Visteon Corp (VC) 2006 Q4 法說會逐字稿

Good morning.

And welcome to the Visteon full-year 2006 earnings 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'd 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 forward-looking statements.

Please refer to the slide entitled, "Forward-looking Statements" for further information.

Presentation materials for today's call were 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 speakers' remarks there will be a question-and-answer session. [OPERATOR INSTRUCTIONS]

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

Mr. Fiebig, you may begin.

Thanks, Judy, 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.

Also joining us in the room is Bill Quigley.

Following our formal remarks we will be happy to take your questions.

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

Thanks, Derek, and good morning, everyone.

I'll take you through a summary of our results and give you an update on our operations before turning the call over to Jim who will take you through our financials.

Looking back at 2006, although the year did not turn out as well as we had expected, we still made considerable progress despite the significant fall off in volumes at our key customers.

Our financial performance improved as evidenced by our expanded margins and our improved net income, free cash flow, and EBIT-R.

We won more than $1 billion of new business during the year, and we executed our restructuring plan completing 11 actions and initiated two others including the salaried workforce reduction and the closure of a major climate facility.

We also completed financings in 2006 which enhanced our liquidity and extended our maturities.

And at the end of the year we had over $1 billion in cash.

Slide 3 provides a financial summary for our fourth quarter and full-year results.

For the fourth quarter we reported a net loss of $39 million, or $0.30 per share.

EBIT-R was a negative $37 million representing an $82 million improvement from the fourth quarter last year.

Free cash flow was a source of $131 million improving by $274 million from the same quarter last year.

For the full-year 2006 we reported a net loss of $163 million or, $1.28 per share.

EBIT-R for the full-year was $27 million, and this represents an improvement of $415 million from the full-year 2005.

Free cash flow was a use of $92 million for the full-year.

This was $76 million better than 2005.

Slide 4 shows our plan with its three pillars, restructuring, 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 made solid progress in 2006 and are continuing our efforts in 2007.

We are also improving the business by working on our base operations and we're also aware that we need to profitably grow our business and our core products in order to ensure long-term success.

Our customers realize the potential of Visteon and the value proposition that we provide through our product lineup and are backing up their belief with record levels of new purchase orders.

On Slide 5.

In 2006 we completed a total of 11 restructuring actions as we fixed three facilities, closed six, and sold two operations.

The fall off in production volumes has heightened the need for our restructuring, and we've implemented incremental actions to mitigate this production impact principally via our salaried reduction plan.

We have also announced that we plan on closing our Chicago and Connersville facilities in 2007.

And at the end of the year 2006 we had $319 million remaining in our escrow account.

As I mentioned, this month we announced to our employees at our Connersville facility that we intend to close the plant later this year.

Connersville is a 1.8 million square-foot climate facility.

The facility employs approximately 890 people.

Sales at the facility in 2006 were roughly $360 million.

We estimate a fall off in revenue at Connersville of about 60% in 2007.

Our fourth quarter 2006 results include restructuring and curtailment losses of $28 million.

All of these expenses have now been reimbursed from the escrow account.

Our guidance for 2007 EBIT-R reflects a large fall off in the financial performance related to the closure of Connersville.

The reduced sales in the movement of work -- the remaining work to Mexico.

In total for 2007 we expect to have $45 million of non-reimbursed expenses related to restructuring actions with more than half of them related to the steps that we are taking at Connersville.

This explains a large portion of the expected fall off in the corporate results in 2007 from 2006.

On Slide 7.

Last fall in response to the lower production volumes we announced the salaried reduction plan.

This reduction targets headcount in high cost countries.

The program is expected to reduce our high cost salaried personnel by more than 10%.

As of the year-end we had identified approximately 800 positions.

The fourth quarter results include $19 million of expenses that were reimbursed this year.

The cost of this actions are lower than earlier estimates due to the mix of voluntary and agency separations.

Nearly all of the 800 people are no longer with Visteon.

We estimate the 800 positions will save us nearly $65 million on an annual basis.

The elimination of the additional positions are under review and will be identified by the end of the quarter.

This will increase our restructuring costs and our expected savings.

Although we made steady progress on improving our base operations, our performance in 2006 has been negatively impacted by lower volumes and supplier and labor disruption.

On Slide 9, as I mentioned, we made progress in terms of our second leg of our three-year plan.

Our quality as measured by our customers and defective parts per million improved by 67% since last year.

While the safety of our employees as measured by the lost time case rate has improved 40% since last year.

