Visteon Corp (VC) 2008 Q3 法說會逐字稿

Good morning, and welcome to the Visteon third quarter 2008 earnings conference call.

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

As a reminder, this conference call is being recorded.

Before we begin this morning's conference call, I would like to remind you 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 materials for today's call were posted on the Company's website this morning.

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

After the speakers' remarks, there will be a question and answer period.

(Operator Instructions) I would now like to introduce our host for today's conference call, Mr.

Derek Fiebig, Director of Investor Relations for Visteon Corporation.

Mr.

Fiebig, you may begin your conference.

Thanks, Christy, and good morning, everyone.

Joining me on the call today are Don Stebbins, our President and Chief Executive Officer; and Bill Quigley, our Chief Financial Officer.

After the call, we'll open up the lines for your questions.

With that, I'll turn the call over to Don.

Thank you, Derek, and good morning.

During today's presentation, I'll review the Company's overall performance and then turn it over to Bill for the financial review.

On our second quarter call, we discussed the fact that we anticipated a weaker back half of the year versus the front half.

However, though we may have called the direction correctly, the speed and severity of the change greatly exceeded our expectations and as a result, we expect a very challenging fourth quarter and a full year 2009.

For the third quarter 2008, product sales were $2 billion, down about $400 million from a year ago.

This decline was primarily driven by plant divestitures, plant closures, and volume decreases, partially offset by favorable currency.

In North America, we experienced significantly lower production volumes for both Ford and Nissan.

While European volumes, which were favorable in the first half of the year, began to evidence some weakness.

In Korea, Hyundai Kia production was down significantly due to labor disruptions and production in China was negatively impacted due to the Beijing Olympic games.

Gross margin for the third quarter was $43 million, as our positive net cost performance, including the benefits of our restructuring actions, were offset by the lower production volumes.

As you know, three years ago, we set out to address 30 underperforming facilities.

Through the third quarter, we have addressed 28 of the 30 facilities and expect to finish the remaining two by the end of 2008.

The restructuring program will have been accomplished ahead of schedule, under budget, and with greater savings.

However, in response to the collapse in production volumes and current market conditions, we are implementing additional head count reductions to better align our resource with market conditions.

At the end of the quarter, we had combined cash and availability of $1.3 billion, with no substantial near-term maturities and no financial maintenance covenants.

Slide 3 presents our consolidated product sales by customer for the first nine months of 2008 compared to 2007.

Overall for the nine months, sales were down about $470 million from last year, with the vast majority of the declines coming during the third quarter.

Year to date, our global sales to Ford were down $540 million to $2.6 billion and account for 35% of our sales.

This decline was primarily driven by Ford North America.

For the first nine months, rest of the world sales were aided by a weaker US dollar and strong production levels.

Hyundai Kia sales which had been growing, were unchanged as a percentage of sales and declined by about $165 million from the third quarter last year.

The major contributing factors to this decline were the approximately 140,000 units that were lost due to the Korean labor disruptions, as well as the weakening of the Korean Won against the US Dollar.

Given the state of the global economy we do not expect many of these units to be recovered in the fourth quarter and the Won continues to lose ground to the dollar.

Sales to Nissan in North America declined about 65% to less than $60 million during the third quarter and down 28% for the first nine months.

Sales to GM and Chrysler were slightly higher, primarily reflecting increased car production at GM and the launch of the Dodge Ram.

Slide 4 shows our product sales by region.

Sales in Europe were up for the first three quarters of the year, as volume and currency more than offset the impact of divestitures.

North America declined by 7 percentage points on lower volumes, plant closures and divestitures, and now accounts for only 24% of the Company's total sales.

Our Asian revenue increased 3 percentage points and now represent 29% of total consolidated sales and account for about $2.2 billion.

On the bottom of this slide is the regional split of our non-consolidated sales, which increased more than 9% to over $1.3 billion.

Slide 5 presents our product group sales on a consolidated and non-consolidated basis.

For our consolidated sales, the most significant year-over-year change was the reduction in our non-core segment, which declined from 12% in 2007 to 6% so far this year.

As we discussed in the past, this decline reflects our divestiture activities and plant closures.

As you can see, we remain balanced across all of our reporting segments, with 34% sales from electronics, 31% from climate, and 29% from interiors.

As shown at the bottom of the slide, our unconsolidated activities also contribute to product diversification.

The majority of the sales are with our YanFeng operations, which are primarily interior-related, but climate and electronics each comprised 20% of total non-consolidated sales.

Slide 6 presents new business wins.

Our new business wins in the third quarter totaled $200 million, an improvement from the relatively low levels we experienced in the first half of the year.

The third quarter wins were concentrated with climate and electronics product lines, accounting for nearly the full amount.

By region, North America accounted for just over half of the wins, while Europe accounted for one fourth.

The balance was fairly evenly split between Asia-Pacific and South America.

Through September, we've been awarded $465 million of new business.

We continue to see delay in awards due to the significant industry changes.

Although we expect to have significant wins in the fourth quarter, given the uncertainty, we do anticipate that some of the business that we expected our customers to award us during 2008 will get pushed into 2009.

On Slide 7, operationally we continue to show significant progress.

Our quality for the third consecutive year is showing over 35% improvement, while our safety performance despite being up 6% remains a leader in the industry.

Premium costs are down significantly from the difficult experience in 2007 and through September, premium costs were $14 million, down from about $42 million a year ago.

Finally, CapEx spending of $230 million was about flat compared to last year.

For the full year, capital spending will be about $300 million as compared to $376 million in 2007.

Slide 8 provides an update on our overhead cost reduction initiative, which we announced in January.

At that time, we had targeted $215 million of gross cumulative savings by 2010, as we further addressed our administrative costs and engineering expenses.

