Visteon Corp (VC) 2012 Q3 法說會逐字稿

Good morning and welcome to the Visteon, third quarter 2012, earnings call. All lines have been placed on a listen only mode to prevent any background noise. As a reminder, this conference call is being recorded. Before we begin this mornings 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 material from those expressed in these statements. Please refer to the slide entitled forward-looking information, 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 material if you have not already done so. I would now like to introduce your host for today's conference call, Mr. Scott Deitz representing Investor Relations for Visteon Corporation, Mr. Deitz you may begin.

Thank you, Gina. Good morning, everyone. And a special thank you to those of you affected by Hurricane Sandy who are joining us from the East Coast. I know that for many of you, you have had a challenging few days and some of you probably have some stories to tell about how you have gotten on these calls this week. So that said, thanks for joining us, for what we estimate will be about a one hour call. We appreciate your interest in our view toward our third quarter and what we see going forward. Today we'll provide you with a recap of our results for the quarter, and insights associated with our overall performance, and as you would expect we'll address guidance for the remainder of the year.

As Gina mentioned, a presentation deck associated with today's call is posted on our website within the IR section. And just a reminder that our website is simply Visteon.com. And I can confirm, and as many of you know, the Q was also filed this morning with the news release. We are joined today by Tim Leuliette, President and CEO, and Mike Widgren, Interim CFO and Corporate Controller. And after Tim and Mike's prepared remarks, we'll open the call to your questions, and then Tim will close with a brief summary. Again, thanks for joining us. With that, I turn it over to Tim.

Thank you, Scott and welcome, everyone. We have a lot to talk about today, but what I want to do first is that I do want to welcome Jeff Stafeil who will be announces as our CFO, is announced as our CFO effective on November 2. For those of you who know both Jeff and I, we have worked together for about 12 years around Asia, Europe, and North America, and it's good to have Jeff as part of the team. In addition to that, I would also like to thank Mike Widgren who has filled in and taken the role of Interim CFO in the interim period here and has led the group through, as you know, a number of actions and scenarios and activities as we prepare to improve shareholder value.

With that, let me start and focus first of all on the first slide, page 2 of the deck, and talk about our third quarter performance. I think first of all, the key here is that it was in line with our expectations. I think what's underlying here, an important point for shareholders is the Company was fairly conservative with respect to its forecast of Europe for the beginning of the year, and Europe has played out as anticipated. Adjusted sales at $1.6 billion were down year-over-year by about $107 million of which more than that was -- represents the impact of currency over the year.

Adjusted EBITDA of $131 million, down $37 million year-over-year. Currency impacted that by $15 million. We'll go through some -- Mike will go through some explanations of the product groups, but climate was up $5 million, electronics down $18 million because of the timing of some inputs and output to that particular business. Interiors down $1 million and the discontinued OPS at $8 million, explain that delta. Net income was down $26 million to a $15 million level. Driven obviously by the EBITDA. Also driven by the fact that we had run through expenses through -- for the quarter for the unsuccessful Halla Tender Offer, that was about $10 million. We had some higher taxes of about $8 million and that was partially offset by lower D&A and the gain on sale. The R-TEK and some restructuring and other expenses net of about $12 million.

We ended the quarter with $920 million of cash. That is an increase of $174 million from year end, 2011. Again, driven by both operational cash contribution, but it's had significant proceeds obviously from the sale of the Grace Lake, the Headquarters Facility, Lighting, and R-TEK. We also ended the quarter with debt of $595 million. Mike will take you through the details of that, but those are the top line drivers of those specific elements. As we look at our guidance for the year, we will confirm the $6.8 billion revenue target for the year, and we are maintaining the midpoint of the adjusted EBITDA range narrowing it down between $590 million and $610 million.

We have referenced here, I think it's important to see what is that number, less Lighting for the year. As you know the revenue number of $6.8 million is also less Lighting. So you see the impact of taking Lighting out for the 12-month period, or -- yes, that's for the 12-month period, and that provides some basis as you are going forward. Our free cash flow, we said plus or minus zero historically. I think now we're saying at least a $25 million positive free cash flow from operations. We have also added earnings per share as a guidance item here on the upfront portion of the presentation. A couple of reasons for that.

I have watched in both my role on the Board now and as CEO, a disconnect between, I think, the ability for you out there from an analyst perspective to go bridge from EBITDA to earnings per share. And what I am going to ask, and have asked Jeff Stafeil to do as we get into the first quarter, is to help you bridge between our cash flow and our earnings per share. Right now, we're going to bring that up as a formal guidance item for you to track. The other item here as we talk about guidance, is we do not give quarterly guidance, but obviously as we have now finished three quarters and there's only one left, by default we are giving a Q4 guidance.

And let me talk a bit about that. If you look at our EBITDA, we have generated approximately $150 million in the first quarter, $150 million in the second and approximately $130 in the third. Which is obviously the weaker quarter of the year. To get to this range of numbers for our outlook, for the forecast for the year, would imply $160 million to $180 million for the fourth quarter. Which would be our strongest quarter of the year. It also would impact -- reflect the fact that there's no Lighting in Q4. And it also would reflect the fact that of all the announcements we have seen in Europe.

