Visteon Corporation
Q4 2007 Earnings Call Transcript

Published: 19 Feb 2008

[Operator:]

Good morning and welcome to the Visteon yearend 2007 earnings conference call. All lines have been placed on listen-only mode to prevent background noise. As a reminder this conference call is being recorded. Before we begin this morning's conference call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the slide entitled forward-looking statements for further information. Presentation materials for today's call were posted to the Company's website this morning. Please visit www.visteon.com/earnings to download the material if you have not already done so. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) I'd now like to introduce your host for today's conference call, Mr. Derek Fiebig, Director of Investor Relations for Visteon Corporation. Mr. Fiebig, you may begin your conference.

[Derek Fiebig:]

Thanks, Janice, and good morning, everyone. Joining me on the call today are Mike Johnston, our Chairman and CEO, Don Stebbins, our President and COO, and Bill Quigley, our CFO. After the call we will take your questions. With that, I'll turn the call over to Mike.

[Mike Johnston:]

Okay. Thanks, Derek, and good morning, everyone. In today's presentation, I'll make a few opening remarks before turning the call over to Don, who'll provide an operational review. As we've mentioned on the last several calls, it is our intention to increase transparency into our operations to make it easier for those of you in the financial community to understand where Visteon is heading. Last month at the Auto Show here in Detroit, we provided our outlook for 2008 and beyond. Today's presentation is focused on our results for the fourth quarter and full year 2007 and our outlook for 2008 specifically. Visteon's dependency on the North American market has declined to less than one-third of our total revenue as our sales to Ford in the region have decreased and we have launched new business with other customers globally. There are some additional concerns in the market regarding where the industry and economy here in the US is heading. However, with our diverse customer and geographic sales base, we have not seen enough change to require a change in our guidance. Our new business wins continued at a very strong pace as we won $235 million during the fourth quarter, which brought the total for the year to nearly $1 billion for the second straight year. Our restructuring activities remained on track. As with the completion of Connersville, we address the seven targeted facilities we had scheduled for 2007. Additionally, as I mentioned in January, we have begun the implementation of what we refer to as the 2009 imperative. Our operating results improved from what we expected as our last quarterly call. EBIT-R and free cash flow improved from our projections and are both are bit stronger than the estimates we provided at the Auto Show last month. We ended 2007 with nearly $1.8 billion in cash globally with $1.2 billion here in the United States. Slide 3, provides a summary of our 2007 full year results. Sales for the year were $10.7 billion, which is higher than the guidance we provided on the third quarter call and in line with the projection we provided last month. EBIT-R was negative $49 million. This is better than both our third quarter and preliminary look given in January Free cash flow was a use of $83 million for the year. This included a decrease of $68 million under our Europe securitization facility. We call it our guidance for free cash flow of negative $230 million was based on a constant level of $157 million on the European facility. So on an apples-to-apples basis, our free cash flow was a use of $15 million, an improvement of about $215 million. Our guidance was consistent for 2007 with the only adjustment related to the divestiture of our chassis facilities in April. Our restructuring efforts are taking hold, we have increased our ability to deal with downturns and demand, and do not have the same level of exposure to one customer here in North America. Importantly, we have the financial flexibility to restructure the business and set Visteon on the path for becoming free cash flow positive in 2009 and profitable in 2010. Now I'll turn the call over to Don.

[Don Stebbins:]

