Visteon Corp (VC) 2014 Q4 法說會逐字稿

Good morning, and welcome to Visteon's fourth-quarter and full-year 2014 earnings call.

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

As a reminder, this conference 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 Information for further information.

Presentation materials for today's call were posted on Visteon'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. Bob Krakowiak, Visteon's Vice President, Treasurer, and Investor Relations.

Mr. Krakowiak, you may begin.

Thank you, Brent, and good morning, everyone.

Joining me today are Visteon's President and Chief Executive Officer, Tim Leuliette; and Jeff Stafeil, Executive Vice President and Chief Financial Officer.

We appreciate your interest in our Company, and thank you for joining us to review fourth-quarter and full-year 2014 results.

We have scheduled the meeting for an hour, and will open the line for your questions after Tim and Jeff's remarks.

Please limit your questions to one question and one follow-up.

As previously mentioned, the presentation pack associated with today's call is posted on Visteon.com within the Investor section.

Also note that our Form 10-K was filed earlier this morning with the news release.

Again, thank you for joining us.

And now I will turn it over to Tim.

Thank you, Bob, and welcome, everyone.

We have a lot to talk about today, so let's quickly move to the slide material, page 2. To start off, as we looked at Q4 and we looked at the overall year, it was a continual focus, obviously, on shareholder value.

In December, we did announce the sale of HVCC for $3.6 billion.

We'll expand a bit about the -- both the tax and the proceeds issue as we get through this material, both of which will give you some greater granularity and detail as we go forward.

And then, obviously, we also completed the divestiture of a majority of our Interiors business.

There is still some components remaining as we go through the process of the final closure with the buyer, but again, that's now getting behind us.

As we looked at the year from a financial perspective, it was a good year.

Sales of $7.5 billion and EBITDA of $678 million, excluding the discontinued operations.

I will say that in Q4, both electronics and corporate expenses were better than planned and better than our guidance that we gave earlier in the year, but they were more than offset by some exchange and operating performance at HVCC.

But as we looked at electronics and the corporate expense as a basis for going into 2015, it did give us encouragement.

We had adjusted free cash flow of $111 million.

We had a record new business win and re-win of an electronics of $1.3 billion.

I think, as we've discussed before, there's been significant customer -- positive customer reaction to the combination of the two businesses.

And we had a strong balance sheet at the end of December 31.

Cash of $836 million, debt of $981 million.

And, as I said, a good leverage.

As we look at the midpoint of guidance for both 2015 and 2018 -- and I'll expand upon this, on 2018 a little bit later -- but we are maintaining our revenue and our EBITDA guidance for 2015 and 2018, but we are increasing our adjusted free cash flow from prior guidance, due to getting a little bit smarter and a little bit more capable on the tax situation.

And as I said, and we said to you in the Deutsche conference and other venues, that, as we continue to peel back and get this Company down to just electronics business, we are getting better at, and smarter at, the details and some of the infrastructural cost issues of running that business.

And this is the first sort of indication of that.

While we are maintaining our EBITDA guidance, I know that there's concern out in the marketplace on exchange, et cetera, and we are cognizant of that.

Obviously, the exchange rates have moved a bit since we gave that initial EBITDA.

But we have offsets and other actions that we are targeting to sort of maintain the position that we have previously stated.

Moving on to the next page, this is sort of a timeline as to the events of 2014.

Sometimes you have to look back at something like this to get the appreciation of all that did occur, which included the refinancing of our bond with a much more attractive term loan back in April, when we signed the deal to sell off our Interiors business in May, as well as announce an accelerated share buyback in July.

We closed the acquisition of JCI with a great deal of activity that day-one of management going around the world and meeting almost all the employees.

We agreed also at that point in July to annuitize one-third of our US pension liability.

And then we closed the acquisition of Thermal & Emissions product line of Cooper Standard that we put in place in the HVCC product line in August.

Then in November, we completed the divestiture of Interiors, and then, of course, in December, announced the transaction with HVCC.

So, as we look back, it was a very, very full year, and -- but we think a strong year for shareholder value creation, which, again, is our priority.

Going on to page 4, the JCI integration.

Let me just update here.

We are on track to deliver the $40 million to $70 million in annual electronics synergies.

Obviously, we include the midpoint of that in the midpoint of our guidance.

We have begun that process.

Those savings are starting to be reflected in 2015, the bulk of that coming, and will be completed by the end of 2016.

These synergies relate to numerous activities.

They're not just a singular focus.

They are in material and purchase material areas, they are in plant, they are in manufacturing, engineering, and obviously, SG&A efficiencies.

We also expect to achieve some additional sales growth synergies related to new programs, and they will start to roll in, in the 2018, 2019 timeframe.

But we are seeing again the strength of this combination, as I said, in the fact that we had $1.3 billion of new business awarded last year.

To achieve these synergies, we expect to incur additional restructuring integration and IT transformation cash outflows, as we've discussed, in 2015 and 2016; restructuring cash outflows of approximately $70 million to right-size SG&A and engineering staff, which is about $55 million in 2015.

And the IT decentralization and integration will cost about $40 million.

And, again, that's over a similar timeframe.

We expect all of these, as I said, savings to be embedded by the end of 2016.

Moving on to page 5, and this is a page we'll spend some time on -- the update of the sale of HVCC.

As you know, we announced the sale of 70% of our stake to an affiliate of Hahn & Co.

and Hankook Tire.

The transaction value of approximately $3.6 billion, which reflects a purchase price of KRW52,000.

The net proceeds are expected to exceed the amounts that we showed at Deutsche, because again, we are getting better and more detailed on our tax exposure.

And Jeff will expand upon that a bit later.

Transaction is expected to close during the first half of 2015, subject to shareholder and regulatory approvals, all of which are in process per our anticipated timeline.

From a use of proceeds perspective we had discussed in the past, and we continue to focus on the plan to return $2.5 billion to $2.75 billion of cash.