The important part here is I think the Company has stated for some time, that during the Chapter 11 process and the emergence of that process, you go through what I'll call a purgatory period where your order book and business awards are somewhat softened until the Company exits. The Company has now been out for two years and you are starting to see the impact of the business awards as well as the cost reduction actions that the Company has announced, and has been discussing for the last year or so. I think you should look at the fourth quarter as a baseline for what we will be building on going forward. And so that is the indication there. And we do look at the fourth quarter as being fairly good from a revenue perspective. I will also say that we will spend the rest of my time on this call discussing some of the value creating actions and items that we have discussed in the past.

And with that, I would like to turn on the next slide on page 3, which is entitled The Visteon Strategic Plan. This was discussed on September 19. And I have basically no changes to make to that strategy. We have outlined that strategy. We are focusing on that strategy. And I'll discuss some of the implementing actions here in a few minutes. The first critical building block is our Halla Visteon Climate Combination. That is in process and as I said, I will discuss it further. I think the critical factor here is this is a financially sound, extremely attractive and extremely powerful combination of Companies. I think as we get into next year, we'll start to share with you some of the new technology here. What we call the heating, ventilation, air conditioning, or HVAC in a box concept that we are putting forth on some of our new idea vehicles and some of our new customer discussions.

It really changes the HVAC design for vehicles for the first time in a lifetime. And this is the kind of technology push that we think is going to drive -- continue to drive this business. Visteon interiors, obviously I think all of us felt that the Yanfeng Visteon interiors combination was a sound and had good industrial logic. In absence of being able to do that, we will find some other scenario there to enhance that business and to find a proper home for that business. I have nothing new to report since our September 19 discussion there. When I go on to Visteon electronics, I will say -- [like] climate. Visteon electronics has also won business awards in the marketplace in excess of industry growth.

We're seeing that more impact 2014, 2015 from a revenue perspective. It's got a good technology base. Again, as we said before, we need to enhance and expand that presence or find a combination that makes sense there. Again, I have nothing new to report on that since September 19. Then we have Yanfeng Visteon, which is obviously a very critical asset of ours. Something that I feel, from the standpoint of talking to you, the shareholders and some of the investors and analysts, that there's probably not the clarity or the depth of understanding of Yanfeng Visteon. So, again, we will take the January 15 Deutsch Conference in the time allowed to -- because there will be a number of subjects there, but we will also expand upon Yanfeng Visteon, and give you some greater insight into that business. For example, that business has grown in a 28% CAGR since its start.

And as we face 2013, and again, I'm not going to give directions here as far as forecast, but I will say that in 2013, Yanfeng Visteon will add, will add $1 billion of growth in one -- in that year alone. So, it's a very attractive, a very strong and core piece of business, but we have yet to be able to have the Visteon shareholder benefit from that value creation. That is our goal and challenge to do so. And then last but not least, at the bottom, we talked about corporate right sizing and I will expand upon that in the slides coming forward.

Moving on to page 4, let's talk about the Halla Visteon Climate Group Transaction. We are on -- in our timeline, on our timeline to achieve this. We are selling, as you know, our Visteon Climate to Halla Climate, contributing that for cash. We have separated the activities legally, and defined the perimeter. What we are transferring in and contributing to Halla Visteon is not the entirety of Visteon Climate.

There are certain facilities and phase-down and some G&A that will not be contributed to that. It will be addressed in some of the discussions I have in a moment. It reflects 13 manufacturing facilities and a number of technical sales activities in 14 countries. We have defined that package, the independent valuation and diligence is underway. And when I say underway, it's in process in a matter of days here to finally resolve. And we are now integrating and the organization charts and the integrating teams are being defined.

The value of Visteon Climate is approximately $350 million to $450 million. Again, I don't want to narrow that down anymore than that at this stage, as the final negotiations are in process, but that gives you a value range, I think, that will allow you to plan appropriately as you are looking at your modeling. We will have a signing and a closing of that activity in the first quarter of 2013, and that was, I think, in line with the timeline that we announced back on September 19. What are we going to do with the proceeds of that? I think again as I discussed on September 19, we'll use that for balance sheet enhancement. We will be more definitive and outline the game plan for those proceeds at the January 15 conference that I mentioned earlier.

From the standpoint of Visteon shareholders, you will see that you alone as Visteon shareholders, 70% of the clear number two global climate player. It has an expanding market share. It has a significant three-year backlog, and a growth curve greater than the industry, and it has one of the strongest balance sheets in the industry. This is the gold standard of the climate business. And the Visteon shareholders will have a large portion of the Company, that is Visteon, valued on an Asian stock exchange so that you can constantly look at the valuation of this particular investment as it is tracked daily. You will also own 70% of a highly profitable, very lean, technology leader. And I talked a bit about the HVAC in a box, and some of the other technical breakthroughs that are coming out of that group.

It's Asian-centric, it's in the growth area, and it is one of only two full line suppliers in the world. For the Halla shareholders, which -- oh, by the way are also Visteon because we own 70%. They will see an immediately, immediately accretive transaction with ongoing consolidation synergies to provide further economic benefits over 2013 and 2014. They will also see as a result of the contribution, Halla growing by 30% as it expands its global footprints, strengthens its technology base, and balances its customer portfolio, both European, North American, and Asian balance. It will have a Company with a strong balance sheet as I have said earlier, and above industry growth profile. And it will have for the Halla shareholders, Visteon as its automotive partner, which as a majority shareholder is also an operating company and one that will -- has been a partner and a contributor for years to this organization and will continue to do so.