Thanks Mike. Slide 4 provides our consolidated full year sales for both 2006 and 2007. Year-over-year total product sales were basically unchanged at $10.7 billion. However, there was some fairly significant movement in the composition of our sales. We had significant growth from Hyundai/Kia as sales grew by 27% year-over-year and were 15% of total sales. Global sales to Ford declined by 14% year-over-year, primarily driven by Ford North America, where sales decline from 22% of total sales in 2006 to 15% of total sales in 2007. Bill will cover the walks in more detail. However, about $400 million of the decline was related to the closure of Connersville and Chicago plants, while volumes declines in North America accounted for another $150 million of the decrease. Turning to sales by product group on slide 5, the big change year-over-year was in the other or non-core category, which declined from 17% of sales in 2006 to 13% of total sales in 2007. This decrease reflects the divestiture of our chassis related facilities in Germany, Poland and Brazil as well as the divestiture of our starters and alternators facility in India. Our non-consolidated sale grew by $292 million or more than 20% to $1.64 billion in 2007. Yanfeng Visteon, our China-based joint venture with SAIC, had US GAAP revenue in 2007 of $937 million, an increase of $237 million or 33% year-over-year. Net income and our non-consolidated affiliates also increased substantially year-over-year as it grew over 40%. Turning to the sales by region on the following chart. You can see that there was a fairly significant decline in our North American sales as they decreased 5 percentage points and now represents 32% of total sales. This decline was completely offset by growth overseas, primarily in Asia, where our consolidated sales increased to $3 billion. Our non-consolidated revenue also increased significantly in Asia, increasing nearly $300 million to represent 82% of unconsolidated sales. Slide 7 provides an overview of our restructuring activities. We began the year looking to close, fix or sell seven facilities in 2007 and we address seven facilities during the year. This included the closure of three plants and the divestiture of four others. We have targeted an additional eight facilities in 2008 and are making very solid progress. Our facility in Bedford will close this in middle of this year. We also announced that we will close our fuel tank facility in fuel tank facility in Concordia, Missouri. Additionally, this month we ceased production at our interiors facility in Bellignat, France and are progressing on the divesture of our Swansea facility. As mentioned in our January presentation, we expect to generate $420 million of gross savings related to the restructuring through 2010. Slide 8 provides a more in-depth of data on our restructuring activities. The seven actions we completed in 2007 now bring the total number of facilities addressed to 18. Our savings from the restructuring plans since inception totaled approximately $210 million and we expect to double the savings over the next two years to a total of $420 million. We expect incremental savings of $105 million in 2008. However, we also anticipate $35 million in incremental non-reimburse cost. These costs include accelerated depreciation as well as other non-reimbursed expenses. In 2009, there will be an additional $95 million of savings and the non-reimbursed expenses will be $50 million lower than during 2008, which will positively impact our 2009 financial results. Slide 9 provides additional detail on divestitures. At the end of last month, we announced the sale of three aftermarket manufacturing facilities. Two of which are located in Mexico with the third located in Tennessee. These facilities, which employ 575 people manufactured climate and remanufactured suspension products as well as starters and alternators which were sold, primarily in the independent aftermarket. 2000 sales were $133 million and the business had a negative gross margin. Cash proceeds were $26 million and we expect to have a book loss of about $40 million on the sale, which will be recorded in the first quarter of this year. Regarding the divestiture of Swansea, the discussions with Ford, Linamar, Visteon and Labor are continuing and I expect to have a formal announcement by the end of the first quarter. Slide 10 provides an overview of our movement to lower cost countries. Percentage of Visteon's manufacturing headcount and lower cost areas has increased from 48% to 57% over the past two years. As our high cost manufacturing headcount has decreased 20% since the end of 2006. On the engineering side, we also continue to move the footprint to more competitive areas, as our competitive cost engineering has increased from 19% to 35% over the past two years. So overall, we remain on track and continue to improve our footprint. As Mike mentioned, we are also attacking our overhead cost as part of our 2009 initiative through reductions in all of our spending. We have identified almost 60 different actions, which we expect to deliver approximately $215 million of gross savings over the next three years. These savings show further integration of our product and customers groups are continuing to right size the organization, increasing our utilization of outsourced and more competitive costs resources and significantly reducing our infrastructure costs. In 2008, we expect $110 million of savings with $30 million of implementation costs resulting in a year-over-year EBIT-R benefit of $80 million. For 2009, the savings are expected to be $65 million with $15 million of implementation costs resulting in another $80 million of year-over-year EBIT-R improvement. The second pillar in our plan is improving the base operations. We've focused on quality, safety and investments efficiencies, and we continue to make very solid progress. Although, premium costs were almost doubled from 2006, it moderated in the second half of 2007. About one-third of our premium costs were launch-related, one-third supplier-related and one-third was labor-related. For the quarter in the second half of the year, we delivered very positive net costs performance, which Bill will take you through in additional detail. Year-over-year, we improved our margin in our climate and interiors product groups, while the electronics product group which includes lighting and power trading control modules was down year-over-year. Slide 11 shows some of the performance of these key operating metrics. Our quality is measured by defective parts per million improved 38% in 2007 for an almost 80% improvement in two years. Our safety performance also continued to improve, as our lost time case rate declined 29% in 2007 after 40% improvements in 2006. We also remain highly focused on our capital expenditures. 2007 spending was essentially flat with last year, while we anticipate 2008 spending to be approximately $310 million. Before turning this presentation over to Bill, I'd like to highlight our new business wins on slide 14. In 2007, we won $235 million in the fourth quarter, which totals $980 million for the full year. This follows the over $1 billion, which we won during 2006. The full year wins by product group are 40% climate, 38% interiors with the remaining 22% in electronics. By geography, 25% were in Asia, with the remaining 75% evenly split between North America and Europe. In addition to the consolidated wins, we had another $370 million at our non-consolidated operations. These wins were primarily in Asia and split about 50%-50% between electronics and interiors. I'll now turn the call over to Bill Quigley.