And it's via what we say is a structured series of actions, sort of a tapestry of actions, which include buybacks and a special distribution, which could include a large return of capital, and is a primary component minimizing -- and we are focused here clearly on minimizing taxes for shareholders; not only minimizing taxes for the Company itself in the transaction, but doing what we can for shareholders.

The next points are important along that line.

It's estimated that between $500 million and $1 billion of the distribution -- and again, we are finalizing and detailing this as we finalize the numbers -- but between $500 million and $1 billion of the distribution would be a qualified dividend if paid in 2016, leaving the remaining distribution to be treated first as a return of capital -- which is not taxable -- and then as a capital gain if applicable to the shareholder.

If we were to pay that in 2015, $1.5 billion to $2 billion could be a qualified dividend, leaving a far lesser amount to be treated as a return of capital.

And this is in the complexities of US tax laws.

And there is a footnote down there to give you some background on that.

This is not a discretionary issue on our part.

This is obviously a function of US tax law.

That's why we have said that we would allocate between the share buybacks and the dividends at closing, and we would expect all those actions to be completed within 12 months.

We see the cost-benefit of the 2016 distribution of whatever would be in the dividend component to be advantageous to shareholders vis-a-vis 2015 distribution.

And you can see the math associated with that.

Moving on to the next section, page 7, the New Visteon.

As you go forward, Visteon really now has three components -- the Electronics group itself, with 2014 financials of $2.4 billion, $221 million of EBITDA.

It's the historical VC Electronics and JCI.

But also, we have to -- you need to remember that the important contribution of bringing in YFVE from China into that portfolio on a consolidated basis, and it is part of the infrastructure of that business that we did back in 2013.

So, there's really a three-legged stool of capability now that exists within that Electronics product group.

There will be for a while in Other Products group, and that really represents the legacy facility in Europe that we do expect to be transitioned out of by the end of 2015.

But in any case, it's small and modest from both a revenue and EBITDA perspective.

And then we have corporate costs.

And the corporate cost and corporate structure of this business really relate to the fact that, at one time, we were a multiproduct group company.

And product groups were standalone with a corporate consolidating and guidance in governance role over a number of product lines.

And we'll get to that subject a little bit later.

But the key is this -- is when we've assembled and where we're at today, and so we have a leading provider of cockpit electronics globally.

We are the second largest provider of driver information, which is one of the critical building blocks of this business.

We have a balanced Asian, American, and European footprint.

I'll expand upon that a little bit more.

The broad customer profile that includes everything from entry-level vehicles to high-end German luxury vehicles.

And we cover all the major cockpit electronic product line elements, including not just driver information but infotainment telematics, as well as the HUD.

And we have a very balanced global footprint, not only from a manufacturing perspective, but from an R&D support and engineering perspective.

So, as we go forward, we will just be this Visteon Electronics and a very small corporate center really incorporated into just one single company.

And again, I'll expand upon that in a moment.

As we look now at Electronics, page 8, and where we do business, and with whom we do business, you see a different set of pie charts than you've seen in the past from us, now that HVCC is no longer part of the family.

Starting at the right side and moving to the left, the customer profile -- you see Ford is our largest customer, followed by Renault, Nissan, followed by Mazda, then BMW, GM, SGM, Honda, et cetera.

First of all, you don't see Hyundai any more -- and that doesn't mean we're not going to try to go get Hyundai as a customer for our Electronics business -- but it's a different profile of customers we've had in the past.

And they are American, European, and Asian, Chinese, all in that top six, seven group, much more balanced than we were before.

On a regional basis, we are almost one-third, one-third, and one-third between Europe, Asia-Pacific, and the Americas.

As we look at the product portfolio and we look at the business awards, Asia-Pacific will grow considerably more than the other areas.

So we'll see Asia-Pacific again expanding up.

But at this point, we are basically one-third, one-third and a one-third in the world.

And as on the far left chart, the by-product you see, that again, we leverage our strength which is in the cluster displays or driver information component of cockpit, which is our forte, and where we are the second-largest in the world.

Moving on to page 9, this story, which we shared at Deutsche and I want to reinforce here, is the reaction to including JCI and combining JCI and Visteon into a single entity.

If you look at the historical new business wins and re-wins that were embedded within the Visteon electronic historical performance, you see $400 million, $500 million, $600 million a year, and then jump considerably to $1.3 billion last year.

You know, we would anticipate something of that magnitude again this year.

This is strong support from customers.

And again, a lot of this incremental win business, not just re-win business.

So it's building a strong footprint.

Because of the leadtimes, especially because of the sophistication of some of the systems, SmartCore and others, these are longer lead items than some other elements of the vehicle.

But they build a strong base in 2018, then 2019, 2020, that are embedded in the vehicle, difficult to resource, difficult to change once a vehicle is launched.

Very capable systems, very sophisticated systems, that build a very strong business base, as we look at the end of this decade going into the next decade, of a business that's very viable, strong, well-positioned.

And again, the customer reaction has been rather strong.

As we go on to page 10, in this area here, we had in the Deutsche conference referenced our 2018 midpoint of our guidance there to sort of give a feel for where we see this business headed.

And again, we remain with those numbers for both 2015 and 2018 in the sales and EBITDA.

We did increase our adjusted free cash flow from both periods.

I do want to say come on the EBITDA side -- and this is an area where we'll expand on the next slide -- is that even though we envision a 40% increase in EBITDA between 2015 and 2018, it's difficult to say this, but in all reality, we know that's not enough.

The restructuring of this business, the capabilities of this business, and the ability to address SG&A and other costs would suggest that we probably need to do more.

And as we go back -- as we go on -- then onto page 11, this is an area where, I think, some further opportunity perhaps exists, and something that we are cognizant of and aware of and working on, and want to share with you as far as a -- as sort of our to-do list, as we look at the remainder of this year and into next.

We have an EBITDA target for -- midpoint of 2018 of $335 million, which does represent a $95 million improvement versus our guidance in 2015.

And that assumes certain things.

If you look at the right side of the chart, you see that embedded inside, Visteon and Electronics and Corporate was, in a combined basis, about 8.6% SG&A in 2014.