As you go to the next page, page 7, I think it does summarize briefly what has been the story of Halla, under Visteon ownership. During that period of time, that 20 year period, the revenues have quadrupled. The Korean investment in new plant and equipment, has exceeded $1 billion during that ownership period. And now as part of the combination of Halla and Visteon, it's got a very strong and very capable Asian, European, and North American technology base. We have announced an expansion of our R&D capability in Korea, which will duplicate one of our major wind tunnels that we have in Germany, so that we now have that high speed capability for all elements of climate and HVAC and testing and development for vehicles. And that will be in place at our Korean R&D center.

The leadership, I believe of this is not just for my personal perspective, but from an industry perspective, viewed as best in class. And during this period of time, as this Company has grown, you know, FORBES for four years in a row had awarded Halla Climate as one of it best under $1 billion companies to invest in. Well, the only thing we have done, is that it's now worth more than $1 billion, much more than $1 billion and continues to grow and will do so. And it has become during this period of time, the second largest automotive climate company in the world. This is a critical element for Visteon. It's a critical asset. It is well-valued. It is well-positioned. It will continue to grow under our stewardship.

Now, let's now focus to the next page. Page 8 and talk about the restructuring program. We will be incurring some restructuring and other costs of approximately $100 million to allow the Company to further reduce its SG&A and other fixed cost in 2013. These charges will be recorded beginning this quarter and extend into next year. These actions are in addition to the activities that were already started in 2012 which had reduced SG&A and other fixed cost by 7%, which is approximately $35 million in 2011 -- versus 2011. As we look at where these costs will be binned and where we are addressing our cost structure, they're really in three categories.

We're, first of all right-sizing our SG&A activities in connection with the Company's strategic plan. I announced that on September 19 and this is the manifestation of that. We're also right sizing our European activities in anticipation of the revenue streams we see coming forward, and we also have on the books, and in the business, some historically underperforming assets which we will be shutting down. Those assets include a Philippine manufacturing facility which will be shut down this quarter, and there are some other facilities around the world that are included in this initiative. For those of you who are modeling this, some background here of that $100 million, you should view that as a majority of that being cash. A majority of that being spent in 2013.

When you look at the three categories of actions, the right sizing of SG&A activities typically have a one year payback. The European activities tend to be closer to a two year payback. And the addressing of the historically underperforming assets are really a portfolio in a tapestry of different return analysis. Some of these are drains on the Company today. Some of those we see as being a drain going forward. I think the best way to assess and to measure the impact of this, is when we do discuss our 2013 forecast, which again will be at that January 15 Deutsche Conference where we will give you some greater insight into where we are headed and how all these numbers impact our performance.

Now, moving on to page 9, there has been, as you know, other activities going on this year, positive activities from both a cash and performance perspective. The Cadiz, Spain plant closure. The sale of the Grace Lake Corporate Center, the Lighting sale and the R-TEK interiors JV sale which is all occurred up until August. We also announced a $100 million share repurchase plan, and we also announced the defined benefit lump sum offer. Let me expand a bit about both of those items here on the next page.

First of all starting on page 10 with $100 million share repurchase we announced on August 2, the objective of repurchasing up to $100 million of our common shares during the next two years. We did not purchase any shares in the third quarter for a number of reasons. First of all, at the time the program was finally approved, and the sequence was established and the protocol is established, we had at that time, at the Board level, made the decision to make a CEO change. Then immediately thereafter made the decision to implement the strategic plan which was -- I discussed earlier.

During both of those periods of time, we are in a restricted period by decision of council. And then of course as you get to the end of the quarter, you're also confronted with a restricted period for five days. So therefore in aggregate, there was only four days in the third quarter for which we could acquire shares, and I will say at that point, the stock had already risen about 40% from where it was on it lows. But we are committed to this plan. We will be engaged in this plan and that is independent of the proceeds discussion which I discussed earlier with respect to the sale of Visteon Climate to Halla.

On the next page, page 11, Defined Benefit Lump Sum Offer. We announced on September 19, our objective of offering a lump sum buyout option to a number of our pension participants. They represented nearly 10,000 of our 20,000 total US plan participants that qualified for this opportunity. This is an action that will be completely funded by pensions assets, not Visteon assets. The election window started on October 1. It will end here next week. We are presently forecasting about a 50% take rate, which everything that we have seen to date would suggest that, that is in line with -- we are in line with that expectation.

This will reduce our unfunded pension liability by $50 million to $75 million. Which again is -- again a real liability, and that is in essence $1 or more a share. Also, we will expect our PBO to be really reduced by over $300 million. I think there's a couple aspects of that, that's important. One, that is about a 20% reduction in the overall liability for our US pension liability. That therefore reduces the risk going forward as far as volatility. Secondly, there's about $1.5 million of reduced admin expense per year as a result of these actions. Which again is a benefit going forward to the plan. So again we are in a position of being able to do that. The pension is 80% or more funded. We are in a strong position, and we have taken advantage of that particular opportunity. And with that, I would like to turn it over to Mike Widgren to go through some of the financial details. Mike?