With $80 million of savings expected during 2008.

Through September, costs are down nearly $90 million from last year.

As mentioned in January, this initiative is a significant priority and the actions that we are announcing today will provide for additional savings.

On the restructuring front, we now have addressed 28 of the 30 facilities in our three-year plan.

As I mentioned earlier, this program is ahead of schedule, costing less than expected and exceeding the savings we projected.

For the third quarter, we closed our fuel tank facility in Missouri and we finalized customer agreements for our UK facilities.

We also modified and extended the union contract at our electronics facility in Pennsylvania to provide further cost flexibility.

Although not part of the original 30 facilities, in August, we completed the sale of our interiors facility in Halewood, England.

Additionally, given the current market conditions we have already embarked upon, manufacturing a head count alignment actions implementing a salary census reduction, and the elimination of certain OPEB benefits for two of our recently closed US facilities.

During the third quarter, we had charges of $42 million as a result of these actions.

Slide 10 summarized the actions completed in the UK over the past few months.

These actions are a significant milestone for Visteon and greatly improve our UK operations, which lost more than $100 million during 2007 on sales of about $500 million.

We finalized the sale of our Swansea operation to Linemar Corporation in July.

This action eliminates an annual operating loss of about $40 million and our third quarter results include a $16 million charge associated with this transaction.

Also in July, we executed agreements with our customers for the balance of our UK plant that eliminate their ongoing losses.

We also received proceeds of $4 million for the sale of Halewood and recognize the loss of about $2 million.

We previously discussed that addressing our UK operations would be one of the most difficult actions of our restructuring plan, and I'm proud of the results that our team, working with our customers, has accomplished.

Slide 11 provides a summary of the North Penn contract extension.

The restructured contract covers 250 employees and was extended for two years and now expires in 2011.

Under the extended contract, there will be no minimum manning levels.

Additionally, the extension eliminated OPEB eligibility for certain employees.

This will result in the reduction of liabilities by more than $20 million and result in a curtailment gain of $15 million during the fourth quarter of this year.

Turning to the next slide, on October 14, we announced that effective in 2009, Visteon will eliminate Company-sponsored prescription drug benefits for Medicare eligible retirees from our Connersville and Bedford facilities.

We will provide a supplement to retirees' pensions to help mitigate this cost.

From a financial perspective, this will reduce our OPEB liability by more than $70 million and will also reduce expenses by $9 million and cash requirements by $3 million annually.

Slide 13 provides details on our manufacturing work force.

As of September 30, we had just under 26,000 hourly workers globally, which represents a decrease of 12% since the end of last year and a 23% decline since the end of 2006.

On a regional basis, 7% of our work force is in the US and Canada.

Nearly half is in Europe, split fairly evenly between east and west.

20% of the work force is in Asia, 15% in Mexico and 10% in South America.

We have taken a number of actions to reduce our hourly head count and it has also been reduced as a result of our completed divestitures.

As we have discussed in the past, we have shifted our manufacturing footprint to match our customer base globally.

We are aligning our head count to match lower production levels and consolidating facilities when practical.

As an example, in response to lower North American production volumes and aided by improved operating efficiencies, we have reduced our Mexican work force by nearly 1,000 employees.

The majority of this was completed during the third quarter.

We understand that both speed and flexibility are crucial to our success.

We also have been reducing our salaried head count as well as moving many positions to lower cost countries.

However, in response to the lower production levels, we have accelerated our efforts to reduce our salaried personnel.

These actions will reduce our salaried ranks by more than 800, which would represent more than a 12% reduction.

These separations provided minimal cost savings during the third quarter, as only about 150 people were separated from the Company during the quarter.

We expect per annum savings of more than $60 million.

The costs to execute the program are expected to be approximately $60 million with $25 million in the third quarter.

These costs are eligible for reimbursement from the escrow account.

I will now turn the call over to Bill.

Thanks, Don, and good morning, ladies and gentlemen.

This slide provides a summary of our third quarter financial results.

Product sales of just over $2 billion were $400 million lower than the prior year, and as Don discussed, divestitures and plant closures had a significant impact as did lower production volumes.

Our product gross margin for the quarter was $42 million compared to $97 million a year ago.

The reduction in margins more than explained by lower production volumes in the quarter, although we did realize significant positive net cost performance in the quarter.

EBIT-R was negative $97 million for the quarter as compared to negative $33 million a year ago.

Our net loss for the quarter was $188 million, which included $3 million of net unreimbursed restructuring costs and income tax expense of $31 million compared with $20 million in 2007.

Free cash flow was a use in the quarter of $236 million compared with $141 million in the prior year, largely driven by lower EBIT-R, trade working capital and restructuring cash flows, which I will discuss in further detail later.

The following slide summarizes our year-to-date financial results.

On a year-to-date basis, product sales of $7.5 billion were lower by $471 million compared to a year ago.

During the first half of 2008, sales were relatively even to a year ago, with most of the decline occurring in the third quarter of this year.

Despite lower sales, year to date product gross margin increased by $100 million to $466 million.

Gross margin in the first half of 2008 improved significantly, reflecting our restructuring and cost reduction efforts.

The third quarter benefited from those efforts as well, but these improvements were more than offset by impact of lower sales.

Year to date EBIT-R of $30 million in 2008 has improved by $96 million, largely reflecting the improvement in gross margin.

Our net loss widened by $6 million to $335 million.

Year-to-date, results include an increase in taxes of about $66 million and $44 million of restructuring and related expenses that were not funded by the escrow account.

Free cash flow was a use of $383 million for the first nine months compared with $270 million a year ago.

I'll address each of these items in further detail in the following slides.

Slide 17 outlines the production volume performance of our key customers for the third quarter and year to date as compared with the prior year.