And our guidance this year represents 7.7%.

We have, with a series of actions that we initially outlined and planned, see it down to 6.4% by 2018.

But we are very cognizant of the gray bars, or the bars on the right side of that chart, which shows that really our peer group in North America is about 6.2%, and our global peer group is about 5.2%.

So we are still carrying basically greater costs than our peer group.

We are aware of that, and we are cognizant of that.

And as we can get this HVCC transaction closed, get the Interiors pieces finally done, and that the remaining piece of our -- off of our plate, we can start focusing more aggressively here.

We've already begun that process by hiring outside consultants to sort of check and balance our own thinking here and begin the process.

But these issues remain and provide further opportunity for this Company.

We do need to get competitive.

Why we are where we are today is simply a function of the fact that, not too long ago, we were an $8 billion company with a $7 billion JV that we managed.

We acted and we had the infrastructure of a $15 billion company.

We've continued to peel that onion over the last two years with a series of programs and actions.

But now that we are finally down to the last remaining piece here, and the strong piece of Electronics, we still have work to do.

And we want to share with you the fact that we are aware of that, and that we have a game plan to sort of address that.

As we move on to page 12, we have said that, from a free cash flow target perspective -- and therefore, an EBITDA perspective -- as we said when we referenced in the Deutsche conference, we've now increased the guidance on the cash flow side.

And there you see a $75 million increase between 2015 and 2018.

But there is also the potential to exceed those actions with incremental cash flows in 2018 related to fixed cost reductions, related to peer group SG&A level of performance, related to cash tax optimization.

And honestly, as the workload of these transactions get off our plate, we see, from both a tax effort and the other efforts in the Company, ways to start addressing and optimizing the position that we have.

So we have further work to do and see the opportunities to work on those areas.

As we look forward, on page 13, the future of the world-class, we see ourselves as a world-class innovation leader; our agility, our ability to move quickly; our dynamic of becoming more of a software company and less of a hardware company, and all the implications, positive implications, that implies is sort of driving this advantage.

We are a leading provider of cockpit electronics globally now.

We have a broad customer profile, both geographically and market position-wise.

We have offerings across all major product lines, and a very balanced global manufacturing and R&D footprint, as I said.

As we move on to page 14, our near-term objectives will remain to grow the Electronics business.

The net-net of a business that rolls off and productivity that we give, and all those elements still show already a book of $500 million growth, net-net-net.

And we expect to add to that this year.

We are bolstering our business with new business wins.

We've just gotten and expanding opportunities for the SmartCore and some of our more technically-driven activities.

And we continue to develop world-class electronics to sort of interface with the connected car as it evolves.

We have to deliver on the synergies and cost savings.

The plan to deliver the $40 million to $70 million is on target.

We are in process of that.

That's not something that is waiting to occur.

It's starting to work its way through the 2015 financials, and will be completed by the end of 2016.

We do have some legacy issues, and the implications of the sell-down of the HVCC assets and addressing our overhead.

And we'll continue to do that.

We have the remaining European facilities, as I said, we'll work through.

Then we'll continue to drive our SG&A and fixed costs down to be more in line with what we are now.

And we will continue to drive shareholder value, as we have since we arrived.

We will continue to return cash to shareholders through share buybacks, and through this process of dividends and other elements, as necessary, to address the proceeds.

But we'll always continue to keep that in mind as we go forward.

And we'll continue to evaluate potential value-creating M&A opportunities that make sense and tuck-ins, as we have continued to do to enhance the software and other capabilities of our Electronics business.

So, we are committed to shareholder value.

It's been a good, I think, solid year for that.

It's been a busy year.

We've got some more to do in 2015.

And with that, let me turn it over to Jeff.

And he can start giving you some details on the financial results of the year.

Thanks, Tim.

Good morning, everyone.

I'll begin my comments on page 16 of the package.

Here we present our key financial results for the fourth quarter and full-year 2014.

As we explained in previous calls, we have reclassified the majority of our Interiors business to discontinued operations in our financial statements.

Our income statement has been adjusted to exclude Interiors-specific income and expense.

And Interiors net profit has been reflected on one line as discontinued operations.

As we have explained on prior calls, our financial results are also impacted by a number of items that make year-over-year comparisons difficult.

The adjusted financial information presented on this slide excludes these items, and represents how we manage the business internally.

As non-GAAP financial measures, this adjusted financial information is reconciled to US GAAP financials in the attached Appendix on pages 31 through 33.

Additional year-over-year comparisons are impacted by a number of transactions, including the consolidation of our Yanfeng Visteon Electronics operations started in November 2013; the acquisition of Johnson Controls' electronics business in July 2014; the acquisition of Cooper Standard's Thermal & Emissions division in August 2014; and the sale of the majority of our Interiors business in Q4 2014.

These transactions have resulted in significant year-over-year changes in sales, adjusted gross margin, adjusted SG&A, adjusted EBITDA, and cash flow.

Adjusted EBITDA, excluding discontinued operations, was $200 million in the quarter and $678 million for the full-year -- $36 million and $96 million better than last year.

The year-over-year increases reflect the impacts of the YFVE and JCI Electronics acquisitions.

Versus our guidance, we were within the range of expectations but on the lower side.

Specifically, this represented better than expected results from our electronics operation, as well as better than expected cost management within our corporate center, but was offset by lower results in our Climate business.

Year-over-year improvements in Climate's operating performance were more than offset by unfavorable currency and higher engineering spend to support future growth.

Adjusted EPS, excluding discontinued operations.

was $1.58 in the quarter and $3.90 per share for the year, both lower than 2013.

The year-over-year decrease reflects higher adjusted EBITDA and lower shares outstanding, but was more than offset by lower equity income, due to the sale of our Yanfeng Visteon joint venture during late 2013, as well as the non-recurrence of $66 million in favorable tax impacts during 2013.

Adjusted free cash flow was $47 million in the quarter and $111 million for the full-year 2014, compared to $232 million for full-year 2013.

