can get you actual numbers.

Okay.

On the new ADL and AR securitization facility, am I correct in that there are no financial maintenance covenants on--?

You are correct.

Okay.

And just the last question, as we head into 2007, I believe the Ford payment terms change with regards to working capital.

Is there any sense for what sort of headwind that could create on the cash flow side?

Well-- and let's be clear, those Ford payment terms relate to North America production volumes sold to North America plants.

It changes by four days, 22 to 26 days.

So frankly given their low production volumes it's not going to be that significant.

Okay.

Great.

Thanks.

Okay, well thanks for participating in this call.

I'll be around till probably about 4:30 to take your calls today.

Bye.

Thank you.

Bye-bye.

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