Our capital expenditures were 36% lower than 2005 declining more than $200 million, and we expect capital expenditures to be about flat in 2007.

Premium freight was about the same as it was in 2005 but included over $10 million of costs associated with labor disruptions primarily in Europe.

We are targeting additional reductions in 2007.

Slide 10.

The third pillar of our plan is to grow the business, and we had a great year in terms of new business wins in 2006 winning business across all of our product lines with multiple customers.

The majority of the wins will be manufactured in lower cost facilities while our losses are more weighted to the higher cost legacy facilities.

We know there'll be rather significant investment required in the near-term for both engineering and capital before we reach full sales realization of these wins.

For 2006, as I mentioned, we had over $1 billion in new incremental business wins, 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 in 2009 or 2010, more than 20% of the business will launch in 2007, again, showing that we can act quickly to assist our customers.

About 75% of these wins are included in our three-year backlog.

On Slide 12 is our backlog slide.

Totals $1 billion over the next three years.

The backlog is net awarded business that is expected to launch over these three years and unlike last year the backlog does not include any high confidence wins.

Contained in the backlog is solid growth with the Asian OEs and growth with European OEs partially offset by declines in our North American sales to Ford.

We expect our backlog will grow in the future as the decrease in Ford North American sales will diminish and we add to our business with other customers.

Part of the reason the backlog is so low in 2007 is due to sourcing decisions made by Ford a number of years ago.

This impact diminishes in 2008 and 2009.

To attract new business we continue to use our automotive intellect to design innovative, high quality products, a few of which are shown on Slide 13.

Some of our recent innovations include wireless charging technology which has received a lot of media attention.

This new technology provides a convenient way to make sure batteries for mobile phones, MP3 players or PDAs are always charged and ready to go.

It eliminates the need to have dedicated power cords for each portable device in the vehicle.

Visteon is also a leader in electronic connectivity connecting personal devices such as your iPod and mobile phones to your vehicle systems.

As personal devices proliferate in the market, Visteon has solutions to integrate them intelligently into your vehicle.

Our climate control group has recently introduced a flat HVAC concept which is ultra thin unit designed to enable packaging in completely new locations within the vehicle.

Among the other benefits this enables new interior design concepts with increased flexibility and improved interior storage.

These are just some of the new technologies that we're working on here at Visteon.

I now will turn things over to Jim who will walk you through the financials.

Thanks, Don.

Good morning, ladies and gentlemen.

With the closing of the ACH transaction on October 1st of 2005, this is now the first time that we have a clean quarter for P&L comparison purposes although cash flow for the fourth quarter of last year was negatively affected by the unwinding of the working capital associated with the transferred ACH business.

This slide, Slide 14, presents the details of product sales for the fourth quarter.

And as you can see, sales in total were essentially flat year-over-year but there were some big movements in the pieces.

Ford sales were down $179 million, or 14% as production in North America was down 24% on a year-over-year basis.

Favorable currency of about $45 million was a partial offset.

Non port sales were able to offset the Ford decline as they increased $188 million, or 13%.

For the fourth quarter they represented 60% of product sales up 7 percentage points from a year ago.

The increase was primarily driven by growth in sales to Hyundai Kia, Asian tier 1 suppliers and favorable currency of about $85 million.

The total impact of currency on the quarter year-over-year basis was about $130 million.

Slide 15 looks at product sales for the full-year.

Total product sales are down $5.94 billion which was more than explained by the impact of the ACH transaction for which the associated sales were $6.1 billion, 5.2 of which related to Ford.

After adjusting for the ACH transactions and for our favorable currency of about $20 million for the year, Ford sales were down by about $350 million, which was driven by a fall off of a little over 300,000 units, or 9% of production in Ford North America.

Increased production in Europe was a partial offset.

Adjusting product sales to non-Ford customers for the ACH transaction and favorable currency of about $70 million we saw an increase of over $400 million in non-Ford sales primarily due to increased sales with Hyundai Kia.

Year-over-year currency increased sales by about $90 million.

Slide 16 shows the breakout of our product sales based on geography.

On a consolidated basis Europe and South America represent 42% of sales, and sales in Asia were 22% of the total and up about half a billion dollars on a year-over-year basis.

North America was off significantly from 2005 when it represented about 60% of sales.

It now represents only 36% of total sales.

If we include our non-consolidated entities, we see a more equal distribution of sales across all the regions.

Asia grows 10 percentage points to 32, North America and Europe decrease to 32 and 36% respectively.

So in very balanced across all the regions of the world.