The decrease is more than explained by the loss of the YFVE dividend, but is partially offset by higher adjusted EBITDA.

I will cover these metrics more on the following pages.

Turning to slide 17, we highlight the key transaction-related items that have impacted our financials in 2013 and 2014.

In November 2013, we acquired a controlling interest in our Yanfeng Visteon Automotive Electronics Chinese joint venture, also known as YFVE, and began consolidating the business.

Later in 2013, we sold our 50% stake in Yanfeng Visteon Automotive Trim, or YFV.

These transactions increased our consolidated sales in adjusted EBITDA, but significantly reduced our year-over-year equity income and non-consolidated dividend.

Our consolidated results were also impacted by two acquisitions which were completed in the third quarter of 2014.

In July, we completed the acquisition of Johnson Controls electronics business, and in August, we acquired the Thermal & Emissions business of Cooper Standard.

Also, earlier this year, we began classifying the majority of our Interior business in discontinued operations.

On an annual basis, this action reduced Visteon's sales by approximately $1 billion; but in this case, prior periods have been recast to conform to this presentation.

These transactions have a significant impact on Visteon's financial results, and make year-over-year and quarter-over-quarter comparisons difficult.

Moving to slide 18, we provide an overview of Visteon's segments.

On the left side -- on the left of the slide, we highlight our Climate Product group.

Our Climate Product group consists of Halla-Visteon Climate Control, our Control Corp., or HVCC, as well as three additional Visteon legacy climate facilities in South Africa and South America.

Additionally, HVCC owns our electronics operations in India.

As part of the purchase agreement to sell our stake in HVCC, we have designed a mechanism to transact these operations between HVCC and the new Visteon, such that we put all the Climate business in HVCC end all the Electronics business in the new Visteon.

These smaller transactions are expected to take place over the next 12 months and represent modest net cash transfer.

It is important to note that our first-quarter 2015 results will continue to reflect Climate's operating results as part of continuing operations.

When a shareholder vote is completed in second-quarter, the HVCC results will be reclassified as discontinued operations.

If the sale of a legacy Climate facilities lag, the results will be moved to the other product group.

The right side of this slide highlights what we look like post the sale of HVCC.

The new Visteon comprises our Electronics Product group and a small corporate center.

Today, we also have approximately $100 million in sales related to a legacy Interiors facility in Europe, which was not part of the Cerberus Interior sales transaction, that is not expected to be transitioned -- or that is expected to be transitioned by the end of 2015.

We estimate that the cost to exit this facility will be in line with the net pension liability that will be transferred to the acquirer.

As discount rates have decreased in recent months, the estimated liability for this pension has increased.

We continue our efforts to sell this business, and expect that the ultimate cost to complete the transaction will vary based on the estimated value of the pension liability.

Post the sale of this legacy facility, Visteon will be a leading pure play automotive electronics company with approximately $3.2 billion in annual sales and $240 million in adjusted EBITDA.

Moving to slide 19, we provide an overview of the key financials for our Climate group, which primarily reflects the HVCC business.

Climate sales for the fourth quarter of 2014 were $1.3 billion, up $16 million versus last year.

For the full-year, 2014 sales were $5.1 billion, an increase of $220 million -- $221 million or 5% compared with 2013.

The year-over-year increase for both the quarter and the full-year is driven by new business wins with Hyundai Kia and Ford in Asia and North America.

Currency had a $40 million unfavorable impact in the fourth quarter, largely related to the weakening of the euro and the South Korean won versus the US dollar.

On a full-year basis, currency positively impacted sales by $19 million, driven by a stronger euro and won.

Adjusted EBITDA was $127 million in the quarter and $503 million for the year.

For both periods, adjusted EBITDA was lower than 2013, driven by unfavorable currency and higher engineering costs to support future growth.

Positive business equation and commercial claims contributed favorably on a year-over-year basis in both periods.

Note that on a consistent currency basis, adjusted EBITDA would've increased $42 million versus prior-year.

Excluding the year-over-year currency impacts, Climate's adjusted EBITDA was 11% -- 11.0% for the full-year 2014 or 40 basis points higher than the 10.6% margin in 2013.

Turning to slide 20, we provide full-year 2013 and 2014 sales and adjusted EBITDA for the new Visteon.

Sales in 2014 were $2.5 billion, an increase of $864 million or 52% compared to 2013.

Adjusted EBITDA was $175 million for the year, $107 million or 157% higher than last year.

As we have already discussed, transactions make year-over-year comparisons difficult, especially in the case of the JCI business, as this closed on July 1, 2014, and is therefore concluded for half-a-year in 2014, but obviously had no impact in 2013.

I will go into more detail on the year-over-year sales and EBITDA comparisons in the following slides.

Moving to slide 21, we summarize the year-over-year drivers of 2014 sales and adjusted EBITDA for the new Visteon, excluding our Climate Product group.

As shown in the top chart, 2014 sales increased $864 million versus 2013, primarily driven by the acquisition of the former JCI Electronics business and the consolidation of YFVE.

Currency had a $12 million unfavorable impact on sales, largely related to the weakening of the Indian rupee and the Thai baht.

Pricing and Other primarily reflects customary pricing reductions given to customers.

Adjusted EBITDA increased $107 million in 2014.

Similar to sales, the largest improvement was from the JCI and YFVE transactions.

Currency related to the Japanese yen and Brazilian real, and higher engineering costs to support future growth, unfavorably impacted year-over-year adjusted EBITDA by $13 million and $12 million, respectively.

Partially offsetting these impacts were $15 million in material design and other cost efficiencies.

Turning to slide 22.

We'll take a look at our Electronics operation in more detail.

Electronics sales for the fourth quarter of 2014 were $744 million, and adjusted EBITDA was $64 million.

For the full-year, sales were $2.4 billion and adjusted EBITDA was $221 million.

Sales increased versus 2013 for both the quarter and the year, largely driven by the YFVE consolidation and the JCI Electronics acquisition, and net new business wins, primarily in Asia.