Thanks Tim, good morning ladies and gentlemen. Our financial results for the third quarter were heavily impacted by unfavorable volumes in currency. This slide provides a summary of automotive production volumes by region, and average exchange rates for key currencies compared with 2011. Global volumes increased by 2%, its favorable production volumes in North America and Asia, more than offset declines in Europe, where economic weakness continued to weigh on consumer confidence. European customers, Ford and Renault-Nissan were down 9% and 13% respectively, compared with the third quarter of last year, while PSA was up 1%.

Despite overall volume increases in Asia, Visteon's largest customer, Hyundai Motor Group was down 7% year-over-year on labor disruptions in Korea. Currency negative impacted our results in the quarter, as the US dollar continued to strengthen against most major currencies. Because of the regional distribution of our sales, changes in the euro and Korean won have a significant impact on Visteon. Average exchange rates for the euro and the Korean won declined by 13% and 7% on a year-over-year basis for the quarter.

On slide 14, we provide an overview of our third quarter and year-to-date 2012 sales by region and customer. These figures reflect our consolidated sales only, and exclude sales from our non consolidated joint ventures. As you can see on the top half of the slide, approximately 30% of our sales are related to the European region. Lower volumes and a weaker euro as discussed in the previous slide, both negatively impacted our European sales and led to a significant decrease in our year-over-year performance. On the customer side, Hyundai Motor Group continues to be our largest customer representing 32% of our consolidated sales. Year-over-year, Hyundai sales were lower in Korea due to the labor disruption previously mentioned, but were higher in North America, China, and Europe.

Turning to slide 15, our financial results have been impacted by a number of items that make year-over-year comparisons difficult. The adjusted financial information presented on this slide excludes these items. As non-GAAP financial measures, the suggested financial information is reconciled to US GAAP financials in the attached appendix on pages 31 through 34. On an adjusted basis, our third quarter 2012 sales were $1.6 billion, $107 million lower than last year. The decrease is more than explained by unfavorable currency.

Adjusted gross margin was $129 million or 7.9% of sales. $15 million lower than 2011, driven by unfavorable currency and product mix, partially offset by positive net cost performance. Adjusted SG&A was $85 million representing an improvement of $7 million or 10 basis points compared with 2011. Adjusted EBITDA was $131 million for the quarter, down from an average of $150 million per quarter during the first half of 2012. Approximately $10 million of the decrease is related to the sale of the Company's Lighting business, which closed on August 1. The remaining decrease is attributable to seasonal plant shut downs in third quarter when compared with earlier quarters in the year.

As Tim mentioned, we are introducing an adjusted EPS metric, which for the third quarter of 2012 was $0.37, $0.63 lower than in 2011. The decrease is explained by the per share impact of lower adjusted EBITDA, higher interest expense associated with the Korean Bridge Loan, and higher income tax expense due to the non recurrence of benefits recorded in the third quarter of 2011, partially offset by depreciation and amortization. The calculation of adjusted EPS can be found in the appendix of this presentation on page 34. Our free cash flow during the quarter was $112 million. An improvement of $136 million reflecting favorable trade working capital performance, lower pension cash payments, increased dividends from unconsolidated affiliates, and lower capitol expenditures.

Slide 16 provides a year-over-year view of adjusted sales and adjusted EBITDA for the third quarter in year-to-date periods of 2012. Adjusted sales were $1.6 billion during the third quarter and $5 billion on a year-to-date basis, representing decreasing of $107 million and $292 million compared with 2011. Volume and mix, increased sales in the third quarter and year-to-date periods of 2012, as growth in North America and Asia, more than offset weakness in Europe.

On a product group basis, climate volumes, more than offset declines in interiors and electronics, which were heavily impacted by conditions in Europe. Currency had an unfavorable impact on sales from both the third quarter and year-to-date periods of 2012, reflecting the strengthening US dollar compared with most major currencies. With the euro and won having a significant impact on Visteon. Customer pricing, design actions and commercial agreements, represent other changes effecting sales.

Third quarter and year-to-date adjusted EBITDA were both down compared with 2011. Reflecting unfavorable product mix and currency, primarily associated with conditions in Europe and most significantly impacting the Company's interiors and electronics product groups. Equity and affiliates was lower for the quarter and on a year-to-date basis. The decrease reflects price productivity and product development costs for new program launches planned during the rest of 2012 and into 2013. The business equation represents cost efficiencies net of price reductions to our customers. As you can see, our business equation was positive for the quarter and on a year-to-date basis. We expect our business equation to remain positive for the rest of the year, as we implement additional material, manufacturing and fixed cost efficiencies.

Turning to slide 17. On a segment basis, third quarter sales increased slightly for the climate product group primarily driven by higher Hyundai volumes in North America and Europe and new business in Asia. Electronics and interior sales were lower for the third quarter, reflecting soft European volumes and the impact of the weakened euro. Adjusted EBITDA, including equity and affiliates of non controlling interest, was up slightly for climate, but lower for electronics and interiors as currency and lower volumes negatively impacted both groups.