Two customers, Hyundai Kia and Ford of Europe represent approximately 40% of Visteon's year to date sales.

Production volume for each increase in the first half of 2008 compared with the prior year, yet third quarter comparisons turned negative.

Hyundai Kia production volumes decreased by 13% in the third quarter, largely reflecting the impact of intermittent labor disruptions that Don mentioned, yet are higher 8% year to date.

Ford Europe production volumes were 11% lower in the third quarter, yet still higher on a year to date basis.

The remaining five customers experienced production declines on a year-to-date basis.

In total, these customers accounted for about 25% of our sales through September.

Ford North America sales were $815 million and production was lower by 30% in the third quarter, 17% in the first nine months.

PSA Citroen was down 3% year to date and Nissan truck production was lower by 35%.

Nissan was down over 60% in the third quarter alone.

Finally, GM and Chrysler platforms for which we have significant content were lower by about 5% and combined for about $265 million of sales.

Slide 18 provides our product sales for the third quarter by region.

Sales decreased $400 million versus prior year and we're lower in every region with the most significant decline in North America of over $300 million.

As Don stated, North America now represents about 22% of our total sales versus 30% a year ago.

Europe represents 42% of the total and Asia accounts for 29%.

The bottom of the slide provides the drivers of the change in sales on a year-over-year basis.

Favorable currency did increase sales by $75 million, while divestitures and plant closures decreased sales by $205 million.

Plant closures include Bedford, Chesapeake and Connersville, and our divestitures include the sale of the North American aftermarkets business which was completed in January of this year.

The Swansea and Halewood plants in the UK, and the starters and alternators business in 2007.

After taking these items into account sales were still lower in all regions reflecting lower production volumes, the most significant decrease was in North America, where sales decreased $165 million.

Slide 19 provides the same information on the year to date basis, year to date sales decreases $471 million versus prior year.

Again, with most of that decrease occurring in the third quarter.

Favorable currency increased sales by $419 million year to date, while divestitures and plant closures decreased sales by an additional $806 million.

On a regional basis excluding these factors North America declined $261 million through September principally reflecting lower Ford and Nissan North America truck production.

Europe and South America were basically flat and Asia increased nearly $200 million reflecting stronger volumes during the first half of this year.

Slide 20 provides gross margin comparisons for the third quarter.

Product gross margin in the third quarter was $42 million.

As you know, gross margins are normally the lowest in the third quarter due to seasonal plant shutdowns, yet our results were significantly pressured by production volumes lower than we have seen in previous years.

In the quarter, gross margin was impacted by a number of factors that were restructuring related.

Divestitures and plant closures reduced margins by about $45 million, while restructuring related items decreased margin by $9 million.

As we've discussed in the past, we include in this category items such as accelerated depreciation expense and asset dispositions.

Volume and mix for the quarter reduced margins by $96 million.

Unfavorable volumes impacted every market we participate in and every product group, which I will review in a moment.

This was largely offset by favorable net cost performance across our product groups of $91 million.

Currency had a minimal impact on the quarter's results.

We had anticipated a modest benefit for the back half of this year, but the benefit obviously was less than expected, as the US dollar significantly strengthened during the latter half of the quarter.

Slide 21 provides year to date gross margin comparisons.

Gross margin increased by $100 million to $466 million, or 6.2% of sales versus 4.6% a year ago.

Similar to the previous slide, the bottom of this slide provides the key drivers of the year-to-date change in gross margin.

Favorable net cost performance and currency of $237 million more than offset the negative impact of volume mix, as well as our restructuring actions.

I do want to highlight that included in our restructuring related items, our curtailment gains of $32 million associated with the closure of the Bedford facility earlier this year.

The next slide summarizes our product group segment results for the third quarter.

Year over year, net cost performance favorably impacted gross margin for each product group, yet this impact was more than offset by unfavorable volume and mix.

Climate sales in the quarter were $674 million and gross margin was $30 million, or 4.5% of sales.

Gross margin as a percent of sales was 209 basis points lower than a year ago.

The change is largely due to volume mix and currency.

Unfavorable volume was driven primarily by lower Hyundai Kia and Ford North American production volumes.

Special items primarily a non-recurrence of a 2007 curtailment gain related to Connersville also had an unfavorable impact.

Net cost performance improved margins by over 200 basis points.

This includes restructuring savings related to closure of our Connersville facility, as well as certain actions taken in our Mexican operations.

Electronics sales in the quarter were just over $750 million.

Gross margin was $9 million or 1.2% of sales.

386 basis points lower than the prior year.

Favorable volume and currency including the impact of lower production volumes and Ford to sourcing actions in North America, which we've highlighted in previous quarters.

Special items include a curtailment gain related to work force declines at our North Penn facility.

And that cost performance did improve gross margin by 93 basis points.

Interior sales were $609 million and gross margin was break-even for the quarter.

Again, volume and mix was unfavorable in the quarter, primarily related to continued declines in Nissan truck production in North America.

Net cost performance was positive for the quarter.

Slide 23 summarizes our product group operating results on a year to date basis.

Gross margin improved in both absolute dollars and as a percent of sales in climate electronics, while margins in interiors were slightly lower than a year ago, largely reflecting costs associated with new program launches, principally in North America.

Slide 24 summarizes SG&A expenses for the third quarter and year to date.

In the third quarter SG&A totalled $138 million or 6.9% of sales.

This is higher than the third quarter of a year ago, but lower than the run rate in the first half of this year.

SG&A expense for the first nine months of 2008 totaled $442 million, or about 5.9% of sales.

The principal drivers of this change are highlighted at the bottom of the slide.

As discussed earlier this year, we expected nonrecurring implementation costs associated with our overhead cost reduction efforts.