Slide 17 looks at the same data but on a product group basis.

So on a consolidated basis climate and electronics each make up about 27% of consolidated sales and interiors represent a quarter of consolidated sales and then other product group makes up the balance.

Including the non-consolidated sales, interiors becomes the largest product group representing 29% of the total driven primarily from the sales of Yan Feng in China.

But again, as you can see, a very balanced product mix across the three product groups.

Slide 18 looks at product and gross margins.

Product costs of sales were nearly $2.6 billion for the fourth quarter, resulting in a gross margin of $131 million, or 4.8% of sales which is improved by 280 basis points from the fourth quarter of 2005.

That increase is driven by a number of factors, but most importantly it is the positive business equation, and by that we mean cost efficiencies in excess of customer productivity which was positive by about 225 basis points in the quarter.

This does include some non-recurrence of some bad news that we highlighted in last year's fourth quarter.

Depreciation and amortization was lower by about $7 million dollars.

Volume and mix had a negative impact of more than 100 basis points as we had lower sales at a number of our higher cost facilities in North America.

Other negative factors were slightly higher incentive compensation, $11 million of pension curtailment losses which were reimbursable from the escrow account, and $6 million of expenses related to the adoption of the new accounting literature, FAS 158 related to pensions, which together reduced margins by about 80 basis points.

Currency and reduction in non income based taxes were positive factors and essentially offset volume and mix for the quarter.

For the full-year gross margins were 6.7% of sales, up from 3.2% as reported for 2005, and just slightly below our gross margin expectations for the year as of the end of the third quarter.

Turning to next slide.

SG&A, $177 million in the fourth quarter, 6.5% of sales, down from $183 million in the fourth quarter of '05.

Cost reductions of $15 million on a year-over-year basis were essentially offset by higher compensation costs including stock-based compensation, currency, and European securitization costs.

Our long-term goal is to further reduce G&A.

We have planned reductions for 2007 although focus of our spending will shift towards improving our information systems.

On Slide 20.

During the fourth quarter we realized an income tax benefit of $32 million when normally we would have expected a tax expense in the range of 25 to $30 million.

U.S.

GAAP requires to us look at to all sources of income including comprehensive income when determining whether sufficient taxable income exists to realize deferred tax assets.

The tax benefit reported in the fourth quarter and for the year largely reflects the tax benefit of tax affecting current period operating losses to the extent of increases in other comprehensive income which principally relate to favorable foreign currency translation, again, reflecting the weakening of the dollar versus the major currencies that we operate against.

For the full-year 2006 our cash taxes were $97 million.

On Slide 21.

In the fourth quarter of '06 Visteon early adopted the new accounting standard FAS 158 dealing with pension accounting.

This new accounting standard requires recognition in the balance sheet of the funded status of pension and OPEB plans as of year-end based on the projected benefit obligation, as opposed to the accumulated benefit obligation which was the requirement under the old standard, and also requires that plan measurement dates be as of the end of the year.

Visteon's adoption of this new accounting principle increased our shareholders deficit by about $130 million and it eliminated the delayed recognition previously afforded to curtailments, and that resulted in a recognition of a loss of about $6 million in the fourth quarter 2006 cost of sales.

For the full-year 2007 we expect to recognize pension expense of about $130 million including the Markham settlement and about $30 million of OPEB related expenses.

Combined cash payments for pension and OPEB are approximately 15 to $20 million higher than expense.

Slide 22 reconciles net income to EBIT-R for the fourth quarter of 2005 and 2006.

Although our bottom line fourth quarter '06 results were worse than those of 2005, the change is more than explained by the fourth quarter 2005 gain on the ACH transaction net of asset impairments.

As we have discussed in the past we believed EBIT-R is a useful measure as it looks at our basic operating performance before restructuring costs.

Fourth quarter EBIT-R on a year-over-year basis was improved by $82 million reflecting largely the improved gross margins we talked about in the prior slide.

For the full-year, Slide 23, both net loss and EBIT-R were improved on a year-over-year basis reflecting, again, improvements in gross margin as well as the completion of the ACH transaction.

Slide 24.

Turning to fourth quarter free cash flow.

I'd start by reminding you that the fourth quarter of 2005 included the negative effects of the unwind of the trade working capital associated with the business transferred to ACH, but for the fourth quarter of 2006 cash from operations was $239 million, nearly $200 million better than that in 2005 and free cash flow was positive $131 million and proving $274 million on a year-over-year basis.