Significant decline in the electronics adjusted EBITDA reflects lower European volumes, a weaker euro and unfavorable product mix. Similar to prior quarters in 2012, we continued to see margin contraction in electronics during the third quarter, resulting from unfavorable product mix. It should be noted that there was some engineering recovery that favorably impacted the third quarter of 2011, and a pricing item that has an unfavorable impact in the third quarter of 2012, which when combined contributed to the decline.

The next three slides provide a bit more detail in our financial performance by product group. Slide 18 provides an overview of climate sales and adjusted EBITDA for the third quarter and year-to-date periods of 2012. Climate sales in the quarter were $1 billion, up $21 million compared with 2011. Higher volumes, including net new business, increased sales by $92 million despite lower volumes in South Korea attributable to the labor disruption. Currency of $68 million was a partial offset and is primarily related to the euro and the Korean won. Adjusted EBITDA margin for the third quarter of 2012 was 8.6% of sales, up 20 basis points when compared with 8.4% in 2011. It's important to note that the adjusted EBITDA margins shown on this slide and the following two slides, exclude the impact of equity income in non controlling interest.

On a year-to-date basis, climate sales were $3 billion and adjusted EBITDA margin was 8.3%. This adjusted EBITDA margin is lower than 2011, reflecting unfavorable currency, product mix and cost performance, partially offset by favorable volumes. We expect climate adjusted EBITDA margins to improve in the fourth quarter of 2012, driven by higher volumes in all regions particularly in South Korea as production volumes recover from third quarter work stoppage. Climate adjusted EBITDA margin is also expected to be favorably impacted by new business and improved cost performance.

On slide 19, electronic sales for the third quarter of 2012 were $298 million. And adjusted EBITDA margin was 3% of sales. On a year-to-date basis, electronic sales were $919 million and adjusted EBITDA margin was 5.2% of sales. As previously discussed, electronic sales for the third quarter in year-to-date 2012, were lower than 2011 due to the European production volumes and weakened euro. Adjusted EBITDA margins were also lower due to unfavorable product mix, lower engineering cost recoveries and unfavorable pricing item in 2012.

Turning to slide 20. Interior sales in the third quarter were $313 million and adjusted EBITDA margin was 3.5% of sales. On a year-to-date basis, interior sales were $1 billion, and adjusted EBITDA margin was 2.3% of sales. Interior sales and adjusted EBITDA margins both decreased compared with 2011. Driven by lower European vehicle production volumes and a weakened euro. Similar to our electronics product group, interiors has a significant European presence and has been particularly impacted by softness in the region. Compared with the first and second quarters of the year, adjusted EBITDA margins have increased primarily driven by customer cost recoveries and material cost efficiencies.

Slide 21 shows adjusted SG&A for the third quarter and year-to-date periods of 2012. Adjusted, SG&A totaled $85 million in the third quarter of 2012, which was $7 million better than the third quarter of 2011. For the first 9 months of 2012, SG&A was $262 million, $20 million better than 2011. About 50% of the improvement in adjusted, SG&A for both the third quarter and year-to-date periods of 2012, reflect net cost efficiencies, while the remainder is attributable to currency. In both periods, adjusted, SG&A as a percent of adjusted sales, improved on a year-over-year basis. And as Tim mentioned previously, we are taking cost reduction actions which will result in additional year-over-year savings in both 2013 and 2014.

Turning to slide 22, free cash flow was $112 million for the third quarter of 2012, and $17 million for the first 9 months of 2012. Our year-to-date cash of operating activity is $163 million includes positive adjusted EBITDA of $432 million partially offset by $68 million of restructuring and transaction related payments, attributable to the closure of our Cadiz, Spain electronics facility and professional fees. Seasonal trade working capitol outflows of $71 million also served as a partial offset. Capital expenditures were $146 million for the first 9 months of 2012. More than 65% of our capital spending was related to climate, in support of future customer program launches and capacity expansion.

Cash balances were $920 million as September 30 of this year. Up over $170 million from the end of last year. The increase in cash is attributable to positive free cash flow and proceeds from asset sales including the Lighting business, the R-TEK joint venture and the Grace Lake Headquarters Facility. Total debt at the end of the quarter was $595 million resulting in net cash position of $325 million. Before I take you through our financial guidance for 2012, I would like to briefly discuss our fourth quarter 2012 volume assumptions.

Slide 23 provides IHS fourth quarter volume projections, and for the most part, our volume forecast is in line with IHS. Compared with the third quarter of 2012, global volumes are forecast to increase by 5% in the fourth quarter, reflecting higher volumes in all regions except North America. Visteon's key customers in each region are forecasted to grow at faster rates than the overall region. Ford in North America is expect to grow at 13% compared with a slight decrease for the region overall. In Europe, Ford and Renault-Nissan are forecasted to grow at 9% and 15% respectively compared with 5% for the region overall. In Asia, our largest customer, Hyundai, is expected to increase by 29% compared with third quarter of this year, as volumes recover in the fourth quarter from the previously mentioned work stoppage.