Adjusted EBITDA increased $26 million in the fourth quarter versus 2013, and $100 million for the full-year.

As I mentioned, the increase for both periods is primarily driven by the YFVE consolidation and the JCI Electronics acquisition, as well as new business wins, partially offset by currency and increased engineering costs.

Note that on a constant currency basis, our adjusted EBITDA margin increased from 8.3% to 9.7%.

The consolidation of YFVE generally helped to increase our margins, while the JCI acquisitions served to slightly lower our average EBITDA margins.

The full-year impact of the JCI acquisition has not yet fully impacted our consolidated margin, as the transaction was completed at the beginning of the third quarter.

Therefore, we expect our consolidated margin to slightly -- to decline slightly in 2015 to reflect the full-year of the former JCI operation, but we expect to continue to increase this margin going forward, due to the impact of synergies, volume growth, and other cost reduction efforts.

As Tim highlighted, the JCI Electronics integration has gone well and as expected.

As we continue to integrate the engineering, IT and overhead structures of the former JCI operations, we are creating one fully-integrated company going forward.

Moving to slide 23, we take a look at our cash flow and our capital structure.

Free cash flow was negative $27 million in the fourth quarter and negative $56 million for the full-year 2014.

Note that the impact of our discontinued operations are included in these figures.

Adjusted free cash flow, which excludes restructuring, transformation-related payments, and the fourth-quarter impact of the entities included in the Interiors transaction, was positive $47 million in the quarter and positive $111 million for the year.

Our adjusted free cash flow included trade working capital outflows of $40 million and $126 million for the quarter and the year, respectively.

These outflows, though, were almost entirely related to the HVCC business and discontinued operations.

Our cash balance, including cash held for sale, was $836 million as of December 31, 2014, and we closed the quarter in a net debt position of $145 million.

As mentioned previously, we initiated a $500 million accelerated stock buyback program during the second quarter.

The $250 million capped portion of the program was completed on October 15, 2014.

The remaining portion of the program will be completed no later than May of 2015.

Turning to slide 24, we provide an update to the HVCC net proceed range we disclosed at the Deutsche Bank Automotive Conference in January.

In January, we announced expected after-tax proceeds to be between -- to be approximately $3.1 billion for our 70% stake in HVCC.

Our updated analysis suggests eventual net proceeds of approximately $3.2 billion to $3.3 billion, as we believe our likely tax range for the transaction will be reduced, given our tax attribute.

Specifically, our post-emergent NOLs, plus the various tax attributes from our 2015 activities, including contemplated restructuring, the exit of our remaining Interiors operation, and additional tax planning, are better than previously expected.

We initially expect to receive net proceeds of approximately $3 billion, due to withholding taxes in Korea.

However, we do not believe any such withholding is required, due to clear tax treaties existing between all relevant countries.

Thus, we anticipate that we will recover these withholding taxes anywhere between one and five years post closing.

Turning to slide 25, we will provide a summary of our 2015 estimated tax expense and cash taxes.

We expect full-year book taxes to equal $62 million, and cash taxes to equal $55 million, which has been updated versus our presentation at the Deutsche Bank conference.

These amounts represent operating taxes paid on earnings and profitable jurisdictions of approximately $50 million.

This represents an approximate 24% rate on pretax income in these countries.

However, we also still have approximately $98 million of losses in other taxable jurisdictions.

As we generally do not make money in these locations, we are not able to book a tax attribute on our balance sheet.

These locations generally contain our SG&A expense, and make our overall effective tax rate appear quite high and close to 51%.

As we increase our focus to right-size our SG&A and lower expenses in these unprofitable jurisdictions, we expect to have significant improvement in our effective tax rate, as well as our EBITDA and cash flow metrics.

In addition to our estimated taxes on income, we also reflect estimated withholding taxes paid on intercompany dividends between our subsidiaries and our joint ventures.

We have excluded a few items from these tax amounts to aid in the understanding of our ongoing operations.

Specifically, we excluded the following items.

First, we excluded the $110 million integration and restructuring charge Tim discussed earlier.

Second, withholding taxes relating to dividends from our stake in HVCC are not included in the effective rate.

Third, it does not include an expected reduction of $32 million in estimated tax contingencies during the year.

And finally, it excludes $10 million in estimated taxes on the delayed portion of the Yanfeng Visteon proceeds, which we expect to receive during this year.

Again, let me emphasize that we expect positive impacts to our future effective tax rate if we realize the additional SG&A savings that Tim discussed earlier.

Most of the savings are expected to be in nonprofitable tax jurisdictions.

And, as a result, it would reduce our losses in these regions without a corresponding increase in taxes.

They would also result in approximately a dollar-for-dollar increase in Visteon cash flows.

Moving to slide 26, we take a look at our 2014 year-end cash balance, excluding HVCC, and bridge it back to our Q3 balance sheet.

We finished the year with $490 million of cash, excluding HVCC, down from $706 million at the end of the third quarter.

The decrease was more than explained by approximately $220 million in cash outflows related to our former Interiors business.

These outflows reflected two categories of payments.

The first category reflects amounts paid to the buyer of approximately $147 million and consists of the following items -- a $95 million cash contribution, which we talked about earlier; next, it includes a $29 million adjustment to net working capital.

This reflects that the business had a shortfall versus the target amount set in the sale agreement.

Note that the target amount was set by using monthly 2013 average working capital balances, plus certain agreed-upon adjustments with the buyer.

It also includes a $13 million payment related to the Indian operation that was sold on December 1 or one month after the initial transaction closed.

This $13 million is made up of two approximately equal $6.5 million pieces, one reflecting a shortfall of the working capital target set for India, and the other reflecting a payment to relocate the business into a new facility to free up space in Visteon's existing production facility.

Finally, it includes the transfer of a South Korean joint venture that had $10 million of cash on-hand.

The second category of payments relating to this transaction -- or relating to the Interiors, reflects $73 million of cash spent on the business to enable the sale and fund business losses, and consists of the following items.