Trade working capital was a source of $234 million in the quarter as we did a fairly solid job in managing receivables, reducing receivables and payables during the quarter.

And as Don mentioned, we ended the quarter with a little bit over $1 billion of cash, about 40% of which is in the U.S.

Slide 25 looks at cash flow for our full-year basis.

Cash from operations, $281 million was lower than 2005 primarily due to the strength of the trade working capital improvements in 2005 associated with the accelerated payment terms that we received from Ford.

Although free cash flow was improved by $76 million on a year-over-year basis from a use of $168 million to a use of $92 million.

Before I turn to some comments about 2007, I thought it was beneficial to step back for just a few moments and reflect on full-year 2006 results.

Obviously, there are a lot of pluses and minuses that occur over the course of the year that were not anticipated in our original guidance for 2006.

By far the biggest miss was the significant volume reductions and unfavorable mix that occurred at a number of our customers, particularly during the second half of the year.

Those reductions totaled about $425 million of lost sales much of which occurred at higher cost facilities.

We estimate that the variable profit on these lost sales was about $150 million.

On the positive side, our financial results were favorably impacted in the first half of the year by about $70 million reflecting the non-cash OPEB and pension liability relief for two ACH plants that were transferred to Ford.

The impact of these two items was a net drag of $80 million on EBIT-R and $150 million on free cash flow.

So with that, let's turn to guidance for 2007.

For 2007 we expect product sales to be about $11.1 billion, an increase of $200 million year-over-year, but that increase reflects a continued weakness in the U.S. dollar and a somewhat higher level of customer direct sourcing than what we saw in 2006.

For 2007 EBIT-R is forecasted at minus $50 million reflecting the benefit of our restructuring and headcount reduction actions we have taken, offset by the non-recurrence of the one-time items favorably affecting 2006 as well as the additional start-up and plant related costs that Don referred to affecting 2007.

Although growth in new business is essentially offset by lower volume, mix and pricing on a revenue basis, the reduced vehicle mix and lost volume is predominantly weighted towards some of the facilities in our higher cost countries resulting in higher than normally expected margin reduction due to the fixed costs absorption issues.

Free cash flow for 2007 is forecasted at minus 175 assuming a constant level of accounts receivable securitization, although I would expect that we would utilize the programs to a greater extent in 2007 than they were at the end of 2006.

When we do so, that increase will actually be reported as free cash flow, but we wanted to be as transparent as possible as to what free cash flow would be on an operational basis excluding any change in securitization.

Cash taxes and interest is forecasted to be about the same as expense, and D&A is forecasted to be about $60 million greater than capital expenditures.

Working capital and accruals is slightly positive and produces the balance of free cash flow for the year.

Both EBIT-R and free cash flow forecast for 2007 have a range of plus or minus $50 million around them and they do not include the effects of any non-core plant or business sales that may occur.

On Slide 27, as I said before, we expect free cash flow to be negative in 2007.

Free cash flow for 2008 is forecasted to be improved from 2007 largely from improved EBIT-R results, but still slightly negative overall, but absent any our share of the restructuring expenses for 2008 free cash flow is essentially breakeven.

And then in 2009 free cash flow is forecasted to be positive.

With the completion of our financing activities last year, there are no significant debt maturities until 2010.

As we mentioned, cash balances at the end of the year were a little bit over $1billion with 70% of those balances in the U.S. and Europe and 40% in the U.S.

We have $270 million of availability under our ABL facilities as of year-end, and as we have said before, the capital markets have been robust.

We continue to be approached with ideas that we may consider, and if we do, we would take those opportunities to enhance liquidity or lengthen maturities.

So with that, I'll turn it over to Mike for some concluding comments.

Okay.

Thanks, Jim.

In 2006 Visteon moved a long way ahead on the path to profitability.

It was our first full year with our new operating structure and the three product groups of climate, electronics and interiors, and we began our restructuring efforts and improved the base operations despite the declining volumes.

As Don mentioned, we won more than $1billion in new business and we extended our debt maturities.

In 2007 and 2008 we'll continue to face headwinds from production mix and sourcing actions taken in previous years, while we will continue to address our non-core and underperforming operations.

We'll make a good deal of investment for both our product launches and for innovation, and we expect our Asian growth to continue.

In 2009 we forecast we will be free cash flow positive allowing us to bring down our debt levels.

Importantly, the business will have the full impact of new program wins and the majority of our restructuring will be behind us.

On Slide 29 just to summarize, the near-term dynamics will be challenging for both the industry and for Visteon, but our restructuring actions and sales growth diversification will aid our results over the longer term.