In summary, we expect the increase in volumes for our key customers to be significant driver of our financial results in the fourth quarter of this year. On slide 24 I we provide our current expectations for 2012 results. As Tim previously mentioned, we are moving our full year 2012 sales guidance to upper end of the previously announced range, primarily reflecting a strength in euro. We are narrowing the range for our adjusted EBITDA guidance and increasing our free cash flow guidance. We are also introducing adjusted EPS guidance. We now expect full year 2012 sales to be approximately $6.8 billion and adjusted EBITDA to be in the range of $590 million to $610 million.

Excluding the impact of Lighting discontinued operations, we are forecasting adjusted EBITDA of $563 million to $583 million. We are increasing our guidance for free cash flow, which we expect to be in excess of $25 million for the year. Lastly, we expect adjusted EPS to range from $2.77 a share to $3.14 a share or $2.39 a share to $2.77 a share, excluding Lighting discontinued operations. That concludes the financial review. Tim, back to you.

Thank you Mike. Moving to the last page here, success milestones, page 25. As we have said, we are going to contribute climate business to Halla. Creating a Halla Visteon Climate Company a very global -- a very capable global climate power house. We're going to provide Visteon shareholders optionality in that investment. We are monetizing our interiors business on a timeframe and a timeline that makes sense. And we're going to address our electronic strategy and our global position with that business. It's got a good order book.

I would like to see some more critical mass that needs to be part of a greater critical mass, and we need to uncover the Yanfeng value to Visteon shareholders as a critical success milestone, and we understand that. And as I said, we'll give a greater insight and clarity on Yanfeng, in our January meetings, and we need to right size our corporate functions in response to the actions above. So I think with that, I will turn it over to Scott for questions. Scott?

Gina, let's turn it over to you to work the queue and let's take questions as time allows.

(Operator Instructions)

Kirk Ludtke, CRT Capital Group.

I wanted to welcome Jeff, and also -- with respect to the restructuring, does $100 million cover everything on slide 8? The right sizing of SG&A, Europe, Philippines? Or is that the first installment?

I think $100 million is clearly the bulk of that, and we said approximately $100 million. If there is charges that are necessary in addition to that, Kirk, it will be non-cash related and it's just going to be a function of how we set up some of the writedowns or exposure going forward. But it's the best estimate today.

Okay. That's helpful.

And Tim -- you mentioned that you are starting to see the benefits of some new business, and I was wondering if you could maybe talk about the pace at which the Company is winning new business over the last few quarters, and whether or not you see any trends?

Well, we'll probably amplify that a bit more in January, obviously. But I would say that, in particular both the Climate and electronics business have had a good year -- good award base this year. And as I said, I think earlier in my comments, that the business awards over the last 18 months or so have been in excess of industry growth. We'll detail and outline those positions going forward, but we are comfortable and pleased with the response from the customers.

Okay, great.

And I noticed that in the EBITDA reconciliation, last quarter, you backed out at a $14 million gain from the sale of R-TEK, and I didn't see it in the reconciliation this year. I'm wondering if it is just buried in one of those other line items?

Mike?

Yes. That number, Kirk, is buried in the restructuring and other items line.

Okay. So you're still backing it out?

That's correct.

I appreciate it.

And then lastly, from time to time we have heard that Visteon would be providing more full financial statements for Yanfeng in this upcoming 10-K. Is that the case?

Yes. Kirk, that is the plan. We have a requirement from the SEC to provide those separate financial statements in 2013.

For the fiscal year 2012?

Correct.

Fantastic. I appreciate it. Thank you.

(Operator Instructions)

Jimmy Baker, B. Riley & Company.

I was first hoping that you could just elaborate on the impact of mix in your electronics business. And then maybe how we should think about that, the impact of mix there in 2013.

A couple of points and then I'm going to pass it also over to Mike. Thanks for the question.

The driver on electronics during the third quarter were a couple aspects. We had the typical Q3 softness due to production reductions in Europe in particular, and we have also had some out of cycle timing between some expenditures and some recoveries from customers. But I would say, as I look at electronics, that we're going to see obviously better than this EBITDA margin, but substandard EBITDA margins through '13. As I look at the business mix and the impact of some of the new business awards, they have a bigger impact as we get into '14; but in '13, I would think that the historical performance levels we have seen in electronics are going to be the norm, outside of the actions we're taking on the SG&A front.

And so, I don't expect, given the current situation -- and we'll again get more definitive on this in January -- is a significant increase beyond the trailing norm of electronic performance until we start getting into '14, '15 -- outside of, as I said, the SG&A and other structural changes that were occurring. The mix shift between infotainment and clusters is such that, that is an endemic, systemic baseline that we'll have for about another 12 to 18 months.

That's correct, Tim. I just would add that what we are seeing in the mix has been impacted by the Cadiz plant closure.

Right, also which did have some attractive margins to it in some product lines. But clearly, it was an overall challenging facility.

And just more of a housekeeping item -- did you quantify the impact of the engineering benefit in '11 and then the pricing item here in '12?

Yes, on a year-over-year basis, it's minimal; but having said that, a small number on a small number results in a large percentage change.

Okay, fair enough. Thanks for the time.

(Operator Instructions)

Colin Langan, UBS.

Color on the multiple that Halla is playing for the non-Halla Climate business? It seems like a pretty good price. Where did you come -- how did you come up with that range?