These costs were about $6 million in the quarter and a year to date basis, about $20 million.

We anticipate these costs to total approximately $30 million for the full year 2008.

Incentive compensation increased SG&A by about $9 million on the quarter, $11 million year to date.

This was largely driven by the impact of stock-based expense, which declined in the third quarter of last year reflecting the change in our stock price.

Currency increase cost $4 million for the quarter and $16 million for the first nine months.

All others comprised primarily of the non-recurrence of a significant recovery of receivables from a former customer a year ago.

Cost efficiencies net of economics totaled $27 million for the quarter and $63 million on a year-to-date basis.

Turning to slide 25, as you know, during the third quarter, several of the ACH agreements were amended between Visteon, ACH, and Ford, as highlighted on this slide.

In connection with these amendments, we did extend the salaried lease and master service agreements with ACH.

Ford also assumed responsibility for the severance and termination benefits for the Visteon employees leased to ACH.

Under the original agreement, Ford's portion of these costs had been capped at $150 million and any funds remaining at the end of 2009 were to have been transferred to the escrow account, with Visteon maintaining a liability for separations.

In lieu of the transfer of funds at the end of next year, Ford contributed $50 million into the escrow account in August of this year.

These funds were available for first dollar coverage for qualified restructuring actions under the terms of the escrow agreement starting in August of this year.

I'll further discuss this on the following slide.

Slide 26 provides an overview of restructuring charges for the third quarter, as well as a net impact on cash flow from such actions for both the quarter, as well as year to date.

In the quarter, as Don indicated, we recognized $42 million of restructuring charges related to staffing and manufacturing actions.

Only half the charges incurred in July were reimbursed from the escrow account, but the escrow agreement was amended to add $50 million of additional coverage as I just discussed.

As a result, $39 million of the third quarter charges were eligible for reimbursement from the escrow account.

At the end of the quarter, we had about $117 remaining in the escrow account and an outstanding receivable due of $23 million.

As we discussed throughout the year, the timing of our restructuring actions had a significant impact on our 2008 free cash flow and we provided detail on this at the bottom of the slide.

The net impact of restructuring on our third quarter cash flow was on outflow of $13 million representing cash payments of $44 million, partially offset by $31 million of cash received from the escrow account.

The net impact on cash flow year to date is an outflow of about $43 million.

This does compare to a cash inflow of approximately $24 million in the third quarter of 2007 and $89 million in the first nine most of last year.

So for the first nine months of the year, the timing of escrow account reimbursements and related outflows to complete the actions has resulted in a year-over-year cash flow use of $132 million.

Slide 27 provides our income tax provisions and cash taxes.

Income tax expense in the third quarter of 2008 of $31 million was $11 million higher than a year ago.

As the chart illustrates and a year to date basis, a significantly reduced OCI benefit contributed $26 million and $52 million respectively to the year over year increases in tax expense.

Also contributing to the increase in tax expense was the improvement and profits in countries where we pay tax, resulting in about $5 million and $27 million increases in tax expense for the third quarter and year to date, respectively.

We did establish reserves for tax positions taken in the quarter of about $15 million, which was about $15 million less than reserves established a year ago.

Despite the volatility in our tax provision, as we've discussed in past calls, we do expect our cash taxes for 2008 to be about $95 million, which is fairly constant to the prior year, even as profits increase in certain taxable jurisdictions.

Slide 28 provides a reconciliation net loss to EBITDA for the third quarter of 2008 and 2007.

EBIT-R was a negative $97 million in the third quarter of 2008, $64 million lower than a year ago.

The year-over-year drivers of the change are outlined in the bottom half of this slide and reflect a cumulative impact of the items I've previously discussed.

Slide 29 provides the same reconciliation on year-to-date basis.

EBIT-R positive $32 million in 2008, an improvement of $96 million from a year ago.

Slide 30 provides our free cash flow performance for the third quarter and year to date with comparisons to the prior year.

Free cash flow in the quarter was a use of $236 million, $95 million lower than last year.

The year-over-year decrease in cash flow was impacted by an increased net loss and net restructuring cash outlays.

Trade working capital in the third quarter include higher spending for tooling, which will be reimbursed in the fourth quarter.

The timing of restructuring payments was a negative swing of $37 million compared to the third quarter of 2007.

And these items were partially offset by lower capital expenditures in the quarter.

For the first nine months of 2008, free cash flow was a use of $383 million, a change of $113 million compared to a use of $270 million during 2007.

On a year-to-date basis like we just discussed, the changing cash flows is more than explained by the $132 million swing associated with the timing of the cash inflows and related outflows for our restructuring actions.

Slide 31 summarizes our cash balances at the end of the second and third quarters.

Cash balances total $1.1 billion, a decrease of $373 million from the second quarter.

The change reflects a free cash flow use of $236 million in the quarter, reductions in debt including $37 million in industrial revenue bonds in the US, which did provide a corresponding reduction in letters of credit and a strengthening of the US dollar.

At the end of the third quarter, we have about $190 million in availability under our US ABL and Europe securitization facilities.

Support -- and I do want to take a moment and highlight today we close order an amendment to our European securitization facility that does provide additional availability.

In conjunction with this amendment, any amounts outstanding under the facility will be on balance sheet on a perspective basis.

But as you know, our free cash flow guidance excludes the impact of changes in securitization levels.

As we look to the rest of the year, slide 32 outlines the estimated production volume performance of our key customers for the fourth quarter and full year as compared to the prior year.

These production volumes reflect vehicle platforms for which Visteon derives, obviously, significant sales.

Ford of Europe and Hyundai Kia are the only two customers with increased production for the end of the third quarter.