[Bill Quigley:]

Thanks, Don, and good morning, ladies and gentlemen. This slide provides a summary of our financial results for the fourth quarter. Product sales of $2.7 billion were slightly up from a year ago, yet as we have discussed in previous calls, we continue to experience a significant shift in the composition of our sales on both the customer and regional basis, which we will review in more detail. Our net loss for the quarter was $43 million or $0.33 per share as compared to a net loss a year ago of $39 million. However, our 2007 results do include non-cash asset impairments of $30 million related principally to our restructuring actions as well as Visteon funded restructuring and related costs of about $32 million as compared to our 2006 results. As we discussed in the third quarter, we are now in the 50/50 cost sharing match under the escrow account. EBIT-R, which excludes asset impairments and net restructuring expenses, was positive $15 million for the quarter as compared to negative $37 million a year ago, an improvement of $52 million. Cash provided by operating activities was $331 million compared to $239 million a year ago also an improvement of $92 million. Capital spending in the quarter was $144 million, slightly higher than a year ago, reflecting increased spending related to new business launches in 2008 for both interiors and our climate business. Free cash flow in the quarter was $187 million, $56 million higher than last year. This year-over-year improvement is despite the fact that the fourth quarter last year includes $21 million benefit from increased receivable sales in the quarter under our Europe securitization facility. In 2007, receivables sold under this facility quarter-to-quarter were essentially flat at about $99 million. Finally, we ended the year with significant cash balances of almost $1.8 billion. Slide 16 summarizes our financial results for the full year. As Don indicated, product sales and EBIT-R for the year was better than our third quarter guidance. Free cash flow was $215 million better than our third quarter guidance reflecting both EBIT-R and strong trade working capital performance. Product sales for the year were $10.7 billion, essentially flat from a year ago. In 2007, we recorded a net loss of $372 million, which included a $107 million of non-cash asset impairments and Visteon funded restructuring of $32 million in the fourth quarter. EBIT-R was negative $49 million for the year as compared to positive $27 million last year. Cash provided by operating activities, capital spending and free cash flow were largely even with our prior year results. Cash provided by operating activities was $293 million, $12 million higher than a year ago. Capital spending of $376 million was $3 million higher than a year ago and free cash flow was a use of $83 million, $9 million better than a year ago. The improvement in free cash flow on a year-over-year basis is despite a negative impact of almost a $100 million related to level of receivables sold under our Europe securitization facility. In 2006, utilization of this facility increased by $33 million, whereas in 2007 our utilization declined by $68 million. Slide 17 provides a year-over-year change in production volumes for our key customers for vehicle, which Visteon has significant content for both the fourth quarter and the full year. These customers account for about 60% of our total 2007 product sales. Ford North America production was lower in each of the first three quarters of 2007 when compared with the prior year, but fourth quarter production did increased by 6%. Ford of Europe production volumes have been solid all year and were up slightly in the fourth quarter as well. Production levels for Nissan North America were lower by 21% in the fourth quarter and 27% for the full year reflecting declines in the truck segment. Both GM and Chrysler production levels for vehicles we have content on were higher on 2007, while PSA volumes in Europe were lower in the fourth quarter, but up slightly on the full year basis. And finally Hyundai/Kia production volumes were 9% higher in the fourth quarter and 2% for the full year. Slide 18, highlights our product sales for the fourth quarter of this year and last. Total product sales of $2.7 billion in the fourth quarter was about $46 million higher than year ago. The year-over-year increase can be largely explained by two factors. Favorable currency of $168 million partially offset by the impact of the Europe Chassis and Chennai India divestitures, which we completed during 2007 which reduced sales by about a $178 million. Other factors including new business and increased direct sourcing were partially offset by the impact of past sourcing actions and customer pricing. Sales to non-Ford customers of $1.76 billion increased to $154 million compared to the prior year, represented 65% of our total sales. Ford sales of $960 million decreased to $108 million and represented 35% of our total sales for 2007. At the bottom of the slide, the left box provides year-over-year in sales to Ford on a regional basis and the right box provides the same information for