We have obviously looked at this from an independent third-party perspective of valuation; looked at industry trading multiples. We also have looked at the asset base, cash flow -- all the standard football field of evaluation metrics. We have expectations; in essence, looking at the buyer side, which is also our responsibility as part of the Halla Management and Board. We do not want to pay over market for that, and the valuation metric for the sell side was determined to be a multiple that is less than what Halla is trading at currently, which allows us to have the accretion that we believe is appropriate for the transaction.

We will detail the financial -- again, we are in the process, and again the final days here of finalizing the sale price. But we will detail those metrics and those multiples in January, at the January 15 conference.

And are those an EBITDA multiple is that like the main multiple?

We're using an EBITDA multiple.

Okay. The non-Halla Climate business does have at least some sizeable positive EBITDA?

Yes, I think -- and again embedded in the historical Climate product group, again which is -- I think we go back. The Company started reporting Climate as a standalone product group, a quarter ago from an EBITDA perspective. So you have that clarity. There was a significant amount of SG&A associated with that, that was assigned to that Climate group, which again is part of our restructuring and streamlining operations so that, A, it's no longer there, and B, not transferred with the transaction.

Oh, okay. That makes sense.

And there were a lot of media reports about Mando's interest in Halla. Those seem to have died down quite a bit. Do you have a dialogue with the company, and any interest in continuing that dialogue?

I don't publicly discuss M&A activities, but I will say, and I will reinforce what I said on September 19. And again, I have been in Korea now twice over the last three weeks; I've had no dialogue nor have I had any contact from M.W. Chung nor Mando.

Okay. And looking at your Q4 outlook, seems like you are expecting things to get a bit better than in Q3, although it seems like lots of buyers are getting more cautious into the fourth quarter. What gives you that confidence? Is it driven by Hyundai recovering after the strike in Q3? What other factors are making you confident that EBITDA actually can get better in Q4?

I think a couple of points. First of all, I think I'll go back to one of my earlier comments, and that is, the Company was very conservative with Europe from the getgo. So what we are seeing from the standpoint of announcements and production schedules, et cetera, for Q4 are basically in line with expectations since the beginning of the year. I think the Company, from the Board on down to the Management team back a year ago, was very cautious on Europe; and I think that has manifested itself into actually happening. So therefore there was no downside from some of the actions that were announced or we have seen.

Secondly, we are seeing a stronger euro going into Q4, which is bolstering both the revenue side and obviously some of the underlying building blocks; and as I said, the Company had announced that it was starting to see and would see the impact of some business awards and the impact of some cost reductions and margin improvement action. So I think all of those together give us the confidence of what we have in that forecast.

Okay. And just one last question.

Any color on you're looking to sell Interiors possibly at some point in the future? YFV? Does -- particularly in Interiors -- does the slowdown in Europe, has that made that process much more challenging? Any color on maybe the timeline on how those are progressing?

Well, I'll tell you it didn't make it any easier. A couple of things.

One, we as a Company are not sitting here with a gun to our head to go do anything, from the standpoint of needing to go pay bills. We have a good balance sheet; you can see what we are doing from the standpoint of cash. We will do the right things with that business, and we are not going to do anything to compromise it. As a matter of fact, we recently took over some business from another competitor who was struggling in South America. We liked the margins we saw there.

We're going to do some activity in Europe as part of that restructuring to help streamline and make that business more attractive; and we're probably going to expand into Russia in '13. So, we are still managing and actively pursuing and supporting that business and working with others, to make sure that footprint is as strong as possible. I don't feel, and I don't think anyone here around the table or at the Board level feels a necessity to go sell on the bottom or to do anything that is irrational or to do anything that would compromise a customer's position. So we're working actively with the customers and actively with others; and I suspect that, again, I don't want to get into M&A discussions overtly on the phone, but at the right time, we'll have something strategic to announce and we'll announce it at that point.

And is that similar for YFV? I mean China has been slowing a bit -- does that make it a tougher time to look to sell that asset?

Because the weakness -- excuse me, to China itself?

It seems like growth rates there seem to be slowing.

Again, growth rates are slowing in China, but again there's cyclicality. I think when President Xi comes in -- of course the party has announced its new leadership changes and they take over their government roles here in the Spring. We would expect some, as is traditional in China, some stimulus associated with the new leadership. Independent of that leadership, I think, and I mentioned earlier, that when I put my YFV hat on -- and again, we own half that business, we have $1 billion-plus, of growth next year in YFV, which is a significant statement to make. YFV will become larger than Visteon next year, with its size.

And as a result of that, there's a lot of focus, a lot of activity. We had the Management team over here earlier in the week, and the Board meeting. A lot's going on with YFV, and I think the issue of its ability to pay for anything, its ability to go do anything is not impaired at all. The question is, is that the metrics and the parameters were not right for the transaction at that moment in time in last Spring. I will tell you, from sitting here as a businessman, that the combination of Interiors and YFV is still, from an industrial logic perspective, the right thing to do. I don't right now see the mechanics to get that done, but that doesn't say that the mechanics can't at some point in the future, line up to do something there.