While we expect Hyundai Kia's fourth quarter production to remain strong with an increase of 5% year-over-year, we do expect Ford of Europe's fourth quarter production to decline about 14%.

The remaining five customers have reduced year to date production in 2008 and we expect the trend will likely continue into the fourth quarter.

We estimate Ford North America fourth quarter sales at $150 million and production lower by 30%.

PSA Citroen volumes are projected to decline 21%, while Nissan Truck production is projected to be lower by 78%.

Finally, GM and Chrysler platforms for which we have content should decrease by about 6%.

This does include the favorable impact of Dodge Ram production, which is a new program and was not included in our production for '07.

Slide 33 provides a summary of our full year outlook for 2008.

As we exited the second quarter, our financial results for 2008 were tracking to the expectations we shared with you in January of this year, yet obviously the macroeconomic environment has dramatically deteriorated over the past two months.

We are adjusting our full year outlook for product sales for 2008 to be about $9.4 billion.

This is $600 million lower than our guidance last quarter, primarily reflecting our revised expectations for both currency and production levels.

Along with our reduction in our full year sales guidance, we are reducing our full year EBIT-R and free cash flow guidance.

We now expect a full year EBIT-R to be negative $25 million and we project full year free cash flow to be a use of between $375 to $425 million.

Finally, given the continued uncertainty in the marketplace and future production volumes in all the markets that we participate in, we are continuing to evaluate our operating plans and accordingly, are not in a position to provide 2009 financial guidance at this time.

We will address 2009 guidance at the Detroit Auto Show conference this coming January.

It should be noted, we will continue to take the necessary actions, as we move through this difficult environment.

Now, Don will make a few closing remarks before we take your

Thanks, Bill.

This is an incredible time in our industry and as we head into what will be an extremely challenging 2009.

We at Visteon are fortunate to have both an extremely talented group of employees and substantial liquidity.

We continue to aggressively restructure our Company by reducing overhead, minimizing costs and maximizing the utilization of each of our facilities.

We also remain focused on working capital and capital expenditures.

Cash flow will continue to be the highest priority for our Company.

We'll now open it up to questions.

Christy, if you could please remind the callers how to get in queue.

Thank you.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Chris Ceraso from Credit Suisse.

Just a couple of things.

First, the UK actions, this was a business that you mentioned was losing $100 million on $500 million of sales.

Are you at the full run rate benefit yet from those closures or when will you get there?

Yeah, Chris, this is Bill Quigley.

We've got a couple of things.

One is obviously the Swansea transaction was completed early July.

So if you think about it, we still had the first half.

Although we were under an agreement with our customers on reimbursement for the trading losses, so Swansea effectively had a full run rate.

If you think about the other agreements that we have in place, they were sporadic throughout.

Of course the first half, we now have them locked in.

I think we made comments on the last call that our second quarter would probably be the first full run rate, or I'm sorry, our third quarter.

And it's about $12 million per quarter.

Then Halewood, again, it was a nominal business from a manufacturing profit perspective.

So, again, it shouldn't really be on a year-over-year basis a big driver.

Short answer by Q3, yes, you were basically--

Q3, we should be in.

Okay.

China, if China slows down, let's say GDP in China gets cut in half and we run at 4% or 5% instead of 9% or 10%.

Can you talk about the impact on the YanFeng business versus where it's running right now and would it require any restructuring actions on your part?

Yeah, I think in terms of the impact of that, we are starting to see a slowdown in China.

And probably for the first time, we are seeing a situation where we have manufacturing employees being let go in that region.

So we are in terms of massive restructuring or larger restructuring, no we don't see that happening but certainly there is headcount that probably will come out.

In part not only due to the macro environment, but we are also driving a lot of change through those facilities and gaining significant efficiencies.

So no, in terms of an infusion of capital, I don't see that as a need.

Okay.

Thanks, guys.

Your next question comes from the line of John Murphy of Merrill Lynch.

Good morning guys.

Hi, John.

If you look at your Hyundai Kia sales, I was wondering if you could sort of break down how much of your product is going into vehicles that are made in Korea and then end up back in the US and how many sort of stayed domestic in Korea?

Just trying to understand with the strengthening of the Won, if there's a big pullback.

Right.

Boy, Chris, I don't have that -- John, I don't have that right in front of me.

I can follow up on that.

But if you think about our Korean business, you've got obviously [Halla], which is going to be servicing the local markets there.

We've got operation here in Alabama, which is a smaller operation quite frankly.

So I think the bulk of it would be actually within their own market, with limited exports outside of the market.

We've got -- obviously got localization here.

So it's really going to be more in the Korean market.

And as you look forward, I mean that's one of the customer's directives is to try to localize as much as you can.

But from Bill's point, yes, there is still a fairly significant amount of exports out of Korea.

So we'll have to get that for you.

Okay.

Then on the free cash flow guidance on Slide 33, the $400 million plus or minus $25 million.

Does that include the restructuring cash from this year, which is $132 million year to date?

I'm just trying to understand that number.

Yes, it does.

Okay.

So if we were to assume whatever cash restructuring we would get, that you would execute next year.

Do you expect sort of the operating portion of that to get significantly better, assuming that volumes are going to be down, but you're getting the benefit of your cost savings next year?

I know that's sort of looking into next year, but could it get significantly better, even with the tough environment we're looking at?

I think if you look at what we accomplished to date and what we expect to have accomplished through the end of the year, the cumulative savings, John, are approaching the $400 plus million dollars for that three-year program.

So we're going to get the spillover, if you will, from actions this year into next year, which would be obviously a tail wind, obviously from a profit perspective.

The uncertainty is around production volumes, quite frankly.

And we continue to work through what those production volume -- at least the assumptions we'll be operating under.

But obviously just from the restructuring itself, we won't have that type of a cash outflow and it should provide obviously some upside, again, to a very jagged environment right now on production volumes.