First, we paid off our AR factoring in France.

At the end of Q3, this represented $12 million in consolidated debt on our financial statements.

Second, we paid HVCC approximately $17 million to acquire the Indian Interior operation.

The Indian operations were actually part of the HVCC structure and were reasonably profitable.

To enable the sale to Cerberus, we first needed to purchase these operations from HVCC.

Finally, the Interior operation had approximately $44 million of cash outflow in Q4 prior to the sale.

Also note that we still maintain titles to certain real estate from the Interiors business that is currently being rented to these operations.

The value of this real estate is estimated between $30 million and $35 million.

In addition, we transferred approximately $15 million of pension liabilities to the buyer as part of the transaction.

Moving to slide 27, we provide our 2015 full-year financial guidance.

It should be noted that these amounts exclude our Climate Product group.

Additionally, our full-year guidance assumes adjusted EBITDA and adjusted free cash flow for the other product groups -- but other product group is breakeven.

Please note that the financial metrics related to the other product group will fluctuate quarter-to-quarter, but we expect the consolidated results for the entire year to be approximately breakeven.

Further, our guidance assumes that our Indian Electronics operation embedded within -- currently embedded within HVCC, and the Climate operations not currently part of HVCC, are included and excluded, respectively, in our full-year results.

For the full-year, we project midpoint sales of $3.3 billion, adjusted EBITDA of $240 million, and adjusted free cash flow of $40 million.

Our sales and adjusted EBITDA guidance is in line with the guidance given at the Deutsche Bank conference in January.

However, we have increased our adjusted free cash flow guidance by $20 million to reflect lower expected cash payments during the year.

Regarding exchange rates, we have generally seen negative developments in the euro since we set our plan.

That said, we continue to hold some hedges and are identifying a variety of cost reduction actions, such that we are not modifying our guidance.

Now let me turn it back to Bob for Q&A.

Thank you, Tim and Jeff.

Brent, please open the line for questions.

(Operator Instructions) Colin Langan, UBS.

Thanks for taking my questions.

I actually just had several questions on slide 5. I just wanted to make sure I understand that.

One, can you just clarify and make sure I'm looking at this right that if you wait to 2016, you are essentially saving about $1 billion in terms of what is taxable?

So there is obviously an incentive to wait for a special dividend in 2016.

Secondly, how should we think about buyback tenders in that context?

Would you be willing to do those before a special dividend?

And then just any general thoughts on why the emphasis on special dividends, I mean, versus large a large buyback or a tender?

Sure, your first question relating to delaying to 2016 is a true point.

If we paid a dividend in 2015, versus 2016, there is approximately $1 billion difference between what would be counted as return on capital versus qualified dividend.

So obviously, I think as we look at that, and we think and we set a target to return capital within 12 months of closing, it makes sense to think of at least a reasonable portion of that dividend to be perhaps in the January period of 2016.

As we look at share buybacks to the degree we do share buybacks, as we always said, we'll be looking at the price where our stock is trading, and making sure we are doing economical events for our shareholders.

and also understanding that we have a significant amount of cash relative to our market value, and we certainly need to be cautious about paying premiums for our cash position.

But we'll be looking at that and making further announcements as we get to close.

But over the course of that 12 months following close, we do plan to return that bandwidth between 2.5% and 2.75% of capital back to the shareholders, either by the form of share buybacks or dividends, with a preference again for dividends, more likely in the early 2016 period, to reflect the tax difference.

I think, Colin, to look at that in a different way, think of those as thresholds of what we'd have to get to the point of on the dividend side before you get to the point where you can start seeing it as a return on capital.

Exactly the balance of where we come out on that would be a function of what Jeff has just said, as we ascertain where we stand with the share prices and what other options we have.

But think of those numbers as thresholds for which we would have to achieve.

And I think that is an important ingredient into why we have talked about, as Jeff said, the 12-month forecast, because I think the difference in the Delta in that threshold has implications and is something that we clearly are keeping in mind.

Because, as I said, we are as concerned about the tax impact to the shareholders as we are to the tax impact to the Company.

Got it.

And when we look at guidance, it remains unchanged.

Has that been updated for the latest currency assumptions?

Or is there any change in the underlying currency guidance?

Our guidance reflects the currency assumptions that we have today.

We haven't changed it for currency.

We acknowledge and understand the currency environment for which we deal, and we have reaffirmed revenue and EBITDA, and increased free cash flow in that environment.

Okay.

All right.

Thank you very much.

Thanks, Colin.

Matthew Stover, SIG.

Just to follow on to that question -- if I'm doing the math right, based off of the guidance that you guys offered at the Detroit Auto Show, the implied delta in the underlying currency is somewhere between $20 million to $30 million headwind, if we based -- if we adjust these rates.

And I know that there's been other things that you've discovered within the organization as you've sort of proceeded through.

I'm just wondering if you might share some of the bigger items that would act as offsets to that currency headwind?

Yes, Matt, a couple of things.

One is the -- we do still have a hedge.

Our hedges in place help mitigate some of that amount a little bit more.

But you are right -- we had talked about a $10 million headwind, when we were at Deutsche Bank, at the current spot rates.

You could probably say that that's probably close to double, if you held the current spot rates through the year.

As we look at -- and I should say it does help us in some other areas.

The lower euro will certainly help us in some of our restructuring charges.

It will certainly help us on the disposition of our remaining Interiors asset in Europe.

It will help us on some of our CapEx that's not dollar-based.

But overall, it does prevent -- or presents some headwind.

You know, I think as we look at our operations I think we have opportunities to continue to drive the overall business, the actual operating plan as one part.

Our SG&A cost reductions, Tim talked about a little bit earlier, are another area, such that, at this point, as we are -- certainly, currency, as you know, plays a key role for us.

But as we look at all those factors today, we looked at it and we are still comfortable with the $240 million.

Okay.

And the other question is on the euro Interior business.

Where is the unfunded level of that pension today after year-end remeasurements?

Yes, I mean, if you look at our balance sheet, it's somewhere close to $200 million at the end of 2014.