But the bottom line is that, right now, we have got actions and cleanup to do in Europe which we are going to do, and YFV has got a lot on its plate. Now, by the way, since I am mentioning YFV, and I am sure before the questions are over, one will ask, and that is -- what is the cash position of YFV? And let me just add that, since I have got the phone here, is that YFV ended the quarter with a little over $1 billion in cash. As we have said in the past, and I was very clear on the 19th, is that when you have got a Company that is growing at $1 billion a year and you have got the number of JVs and subsidiaries, et cetera, that work its way through that organization, five major product groupings and then the number of supporting affiliates -- there is a lot of needs for cash. Do we still believe there's an opportunity for us to extract some dividend out of there? And the answer is yes. But it's more modest, and that is something that is still on the table, but I having nothing to report at this time.

Okay. Thank you very much.

(Operator Instructions)

Matt Stover, Guggenheim.

I would just like to ask some clarifying questions. On the tails of your last comment, Tim, you folks have talked about working up the payout ratio in terms relative to equity income at YFV, and am wondering if you expect to see your ability to increase cash dividend relative to the income there continue to climb? Or because of the gross cash payout as a percent of income, needs to stay the same?

Okay, there's a couple of elements there. One, I think that -- that as we look at the trend line, YFV, going forward, we're going to continue to see it again. There's going to be ups and downs and there's going to be, like any company, some cyclicality here. But we see the long-term trend as being very positive in the growth in net income. And to that degree, we have, as you know, a 70% payout on the dividend. We would like to increase that and are working on that. But from time to time, there'll be opportunities because of the cash generation -- again it's going to be cyclical. Right now we have a number of plants under construction; a lot of engineering work going on in China -- that there will be times to extract cash and times not to.

We still believe there's an opportunity to pull out, on a periodic basis, sometimes a special dividend. At this point we would also like to see the baseline dividend increase, and we're active on that front. But the overall trend over time should be a positive one, without question. The growth that I have talked about for YFV next year will be duplicated the year after, given the business awards the Company has had. So there's a clear trend -- in the degree that cash is appropriate to be extracted, I can assure you that, that is on the front of our discussions.

On the restructuring, a couple of things. One, are the plants that are excluded from the Visteon Climate contribution -- have they been included in that restructuring charge? And if you could just kind of sort of roughly apportion the charge by business sector, that would be helpful? In terms of percentages.

The answer to your first question is, yes, they have been included in that restructuring charge; and as far as being, providing clarity there -- just because of ongoing negotiations and discussions, I'll refrain from giving any more clarity there until January.

Okay. And when we think about that though, as I look at the returns in the Interiors business, they're obviously the most challenged, and so I guess as a dumb outsider I would say that is the business that needs the most activity. Would it be fair to associate most of the charge with Interiors? Or would that be an incorrect assumption?

You know, Matt, God love you, you're still digging.

That is my job right? Come on.

I know. I have got to tell you is that, is it's clearly as represented -- well-represented in that number, but I'm not going to give you any greater clarity until January.

Okay.

And one last one. If I look at the margin performance in Climate and Interiors, we had somewhat of an atypical trend from Q2 to Q3, and I thought I heard mention of a pricing recovery in Interiors. I'm wondering if you could give us a sense of what that might have been? And then, two -- if you could put some more meat on the bones of what happened in the Climate business, that would be really helpful. Thanks a lot.

I'm going to turn it over to Mike on the first point.

I would just say on the second point, embedded in Climate, and there is some additional revenue coming in. We had some less than acceptable manufacturing performance in Q3 which may bleed a bit into Q4, which did not contribute positively in Climate, and that is being addressed. And then as far as the remainder of this, let me -- Mike, let me turn that over to you.

Yes, and what we saw in Interiors. We did see a benefit to our cost of sales during the period as a result of an engineering recovery from costs that were passed through and approved by the customer in the quarter.

Okay. What I was thinking of, actually, in the Climate business is actually -- margin, if I have it correctly, the EBITDA margin in Q2 was 7.8% and the EBITDA margin in Q3 was mid-8%. And you know, as we both know historically, third quarter because of changeovers and production days, usually is a lower margin quarter versus Q2. And I am wondering if we need to look back to Q2 to say there was something in there that was a problem, or was there a good guy in Q3 that perhaps is something we can extrapolate forward?

One point is that Climate is less susceptible to the Q3, Q2 dynamic than some of the other businesses because of its dependence on Asia.

Okay.

And we have also seen continued efficiencies and new business coming on stream with growth of Hyundai.

Okay.

Thank you, Matt.

Thanks a lot.

Gina, at this point I think at this point we'll end the queue, and I'll turn it over to Tim for closing comments, apart from saying again, thank you everyone for joining us. We'll be taking calls for the next couple of days. Tim?

Thank you, Scott. And I guess the bottom line here from the Company's perspective is that we did perform to expectations, but we are elevating those expectations as we go forward. The underlying growth and a combination of both tactical and strategic actions, I think will better position this Company and its assets in the future, for which we are confident will deliver the shareholder value equation that is expected. The implied Q4, which is the strongest quarter of the year now; the Halla Visteon combination and the result in cash generation back to the parent; the restructuring actions announced -- are all part of that process.

I look forward to seeing you. I know I'm going to be in New York here, in Boston the next few days, early next week. We'll see you at some of the conferences coming up, and we look forward to seeing you; and again we appreciate your interest in the Company. Thank you.

This concludes today's conference call. You may now disconnect.