non-Ford sales. Ford sales in North America were $72 million lower on a year-over-year basis. While production volumes were up 6% compared with a year ago, lower sales reflect the impact of past sourcing actions reducing our content per vehicle as we've discussed. As we outlined last quarter, these actions principally impacted our Chicago facility, which we closed in April of 2007 and our Connorsville facility, which closed in December of '07. Ford sales in Europe, South America and Asia were up slightly on a year-over-year basis. On a non-Ford side, North America and Asia Pacific sales were higher on a year-over-year basis reflecting an increase in Hyundai/Kia sales, partially offset by a decline in Nissan North American production volumes. Europe non-Ford sales were down year-over-year, principally reflecting lower results sales. Page 19 highlights our product sales for this full year compared with the prior year in the same format as the quarter I just reviewed. Total product sales in 2007 were $10.7 billion, $15 million higher than a year ago. Sales to non-Ford customers of $6.6 billion increased to $674 million as compared to the prior year and now represent 61% of our total sales. Ford sales of $4.1 billion decreased $659 million and represented 39% of total sales. Similar to the quarter, the boxes below highlight the significant changes in the composition of our customer and regional sales. We largely anticipated these changes for 2007 and expect these trends to continue into 2008. For 2008, we expect non-Ford sales to increase to about 68% of our total sales. Ford sales are expected to decline by about $1 billion largely reflecting the impact of divestitures and plant closures both those completed as well as those plant. Slide 20 provides our gross margin for the fourth quarter of this year and last. Gross margin in the fourth quarter of 2007 of $201 million was $62 million higher than a year ago. The chart below highlights the key drivers of the year-over-year change in our gross margin for the quarter. In this quarter, gross margin was impacted by a number of factors that were largely restructuring related. In total, the impact of the Europe Chassis divestiture, accelerated depreciation expense, curtailment gains related to Connersville, and asset sales increased margin by approximately $20 million. These factors were offset by the impact of volume and mix in the quarter. The majority of the improvement in gross margins, as Don indicated, is a result of positive net cost performance of $56 million. Restructuring savings, material and manufacturing efficiencies, and other cost reductions significantly exceeded customer pricing in the quarter. The next slide provides a full year comparison of our gross margin performance. Gross margin in 2007 of $567 million was $181 million lower than a year ago. Volume and mix lowered gross margin by $168 million on a year-over-year basis, while volume and mix had a negative impact in many of the quarters during 2007, the majority of that impact occurred in the first half of the year. Lower volumes, sourcing actions, and unfavorable mix in our electronics and to a less percent climate in North America reduced gross margin by $130 million in the first quarters of 2007. In the last half of the year, the negative impact of volume and nix moderated to approximately $35 million. Our net cost performance improved in every quarter during the year. On a full year basis, our net cost performance improved gross margin by $84 million. This improvement, along with the impact of stock-based compensation expense, asset sales was offset by the impact of the Chassis divestiture, accelerated depreciation expense and curtailments that we discussed earlier. Slide 22 represents our product segment results for the fourth quarter of this year. This information is obviously included in our SEC filings. Climate sales were $862 million and gross margin was $88 million or 10.2% of sales. Gross margin as a percent of sales increased over 500 basis points when compared with a year ago. 336 basis points of this improvement were special items. The most significant of which was a curtailment gains related to the Connersville plant for about $37 million. Gross margin improved by an additional 176 basis points reflecting net cost performance, partially offset by unfavorable volume and mix. Electronics sales were a little higher than climate in the quarter. Gross margin was 10% of sales, a decline of about $118 basis points from the prior year. Special items had a significant impact, the largest being accelerated depreciation expense for certain North America production assets. Net cost performance partially offset by unfavorable volumes, improved gross margin by about 45 basis points, a significant improvement in the third quarter results. Interior sales were $848 million for the quarter and gross margin was $22 million or 2.6% of sales, 39 basis points higher than the prior year. Again, special items have a significant impact, the largest of which was the impact of a favorable commercial claim that we settled in the quarter. Net cost performance was negative in the quarter; however, this