Okay, and then on the F150 launch, if you could remind us what kind of content have you on the F150 and if there's -- if that launch is going according to plan after the initial delay.

In terms of content, we have both climate and electronics and content on it.

In terms of the launch, once it's -- from our perspective, it's gone -- it's going as post the initial delay, yeah.

There's no issue there.

Okay, great.

Thank you very much.

Your next question comes from the line of Jeff Skoglund of UBS.

Hi, Jeff.

Hello, Jeff.

Hi, Don.

Just a follow-on on John's question.

The $400 million of savings, can you confirm how much you've achieved to date and is it safe to assume the balance is going to be achieved in 2009?

Yeah, this is Bill again.

By year end, we would expect to have about $400 million cumulative posted, if you will.

Through the third quarter, it's about $360 million.

Is that on a run rate basis or is that what you've actually achieved?

Cumulative.

Achieved.

When you talked about amounts spilling over into next year incremental to what was achieved to date, what--

Right, so you're going to have actions this year that we've taken.

And not all of the actions occurred January 1st of this year, so you're going to get your, rest of year benefit, if you will, your full year benefit into 2009.

So if you look at the outline I think of the restructuring actions over the last nine months, if you will, we're going to get some benefit of those actions into 2009.

Could you quantify what's incremental in 2009 versus what you achieved in 2008, or expect to achieve in 2008?

It's going to be -- say it's going to be $40 million.

Yeah, $40 million.

But that's not -- you got to remember that the salary -- incremental.

The salary head count actions that we're taking now are not included in that $400 million.

So you're also going to get the benefit of that next year.

Okay, thanks.

And then on the cash, what do you guys consider to be the minimum amount of cash that you actually need to run the business day to day, because I assume the intraquarter needs are higher than the quarter (inaudible) --

Actually as we've restructured the business over time, we obviously monitor the intraquarter needs.

The intraquarter needs are becoming less volatile, quite frankly, given as we've sold businesses off, we're basically pulling the platform in more, if you will.

We've stated publicly, I think in the last couple of quarters, that at least I would be comfortable at $700 million or so.

But I don't believe that really is what's needed to run the business.

If you set aside probably our Asian business, you got to look at North America and Europe together.

I would look at those two regions at probably a comfort rate of about $550 million.

And if--

That's cash and liquidity.

Okay.

And then if you look at the cash balances at the end of Q3, obviously Forex impacted in Q3.

But is there any way you can mark-to-market kind of for Forex that cash?

I guess another way, what would be -- is there any way you could discuss or quantify the impact if you would mark that to current exchange rates?

Jeff, did you say the market -- we're having trouble hearing.

Obviously, the dollars appreciated considerably, right, versus most currencies, particularly in Europe.

So that would impact the cash that you see here negatively, right?

Right.

If you think about our cash balances, let me just give you some distribution a little bit.

If you think about how we've got it allocated out, there's about $670 million in North America, $180 million in Europe, South America.

We've got Asia-Pac at $300 million.

Lastly, on the pension, I might have missed it, but did you guys comment on what the year to date return has been on planned assets?

I was wondering if you could maybe provide an update on what the asset mix there is.

We actually, not in our formal comments, but we can kind of give you an overview of where we're at with respect to at least the US plan.

As we look to, obviously, year to date asset returns have not been favorable, if you will.

At the same time, our discount rates or the current discount rate has helped quite a lot, quite frankly from a funding perspective.

If we look at our US plan funding level, recall we ended 12/31/07 at about 89% funded.

If we look at a 9/30 to even kind of mid-October, it's ranged anywhere from 85% to 88% funded.

So it's reflecting both obviously lower asset performance, but at the same time, a lot of it's going to be depending on the discount rate.

So as the rates have moved, it is lowering the PBL.

So on a funded level, it's actually held in fairly well on the US side.

Can you provide any clarity on the asset mix within the plan?

Yeah, it, it -- I haven't seen where we've disclosed that publicly, Jeff.

This is Derek.

We do have fixed income in there as well as equity.

There's -- we've got some LDI in there and a little bit of hedge funds, as we've been migrating that plan over time.

Okay.

Bill or Derek, if we look at that funding percentage, that 85% to 88%, is it safe to assume we shouldn't see a significant increase in funding requirements over the next year or two?

I think presuming that level, yeah, I don't think it would significantly change the funding requirements for '09.

And in fact, your funding requirement's almost the year later actually, so it would really be more of an 2010 impact.

Got it.

Okay.

Thank you.

Thanks.

Your next question comes from the line of Patrick Noland of Deutsche Bank.

Most of my questions have been answered, but can you just -- just a follow-up.

You said the salary deduction is incremental to your previous savings.

Is the Mexican restructuring also incremental?

In and of itself, the Mexican restructuring is incremental to the three-year plan, if you will.

Okay.

Again, in response to two things, one was obviously identify efficiencies that our client (inaudible) has been working on.

At the same time, a different response to the production environment.

And could you just comment on that a little bit?

Particularly in Europe, your appetite for taking more hourly heads out.

And based on the fact of whether or not next year's going to be temporary and you want to be in a good condition for any type of recovery in 2010 or would you be more aggressive as far as taking those heads out?

We'll be more aggressive.

We'll have to work with the labor unions over there with the workers councils, but we will tend to shade on the aggressive side of any discussion.

Got it.

And just lastly, the working capital assumption for the fourth quarter, is it going to be still a pretty big positive like last year?

Yeah, it will still be a -- it won't be the size of last year.

Last year was $180-plus million.

Obviously with the production environment, it will still be positive, but it's not going to near the $180 million.

Got it.

Okay, great.

Thank you.