Okay.

Thanks, guys.

And that's up a reasonable amount from where it was the year before.

Probably up about one-third from where it was before.

Yes.

Okay.

Thanks, Matt.

Thanks.

Itay Michaeli, Citi.

Just had actually a long-term margin question around Electronics.

You know if I look at 2018, it looks like you are just above 10% in your guidance.

Yet some of the peers in that group seem to be at least projecting higher margins.

I was hoping we could talk a little bit about maybe margin by product group or by region, and what the impact is as you continue to grow your backlog with some of the new technologies and secular trends in the industry.

How should we think about the progression of that margin in the next several years?

Good question.

We're obviously cognizant of the fact that -- again, this gets back to part of our SG&A discussion of the fact that we still have expenses and costs which preclude us from being at peer level.

So you've got both -- you've got an element there.

We also have -- we are pleased with the margins on the new products programs that have been awarded.

We see that as being an increase in the overall margin as those businesses roll through.

But I think net-net-net, we, as the year will progress, will start talking more about margin targets and margin improvements as we go out.

And we've clearly got to be more above the 10% range than we are.

I think the issue of getting these transactions behind us and making sure that we get our cost base done internally and in the proper balance is the beginning of that process.

But you know we are seeing improvements on the factory floor.

As you will recall, if you go back and study, we had some pretty good margins developing on the Visteon Electronics side when we embedded the JCI assets.

To some degree, they had lower margins and it's going to take a while for those to work through the process.

But net-net-net, we should be north of 10% clearly, and we'll outline a game plan as the year progresses of how to achieve that.

And just one other dynamic as you look at the numbers, Itay.

Our engineering expense -- and this is an engineering-led business -- our engineering expense we generally expense when incurred.

And the expense -- and usually we have a heightened amount of engineering activity a couple of years before programs launch.

So as you look farther out past 2018, 2019, 2020, we have a lot of new growth coming, and thus we have a larger amount of engineering expense to fund that growth a couple of years before, which does impact our EBITDA margin as well.

So, if growth would ever tail off, you'd actually also see a higher impact on EBITDA margins.

I think one of the metrics that impacts that and gives you some sort of insight is that, on a $3.2 billion business, you win $1.3 billion of business in one year.

You then obviously translates to some engineering effort and work.

And we'll probably have something of similar nature this year.

So we are, to further Jeff's comments, living in an environment of significant growth as the decade rolls out, and paying for it with -- today.

And we do expense most of that through the P&L.

That's very, very helpful.

Thanks so much for all that detail.

My quick follow-up.

Anything you can offer in terms of cadence, commentary around particularly the Electronics business in 2015?

With respect to --?

To just margins essentially, just kind of (multiple speakers) normal seasonality or any --?

Oh, you mean by quarter-to-quarter?

Quarter-to-quarter?

Exactly, yes.

You'll have a higher margin.

It goes still with sales.

So usually Q2 is probably higher sales.

As you look at Q3, it's a bit of a lower sales period because of shutdowns, so it does impact the margins.

So generally, the first half of the year has a bit more revenue.

The thing that will be a little different for us this year is, some of the synergies we have from the transaction are dependent upon us moving our IT systems and a number of other implementation activities, which are really starting to complete themselves in the second half of this year.

So, you'll see normal operating seasonality sort of impacts benefiting the first half of the year, and you will see some of the synergies benefiting the later half of the year.

Yes.

And some additional granularity.

We receive about 25% of our gross engineering spend back from customers.

So net is about 9%, 9.5%; gross about 12%, 12.5% or so.

And as you look at that -- on average -- as you look at that, we try to recover that on a quarter-by-quarter basis to try to homogenize it over the year.

But no matter what we do, we end up getting a disproportionate amount typically in the fourth quarter.

So the fourth quarter tends to be a little bit overstated at times because of recoveries.

So we'll give greater granularity as we go forward.

But this year is going to be a tough one for you guys to model.

I understand where you want to go.

Just understand this -- Q3 is -- my experience typically since I've been in this chair, is that Q3 is typically overstated and Q4 is understated from the standpoint of your modeling, just because of the balance of the dynamics I just mentioned.

That's all very helpful.

Thanks so much, guys.

Appreciate it.

Thank you.

Brian Johnson, Barclays.

It's actually Steven Hempel on for Brian Johnson.

Just a question, I guess to follow up on Itay's, just to kind of put it a little bit different way.

As we look at Electronics organic growth, it looks like it was down a little bit here in 4Q.

I guess, A, what were the major drivers there on 4Q?

And then how should we think about the cadence of organic growth through 2015?

Yes.

I think one of the elements -- and we talked about this in the last call -- was that a lot of our organic growth in Electronics has always been in the YFVE segment -- or business, I should say.

Remember that was essentially an entity controlled but not consolidated by Visteon prior to the transactions we did in the fourth quarter of 2013.

And a lot of the business that launched this year and last year related to business that was won while we were all recovering from the financial crisis a few years back.

And that business -- it was easier to put more volume into.

We tended to put a lot of volume in there.

And that was one of the reasons we wanted to get that consolidation in.

So, I think a lot of our organic business growth had been put there.

I think as we look forward, I think a couple of things on organic, just sort of the growth curve, we also talked about the JCI business -- the former JCI business had a relatively flat profile over the next couple few years through 2017, 2018.

The Visteon business, including YFVE, had a, I want to say, a more beneficial growth profile and it factors into about that 5% or so rate we talked about at Deutsche Bank.

As we look beyond 2018, the new business that we won, let's say, in 2014, the $1.3 billion or $3 billion or so we talked about earlier -- with $800 million of new business, as well as business we'll win in 2015, et cetera -- should help fuel more organic growth.

But those two factors, probably JCI and the YFVE, hopefully, answer your question.

Yes.

If you go to page 10 -- and this is a reiteration of what we gave at the Auto Conference -- is that we don't expect significant revenue CAGR over the short-term because of the elements that Jeff just mentioned, the JCI issue primarily being one of that, as far as it being in purgatory during the 2012/2013 timeframe.