With the actions we've taken in 2006 we have sufficient liquidity in the escrow account to fund the restructuring of the business.

We will capture the significant and increasing value of our Asian operations that's being offset today by the operations that we are restructuring in other parts of the world.

We're working on the right operational items and will optimize each of our product groups to create value for the shareholders.

I would like to take this opportunity to acknowledge the significant contributions of Jim Palmer and his role in helping transform our company.

We're really sure he's going to continue that success at Northrop Grumman.

One of Jim's accomplishments was the building of a strong financial team.

And we're very pleased that we have the talented successor in the name of Bill Quigley on board and we're very confident of seeing a very smooth transition.

Now we'll be happy to take your questions.

Judy, if you could please remind people how to get in the queue and then open the lines up for Q&A.

[OPERATOR INSTRUCTIONS] Our first question is from Chris Ceraso with Credit Suisse.

Thanks.

Good morning.

I guess I've got a couple of items.

Maybe we can start at a high level, and you've outlined a number of these things.

But if we think about the walk from '06 to '07 in terms of EBIT-R and you've outlined some of the things that will cause the deterioration, maybe if you can just give us an idea for two of these things here where I don't think we've got a detailed number, one being the unreimbursed restructuring expenses which you referenced were related to moving some of your business to low cost countries.

And then secondly, maybe if you can just kind of quantify what you see in terms of lost revenue and maybe the contribution on that.

That seems to be a couple of the missing buckets because we've talked about the benefit from headcount, the restructuring savings and then the non-recurrence of the OPEB benefit.

Yes, the start-up kind of related costs for '07 are in the range of about $50 million, so clearly, that is one of those items, as Don mentioned, Connersville facility essentially goes as a significant fall off in revenue from '06 to '07 down more than about, roughly 60% year-over-year.

Essentially that facility goes from a four-wall basis, meaning a plant operating level before engineering, G&A goes from about a breakeven to losing about $50 million.

So those are some of the big items affecting, operationally affecting, the comparison from year-to-year.

As I mentioned, we do have new business growth that comes on.

It has reasonable margins associated with it, and then we also have business that has been lost that is occurring out of higher cost facilities.

Connersville is a great example of that with revenue down 60% on a year-over-year basis which essentially gives those fixed cost absorption challenges associated with the businesses.

So Chris, it's a combination of the lost revenue occurring in higher cost facilities, Connersville is the poster child example of that, and then we have some of these start-up related costs for moving facilities -- moving the work from one facility to another.

Okay.

On Slide 10 you mentioned investment for new business over the next couple of years.

Can you give us a feel for where R&D and Cap Ex will trend, say, from '06 as the starting point through '07 and into '08?

I would see R&D kind of in the $500 million range.

By R&D we would say engineering kind of in the $500 plus million range on a year-over-year basis, and Cap Ex I think we're going to kind of range that we're going to, kind of the range that we're running at now, kind of 375 to 400-ish if you will.

And is that going up as you suggest here with this investment in new business?

It is essentially flat.

We've incurred a lot of capital investment over the last couple years in anticipation of some of these plant consolidation moves, so that is going away and it's being replaced by the investment in new business.

Okay.

And then lastly just to quantify, I'm sorry if I missed this.

What is the expectation for tax expense for '07?

More of a normal -- what I said is cash taxes and expense are about the same.

If you go to the reconciliation chart attached to the press release, the required GAAP reconciliation to the EBIT-R number, you'll see it there, $95 million.

Okay.

Great.

Thank you very much.

Yep.

Your next question comes from Jon Rogers with Citigroup.

Yes.

Good morning.

Good morning, John.

There's just maybe a housekeeping item.

It looks like to me there that there's a new item on the balance sheet, a new line item, interest and accounts receivable transferred.

Can you tell us what that is?

Essentially that's the European securitization facility where we sell receivables into this off balance sheet vehicle, and we retain some interest in those sold receivables.

Okay.

And then Jim, can you give us the funded status of the pension and OPEB at the end of the year?

If you give me a second I can put my fingers on it.

The U.S. plans, and there's multiple plans, but the U.S. plans are about 78% funded on a PBO basis, not an ABO basis, a PBO basis, and that's up about 10 percentage points from the prior year, and the European plans in total are about 64% funded up from about 61% in the prior year.

Those are all as of a September measurement date.

Okay.

How about the OPEB balances?

Do you have that?

[Virtually] unfunded.

Right.