Your next question comes from the line of Brett Hoselton of KeyBanc.

Good morning gentlemen.

Good morning, Brett.

Let's see, start with this one.

Commodities, can you give us a sense of the commodities impact.

What I'm really wondering is the impact of commodities as you move into 2009.

But can you give a sense of kind of the impact in the third quarter and year to date 2008.

And then, it's probably going to be a head wind in 2009, or is that a mistaken assumption on my part?

Hi, Brett, it's Bill.

I think as we've talked about on the last several calls, we've done a pretty good job working through the commodity environment.

We are not a big user obviously of steel.

It's aluminum, copper in certain of our businesses and then obviously resins in the interiors business.

I think we've worked with the customers on various methods and alternatives, given that commodity environment.

So, again, we haven't called out a whole lot of pressure, if you will, or upside on the commodity front.

I think if you look at what's going on in the commodity markets now, obviously they have been trending downward very quickly, quite frankly.

But again, that's going to be part of the discussions that we have as customers into 2009, as we realign agreements and other methods that we have to work through the commodity environment.

I don't see it necessarily as a big benefit to Visteon.

As you think about the free cash flow and as we move from 2008 into 2009, can you just give us a sense of what you consider to be the major pluses and minuses affecting that free cash flow as you change or move from 2008 to 2009?

Well, without providing an 2009 number, I think--

And I'm not looking for you to quantify.

I'm just looking directionally.

Yeah, still working through it.

Obviously, you are going to have -- it's all traditional things, right, Brett?

It's going to be what happens on the working capital environment, which is going to be driven, quite frankly, by the production, as well as the supply base and our customer base.

We've been basically I think done a great job on trade working capital.

There's -- I don't think there is a whole lot yet we can still wean out of that.

Capital spending obviously is a focus.

Don mentioned in his comments that we will be focused on in 2009.

Our spend this year is estimated about $300 million and obviously in 2009, we'll be realigning capital plans given the operating environment.

What also is interesting, given the -- we don't see the large inflow for the fourth quarter of 2008 and trade working capital compared to 2007.

The flip side of that on the production side is we wouldn't expect to see a real big use of cash in trade working capital in the first quarter.

So as production comes down and continues to come down, we're not going to see the benefit in the fourth quarter, but it shouldn't be a huge head wind in the first quarter of 2008.

And probably the last two items are going to be our OPEB and pension, cash contributions.

Obviously to Jeff's question previously, pension probably moves more into 2010 once you finalize the year ends, at least for the US.

The UK is obviously is a negotiated pension contribution with the trustees.

So we expect those actually to be lower compared to this year 2008.

As you recall, we had some larger pension contributions scheduled for 2008 in our call and a discussion in January that said we would not expect that to occur in 2009.

Thank you, Bill.

That's exactly what I was looking for.

Your next question comes from the line of Kirk Leudtke of CRT Capital Group.

Good morning guys.

Hi, Kirk.

I wanted to follow up to Jeff's question quickly.

You mentioned that you thought your minimum liquidity was -- I guess I got a little confused.

It was $550 million or $700 million?

Yeah, we stated in the past, it was about $700 million, but as we've restructured the business and as we look to the regions, I think the minimums, you almost have to set Asia aside somewhat with respect to the free cash flow there.

If you look at North America and Europe and what we've been able to accomplish there, we would look at $500 million plus liquidity position being an appropriate size for those two regions.

It doesn't say you're not going to have cash in Asia.

It just says that Asia necessarily isn't our focus.

It's more on the North America and Europe regions.

Okay, but that is a consolidated number, $550 million?

Yes.

Okay, and that's the quarter end number?

Or is that the mid quarter number?

I mean, it sounded like you've got a pretty sizable--

Intraquarter volatility.

That also -- that -- that's a quarter end number?

No, that includes -- it's the intraquarter volatility for the business, the peak to trough, so to speak.

Okay.

With respect to Slide 31, I just had a couple questions.

You paid down the $37 million of debt and reduced a letter of credit by a like amount.

Did that also increase the availability, the borrowing availability by like amount?

Yeah, it would have correctly under the US ABL.

And was that debt that you couldn't refinance or you just felt it was a positive net present value to do it this way?

Yes, if you think about it.

I think the net drag to us, the negative carry as well as a cost of a duplicative LOC, it's a savings of about $900,000 on an annual basis.

So if you think about it we had the debt as well as a full LOC against it.

So we took advantage of it and it really was pursuant to one of the restructuring actions that we announced earlier in the year with the Durant consolidation, our Nissan business.

So the cash went down, but your availability went up.

Correct.

What would be the -- I mean how much of this should be expect going forward in terms of these kind of little miscellaneous debt repayments that you need to make?

There's some rolling debt, if you take a look at our second quarter, but those are basically our affiliate working capital lines.

Our next obviously significant maturity is the August 2010 stub of $206 million.

So really nothing -- no miscellaneous debt -- you're not going to have to use cash to pay down any miscellaneous (inaudible).

Nothing of significance.

Looks like your fourth quarter EBIT-R guidance is negative $57 million.

Does that sound right?

Yes, that's correct.

And that include as curtailment gain of $15 million?

Yes, sir.

Is there anything in the comparable quarter, if you are thinking about year-over-year comparisons, was there anything in the fourth quarter of '07?

I remember there was--

We had a fairly significant curtailment gain.

I think it was about $37 million or so related to our Connersville facility.

And that was also a gain.

Yes, sir.

Okay.

And then lastly, we're hearing companies increase their budgets for distressed supplier costs and trade support and I'm just curious if you're seeing any of that and if you could quantify it that would be great.

In terms of the trade suppliers, it's been fairly constant throughout the year, but as we look to 2009 we certainly do expect that to be a drag.