And now that's impacting their growth.

What we see is significant growth coming business awards that was mentioned, but we don't anticipate a significant sales revenue CAGR until you get to the 2018 timeframe and beyond But we do anticipate a significant EBITDA CAGR.

And so that's just the cycle of the business and that's just a function of what we inherited when we purchased it.

And we understood that when we got in.

Okay.

And then just a follow-up here.

In terms of -- I mean, if you look at slide 14, you're saying you're valuing potential value-creating M&A opportunities; I assume that's most likely for Electronics you're moving forward.

I guess, are you more interested in M&A now versus maybe a quarter ago?

What's the maybe potential size of the potential M&A moving forward?

And then in relation to that, as Visteon is basically a standalone electronics company now, moving forward any interest from other companies, moving forward -- kind of provide an update on that as well.

Well, I think our appetite to do the kinds of things we like in that space hasn't changed.

I think we have constantly looked at putting investments into software companies typically smaller as a result of -- we like to find companies in more of a startup phase and early phase for which we can gain some technology.

Obviously, we are always open to opportunities that makes sense.

We've got some obviously capability in our balance sheet.

But at this point, there is no major acquisition on the table that we are thinking about.

And we are happy with the business we've got.

And we're happy with the order book we've got.

And we're happy with the -- as I said, the business backlog.

And we've got a lot to execute in 2015.

So that's sort of the primary focus.

Okay.

So not a whole lot of interest right now from other companies in terms of Visteon as being a standalone electronics?

Well, that's not the kind of stuff that we would comment on even if it was true or not true.

I mean, the issue is that we've got a business we are very proud of, and we are proceeding accordingly.

We envision ourselves as one of the small little consolidators in this market.

We may not be as large as some, but in the segment we are in, we are a very dominant force.

And we are acting accordingly.

Okay.

And if I could just ask (multiple speakers) --

Brett, we've got time for one more question.

Your final question comes from the line of Ryan Brinkman with JPMorgan.

Please go ahead with your question.

Hey, thanks for squeezing me in.

Great to see the higher HVCC proceeds.

I'm just curious whether you have any preliminary discussions with the IRS about how much of a special dividend could be considered a tax-free return of capital?

How do you think those discussions are progressing?

And what actually drives their determination?

And how can we think at this stage about the potential range of what could be considered tax-free return?

Hi, Ryan, it's Jeff.

I guess I'll refer you back to slide 5. The -- have we had conversations -- we've done quite a bit of work around this.

There's more work to do, and that's why we provided the range you see on page 5.

So the reality here is the nuances of the rules, the first thing that you do when you are looking at your earnings and profit, as you take your current-year earnings and profit, obviously, in 2015, we'll have a very large earnings and profit number because of the impact or the gain on the HVCC sale.

Thus, if we pay a dividend or a distribution in 2015, we are going to first have to pay through the gain effectively on the HVCC transaction.

So we've estimated that to be between $1.5 billion and $2 billion.

And it would be -- anything over that amount -- and we're working to narrow that range with discussions and a lot of work -- but anything over that amount would be a return of basis.

Anything under that amount would be a qualified dividend.

If we wait to 2016, because we don't have any operations in the US, the current E&P of 2016 is expected to essentially be close to zero or maybe even slightly negative in the US.

So then we would look at our cumulative E&P.

And because we have a large NOL and other things in the past, it brings the amount down by about $1 billion, such that anything between $0.5 billion and $1 billion -- and we're, again, working to refine that range -- anything up to that amount would be a qualified dividend; anything more than that amount would be return on capital.

I see.

That's helpful.

And we'll continue to peel that onion back as we go forward and get closer to close.

As we said, that we would be much more definitive and specific when we come to the transaction close as we lay out the game plan.

But we wanted to at least make the shareholders aware of the calculus of the different tax years, and the kind of issues that we are dealing with as we prepare the plan.

Got it.

That's very helpful, thanks.

And my follow-up is, there's just also a lot of moving pieces with the pension this quarter.

Can you give us just like an updated, I guess, end-of-year net underfunding pro forma for both Interiors and HVCC?

Like what should we have in our model going forward?

This is roughly about right, Ryan.

I think you'll have to look through the numbers.

But I think the US pension liability is -- underfunded amount, it's about $188 million.

I mentioned the legacy Interiors operation is close to $200 million.

And then I think the remaining amount of pension has a certain piece relating to HVCC and a certain piece relating to, I'll say, the new Visteon.

And I think that piece relating to the new Visteon is about $69 million as you go forward.

All that is being calculated just from an awareness -- at least on the US piece, if you go back to the US, it's being calculated on a 4% discount rate, which is obviously a bit lower than we were at the end of 2013.

We used a closer to 4.75% rate there.

If the US rate was increased to something like 5.5%, give or take, the US underfunded amount would go away.

Okay, great.

Thanks for all the detail.

Okay.

I want to thank you all for joining us today and appreciate your support of the Company.

Let me turn it back to Bob.

Okay.

Thank you very much, Brent.

I'd like to thank everyone for their participation in today's call.

If you have any additional questions, please feel free to contact me at your convenience.

And I'll just turn it back over to Tim for some final comments.

Well, again, we've had a tremendous, I think, year of shareholder value creation.

We have a lot of tools in our toolbox to sort of continue that process in 2015.

There will be some -- obviously, once the shareholder -- special shareholder meeting is accomplished, and we proceed with the sale of HVCC, we will give you much more definitive details with respect to the granularity of the return of proceeds.

But at this point, we are pleased to say, with the work that the tax people have done and others, is that we are now approaching about a 4% net tax rate eventually on the HVCC proceeds, which is a very positive event.

We'll continue to work that.

And we're going to continue to grow the Electronics business, which again, is getting good customer reaction.

So, again, thank you for your support through the year.

And we look forward to a prosperous and good 2015.

Thank you.

Thank you.

This concludes today's conference call.

You may now disconnect.