And OPEB balances are about --

Like the unfunded balance that we'll see I guess in the K?

It's round numbers around $800 million.

Okay.

Thank you very much.

Okay.

The next question comes from Ronald Tadross with Banc of America.

Good morning, guys.

I just wanted to go through the gross margin walk.

You said about 225 bips came from in the quarter restructuring better than price kind of thing.

What is the more sustainable rate of that?

Is it going forward the next few years, is that a 50 bip kind of positive or can you help us out with that?

Clearly, what we strive to do is to have cost reductions in excess of any productivity we have to give to our customers.

On a long-term basis I don't think 225 bips is sustainable.

That's the, we're coming off of '05 which also, as we mentioned if you remember last year, had some negative items occurring in the quarter, so your 50 bips is kind of a goal or aspiration I would characterize, you know.

What we're looking at here is the run rate, if you will, of the true operational performance before restructuring savings, so basically more of a breakeven to slightly positive number.

So the 225 includes restructuring savings, right?

In 2006 there wasn't that many restructuring savings occurring in the fourth quarter.

Okay.

But going forward the 50 bips would include some restructuring savings?

Yes, it would.

Okay.

And then just kind of finishing off on the gross margin, you had the 225 and then I think you said the volume mix hurt by about 80 bips, correct me if I'm wrong, and then so that would get you down to like about 150 bips improvement in gross margin.

So how do we get back to the 280 that you showed?

What I said was the 2.25 was the business equation, that volume and mix was negative, that non- that currency and non-income taxes offset volume and mix and that we had other negative factors, which were incentive compensation, the $6 million of FAS, the adoption of FAS 158 recognition in the fourth quarter, and pension curtailments that were about 80 bips.

Okay.

Sorry.

And that was a positive?

That was a positive.

Okay.

All right.

Or that was a negative, yes.

The pension curtailments?

Yes, was a negative.

Okay.

So then the other ones were generally positive in the range of like 130 bips net, it seemed like currency, non income tax, volume mix, the incentive accruals and the FAS changes?

Currency and non income taxes was a positive.

Volume and mix were a negative, and we didn't talk about every item that affected gross margins, but those were the biggest items.

All right.

I'll circle back with Derek.

And just one thing on the SG&A.

Going forward are we going to run like around $170 million a quarter?

Does that sound like a good range given the 800 retirements?

I think we're going to be a little bit lower than that.

Okay.

Thanks a lot.

Your next question comes from Robert Barry with Goldman Sachs.

Hi, guys.

Good morning.

Good morning.

For '07 can you comment on raw materials overall is that going to be a net headwind, tailwind or neutral?

I guess can you tell me?

At this point in time we are anticipating the continued headwind, but, frankly, over the last month or so there's been some softening, particularly of oil-based resin type prices, but a month-and-a-half into the year I'm not ready to call that that's going to continue, so we have planned for continued headwinds.

Any ability to quantify the headwind or relative to what you saw in '06?

I would imagine it could be less.

I agree.

It's not as great as it was in '06.

And could you comment on the kind of pricing you're seeing on the new business?

I mean all of this $1 billion backlog, is that would you say much more fairly priced in line with kind of realities of the commodity costs today or that still a challenge?

Our customers clearly are demanding prices that they're comfortable with.

I would tell you that Jim and I have reviewed 90% of those bids before they went into the customer in terms of that $1 billion that we've won and we're comfortable with the returns that we're going to receive as those programs come on stream.

And the other thing I would add is that part of our standard process is understanding what we have in terms of commodity assumptions and whether or not they're based on what we anticipate for those commodity prices on a go-forward basis.

Okay.

And then could you tell me how much of that $1billion is Halla backlog?

I can't off the top of my head here. 25% of the new business wins are climate.

Is what I could tell you.

How much of that is actually Halla, let me see.

It's probably less than 10% is -- 10% of the $1billion, let's call it, is Halla.

Okay.

And then just wanted to clarify.

When you were talking about Connersville, I think you'd mentioned $45 million unreimbursed costs.

That's right.

So whenever you calculate EBIT-R, that type of restructuring is not excluded?

Is not excluded.

It is included in cost of sales.

It is from an accounting perspective, it is not a restructuring cost, it is essentially start-up related, plant closure type costs that do not meet the definition of restructuring.

So they will be reported as cost of sales in the future, but it is an additional cost that affects the year-over-year comparison that we are incurring.

I see.

And you're just calling it out because it's significant and we're inaudible] in nature.

Yes, yes.

The other point I would just point of clarification.