And, again, we'll go through all of those assumptions at the [anne] conference in January.

Okay, and then lastly, given everything that's changed and the magnitude of the volume declines and offset by your restructuring activities, what are the decremental margins in North America versus Europe for Visteon?

Are they pretty much the same, or would you--

I think if you think about our North American business largely really in interiors and climate business.

If you take a look at kind of our product group segment results.

The interiors business is not as -- does not have the same profile as the other businesses.

So, again, that's kind of the concentration we have in North America, is in the truck side of the business.

We've seen a lot of it come through already, if you will, into 2008.

So obviously Western Europe is, at least in our opinion, has got a higher profile, higher margin profile.

So the contribution margins would be higher?

Be higher.

In Europe than they are in North America?

Yes.

Okay, thank you.

Your next question comes from the line of Patrick Archambault of Goldman Sachs.

Hi, yes, good morning.

Good morning.

I guess first, on, I guess on Slide 29, the year to date EBIT-R, can you just remind us of what the -- I guess you had a $54 million tail wind year to date from currency.

Can you just remind us how to think about the margin on that going forward and, is there any reason -- what does that translate into for margin year to date?

And how do we think about going -- of that going into 2009, obviously when currency might go against us?

Let me try to -- I think on slide 29 obviously you've got your year to date EBIT-R, so you got the positive currency of $54 million.

I think if you look at the third quarter at minus $7 million.

That's kind of at a rate as we closed off the third quarter, what about $1.38, $1.39 on a Euro basis.

We've called the forecast now at $1.32 at least on the USD to Euro.

So, again, I don't think you can look at it year to day.

It's probably more of a run rate on the third quarter.

Fair enough.

Can we just--

We ended the second quarter at $1.55, I think USD to Euro was.

And can you just remind us, it's probably here somewhere but what currency added to sales year to date, or excuse me, year on year for the third quarter.

Oh, year on year?

Yes, if you take a look at the slides previous, product sales of $419 million, I believe.

If you look at page 19 year to date was $419 million.

Okay, so, so relatively small impact from a margin perspective.

I mean is there any reason we shouldn't expect that to hold on a go-forward basis?

No, I think that's, that's a reasonable assumption actually.

Okay, and I guess -- I mean just on that, why year to date was it such a positive impact and, all of a sudden I guess in the third quarter it seems that the impact was kind of de minimis?

This is Derek.

As we explained on the second quarter call, Patrick, we did have some things that were not hedged.

We put some hedges in place at the end of the second quarter.

So that's really what you saw in the first half of the year in terms of currency.

Okay, and I take it these hedges last into 2009, which is why you think that you're going to be relatively protected from any sort of EBIT, big EBIT swings from that?

Yeah.

Okay.

I guess just on 26, one quick housekeeping item.

The $23 million escrow receivable, so is that restructuring that you paid out of Visteon's cash balance and that you're going to get a refund from the escrow account--

No, that would be--

Sorry.

Patrick, what those are -- those are charges taken in the latter half of the third quarter largely related to the census actions that we're taking.

So those outflows, and again, the receivable is on our books at 9/30.

It's been submitted obviously to the escrow account for reimbursement.

And we'll receive reimbursement in the fourth quarter and obviously with the separation actions that we're taking, we would expect to have outflows as well in the fourth quarter.

So, again, we haven't had the inflow nor the outflow largely for that charge.

Okay, great.

Thank you.

That's all I had.

Okay.

Normally at this time, we general ask for one last question.

Instead today, I would like to take these final few minutes to acknowledge someone who has been a staple on these calls in the many, many years and in our interactions with you for the past seven and a half years.

Derek Fiebig, our head of Investor Relations, has informed us that he has accepted a position with another organization, which is a great opportunity for Derek and his family.

Derek has been with Visteon since 2001 and those of you who have worked with him over that time know, as we do, that he is a consummate professional who has worked tirelessly to support this Company and to make sure you have all the information you need.

We appreciate everything Derek has done for Visteon and I know that you all join me in wishing him the best of luck as he moves on to this new opportunity.

I'm also pleased that Steve Ward will take over for Derek as Director of Investor Relations.

Steve has been with Ford and Visteon since 1989 in a variety of financial roles, including controllership and treasury responsibilities, and I'm sure that you will enjoy working with him.

Derek will remain with us a while longer as we wrap up the activities related to the quarter end and now I'll turn the call over to Derek.

Thank you, Don, for your kind words.

I would like to express my appreciation to you, to Bill Quigley, and to Mike Johnston for all your guidance and support over the years.

Visteon's a rather complicated Company to present to the financial community, but all of your understanding of the business, financial acumen and willingness to enhance disclosures has made the Visteon story much easier for me to communicate to the street.

The progress Visteon has made in diversifying its customer base, restructuring the Company, addressing its capital structure, and reducing costs has been a tremendous effort, which I'm certain will continue in the future.

I am and always will be proud of the seven plus years that I've had as a Visteon employee.

It has been a tremendous experience for me and I've greatly enjoyed working with the talented group of people on the Visteon team.

In addition, I would like to thank Terry Gohl, Brian Casey and Bill Robertson and the other members of the team that have supported Visteon's investor relations activities over the past 30 quarters.

Don, I want to thank you for giving me the opportunity back in 1999 to lead the Investor Relations efforts at Lear and I regret that I'm quitting on you for a second time.

As Don mentioned, Steve and I will be in New York next week to meet with a number of you and I'm certain that you'll enjoy working with Steve.

It was a difficult decision for me to depart Visteon, but I was presented with an excellent opportunity for both me and my family.

That concludes our call for today.

Steve and I will be around for the rest of the day to answer your questions.

Thank you.

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

Thank you for your participation.

You may disconnect at this time, good day.