All of that, that 45 number is not all Connersville.

It is the preponderance of it, but it is not all Connersville.

Okay.

Thank you.

Your next question comes from Eric Fell with JPMorgan.

Hey, guys.

You guys mentioned that you'd look at extending maturities, your next maturity is 8.25's at 2010.

And my question to you is, believing in the turnaround in 2009 why would you, you know, refi these at a higher rate and pay such a large tender premium if you do believe in that profit turnaround?

Well you're presupposing an answer that I don't know that we're committed to at this point of time.

All we're trying to say is that the markets continue to be receptive or robust for people in this industry.

There are bankers who bring us ideas that we're willing to listen to to see whether or not they make sense.

We have not concluded that we will take an action or not, but we're going to look at it, and we just think that it's prudent to do so.

That's fair enough.

And then looking forward at some of the asset sales that you guys would consider, can we characterize those as the -- some of the plants that you've had on the block for a while or would you ever consider selling Halla?

Clearly, we're talking about the activities that we've had under way for a period of time.

Okay.

And then finally, could you update us with your pension and OPEB expense and cash contributions for the year?

Do you guys have that?

Yes.

What I said in my comments is that pension expense for the year is -- for 2007 looks like about $130 million.

That does include the Markham settlement that moved from the fourth quarter of '06 to the first quarter of '07.

That is $18 million of that 130, and that we look for OPEB expense to be about $30 million for the year, and that cash payments so that was expense.

Cash combined pension and OPEB are about 15 to $20 million greater than expense.

Thanks a lot, guys.

All right.

[OPERATOR INSTRUCTIONS] Your next question comes from Jeff Skoglund with UBS.

Good morning.

Good morning.

Following up on the liquidity question I was wondering if you could comment on how comfortable you are with your liquidity by geography, you know, particularly how you look at your liquidity in the U.S. and Europe.

Jeff, as we said 40% in the U.S. at year-end, another 30% in Europe, the other 30% obviously is in Asia.

We've been able to take dividends or move cash around on a global basis.

Admittedly it is more difficult out of Asia than out of Europe, and we're working on structures, tax structures to allow us to do it in a more efficient manner.

Okay.

On the supplier front are you having many problems with some of your own suppliers in terms of having to bail them out or how are they faring in this product environment?

The tier 2 suppliers and 3 and 4 suppliers remain stressed, and, yes, we are having to take some of those actions.

Do you expect to see significantly more costs in '07 than '06 or too early to tell?

I would say it's too early to tell.

We clearly have a watch list of suppliers that we are actively managing or watching.

We've had to take some actions already this year.

I don't know that it's going to be any greater or less than it was in '06 and, frankly, it's going to really ultimately depend on the overall production environment for the year.

Okay.

Can you talk about troubled plants?

You talked about Connersville being the poster child for troubled plants, but if we look at -- you have obviously access to the plant level accounting.

How many plants are there that are really struggling, and has there been a little bit of a delay in closing some of them and if so, why, and kind of what's the schedule?

What we said at the analyst meeting at the auto show is that there's a handful of plants that lose a meaningful amount of money on what we would call a four-wall basis which, again, is at a plant operating level before engineering and G&A, Connersville was obviously one of that handful, but there are, you know, a little bit smaller handful that lose the balance of that over $100 million on a four-wall basis, so --

The other point, I don't think Jim said that Connersville was the poster child for troubled plants.

I think we were talking about the absorption as revenue went down or is going down.

The other point is that we are right on our plan in terms of closing the troubled facilities.

We're not behind where we thought we would be.

I mean we're right on it.

Connersville certainly is the major closure along with the Chicago facility for 2007, and again, so we're on our plan and we continue to execute it.

Okay.

One last question.

Any chance you could give some directional guidance to first quarter prospects?

No.

Okay.

Thank you.

Your next question comes from Adam Plissner with Credit Suisse.

Good morning.

Good morning.

I was wondering if you could just update your summary that you'd done, pretty much I don't think I've seen an update since last year just on timing of the cumulative cost savings rolling out the next two, three years.

I guess the last we saw that 235 cumulative target, and I know that's moved around a bit.

Is there a way that you could talk about what your incremental annual cost savings are for the next couple years?

Just sum that up for us?

Adam, what I would suggest you do is go look at the presentation that was at the Detroit auto show to the analyst community.

Right.

That has a chart in there on cost and savings.

I don't have it here with me, but it's out there publicly.

Okay.

But it was broken out?

I saw the bar chart.

I didn't see it broken out.

Yes, Adam, it's Derek.

I can give you the numbers behind it.

But we're looking at about 125 increase from '06 to '07 in terms of savings.

Okay.

And then the actual cash spending as well, is that targeted pretty similar?

You're going to be left with starting this year about $264 million in the escrow, you expect to spend out of that what in '07?

We had $319 million in the escrow at year-end.

[Inaudible] 55 in February or something?

There was an amount that had not been reimbursed at year-end that was actually received at the end of January, so that takes us down kind of in the 260 range, and then, again, those charts had the anticipated spend for 2007, which as I recall, was around $110 million, but again, Derek can get you the actual numbers.

Okay.

I'll take a look.

Appreciate it.

Thanks, guys.

All right.

Your next question comes from Joseph Von Meister with Jefferies.

Hi, guys.

The question that I have is given your guidance for cash burn over the next two years, how high can we expect your debt to go, say, in 2007or 2008 in rough numbers?

Where do you see your net debt at the end of this year and at the end of '08?

Well, if we have $175 million of negative free cash flow, that's kind of the increase in net debt in 2007. 2008, you know, is kind of breakeven if you exclude our investment in restructuring costs.

That is probably in the 50 to $60 million, $70 million range

And again, those numbers are, all those cash flow numbers remember are before the additional use of the receivable securitization which actually, as I pointed out in my comments, if we use or sell additional receivables into that facility, that is actually reported as free cash flow.

Just to make sure that's clear, the 175 free cash flow number for 2007 assumes we have a constant level of accounts receivable securitization at the end of this year and of next year.

If we were to sell or realize an additional $50 million, for example, from that facility, that $50 million of additional receipts would be reported as free cash flow so free cash flow would go from 175 reported to 125.

What was your pension, unfunded pension liability on an ABO basis at year-end?

I don't have the ABO number.

How about the PBO number?

Well, as I, I said that the total plans were funded at about a 78% level.

The PBO number for the U.S. plans is about $1.2 billion.

And can you give -- okay?

I'm sorry.

That's a September 30 number, not a December 30 number.

I don't have the December 30 number here.

So it's $1.2 billion and it's funded at the number that you gave out previously?

Correct.

U.S. plants.

And can you give us Yan Feng and Halla's 2006 sales in EBITDA?

Well, Yan Feng is not consolidated so it's not included in here, and I don't have nay of that Yan Feng or Halla data at my fingertips here.

When I look at Halla, I noticed that Halla has a lot of working capital, and the working capital that you reported at the end of the year was roughly 5% of sales.

Do you foresee the need to boost the non-Halla portion of Visteon's working capital balances?

Look, clearly the Asian -- if we look around the world, receivable terms and payable terms are different in North America, for example, than in Europe and in Asia.

What we find essentially is although receivable terms may be longer in certain parts of the world, payable terms correspond to that lengthened receivable terms, and so we really try to manage each of the geographic locations based on the, our net investment if you will, receivable terms and payable terms.

So that's, you know, really been the focus and we've been able to drive down the net investment, if you will, DSOs versus DPOs on a, in each of the three geographic areas.

So you feel your working capital outside of Halla is adequate?

Yes.

The last question is during the auto show it was mentioned that you have over $100 million of losses in two or three plants that are [op], you know, loss-making plants.

What's the schedule for closing those, and is the closure that you mentioned earlier in the call one of those money-losing plants the Connersville facility?

What we said at the auto show was that there were a handful of plants, not two or three, that lose a meaningful amount of money on a four-wall basis, about $100 million or so, and on today's call we said that Connersville was one of that handful of plants.

What were the losses -- Connersville was -- what were the losses at Connersville?

What earlier we said was Connersville was about a breakeven last year with a 60% or so decline in revenue in '07.

Connersville on a four-wall basis is about a $50 million loss.

So of the 19 remaining actions that we have in our plan, there's 11 of those 19 actions are plant closures, two of which are going to occur this year which is Connersville and Chicago.

And looking at your order book, what percentage of the order book has raw material pass-throughs priced into the contracts?

We wouldn't comment on that.

Thanks, guys.

Okay.

Thank you.

Your next question comes from Seth Yeager with Jefferies.

Seth, your line is open.

No questions.

They've all been answered.

Thank you.

There are no further questions at this time.

Okay.

Well thanks, Judy, and everyone.

I'll be around the rest of the day to answer your questions.

So have a good day.

Thanks.

Thank you.

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

Thank you for your participation.

You may disconnect at this time.

Good day.