does reflects significant launch cost related to new facilities in North America as we prepare for the launch of the Dodge Ram business later this year. Turing to full year product segment results, on a full year basis, full year sales for climate were about $3.4 billion and gross margin 6.9% of sales. Volume mix and currency reduced margins by about 106 basis points. Again, special items including accelerated deprecation offset by curtailment gains related to the Connersville closure improved margins by about 43 basis points. Net cost performance was over 200 basis points. Electronics full year sales were $3.5 billion. Gross margin was 7.2% of sales is lower than a year ago by about 350 basis points. Almost two points of this decline is due to volume and mix. Sales related to powertrain control modules, a product line with the high gross margin are down significantly year-over-year reflecting past sourcing decisions. Special items lowered margins by about 120 basis points and net cost performance was negative about 38 basis points. The cost performance was primarily related to difficult program launches as several of our plants in the first half of the year, as we discussed in earlier calls. This performance improved significantly in the second half of 2007. Turning to interiors, gross margin have improved in the prior year despite the impact of volume principally Nissan related. Net cost performance also was better than a year ago. SG&A expenses for the fourth quarter totaled to $191 million or 7% total product sales. On a full year basis expenses totaled $636 million or 5.9% of total product sales. Fourth quarter expense is $15 million higher than the fourth quarter of last year, but on a full year basis SG&A expenses are $77 million lower than a year ago. The charts at the bottom of this slide provide the key drivers of the year-over-year change for both the quarter and the full year. Year-over-year efficiencies continued the fourth quarter totaling $14 million and in line with performance that we recognized in the first three quarters of the year. These efficiencies reflect the impact of our salary reduction program as well as other cost improvement. On a full year basis cost efficiencies totaled $60 million. Three other factors impacted SG&A during the course of the year. As we discussed the first factor as the impact of changes in our accounts receivable reserves, on a full year basis recoveries from prior year write-offs as well as continued focus on collections of past two management had a favorable impact on SG&A of $18 million. The second factor is the impact of incentive compensation expense. On a full year basis, the factor lowered SG&A by $22 million largely reflecting the change in our stock price. Yet in the fourth quarter, we increased accruals to reflect our significant free cash flow performance and finally, increased currency by $5 million for the quarter and $17 million for the full year. Slide 25 provides a reconciliation of net loss to EBIT-R for the fourth quarter, both '07 and '06. EBIT-R was $15 million in the fourth quarter of 2007, a $52 million improvement. Drivers of the change in EBIT-R are detailed in the chart at the bottom of the page and reflect all the items previously discussed. The walk from net loss to EBIT-R is provided at the top of the page. The reconciling items include net interest expense, which did increase by $7 million on a year-over-year basis reflecting additional borrowings under the term loan. We did recognize an income tax benefit in the fourth quarter of $45 million principally related to tax affecting changes and other comprehensive income due to the continued weakness of the US dollar. As you recall, we did experience a similar impact in 2006. We recorded non-cash asset impairments of about $30 million related to certain non-core production assets principally in Europe as well as the finalization of asset values associated with the completion of the Chassis and Connorsville restructuring actions. And finally, the reconciliation includes $32 million of net Visteon funded restructuring and other qualifying expense. The next slide provides the same reconciliation of net loss to EBIT-R for the full year. Although, our net loss increased by$209 million, EBIT-R decreased by only $76 million as it does exclude asset impairments, the extraordinary items associated with the acquisition of a lighting facility in Mexico a year ago and net restructuring expenses not reimbursed from the escrow account. Finally, 2007 EBIT-R does include additional depreciation and amortization expense of $42 million, principally related to our restructuring actions. Turning to free cash flow, as discussed at the Auto Show presentation in January, our 2007 free cash results did include several items that were not in our previous guidance, including increased dividend payments, certain tax items and commercial terms. As we noted during that update, these items totaled about $95 million. However, free cash flow in the fourth quarter was part of a $187 million, $56 million higher than last year. The improvement of free cash flow was despite lower receivables sales and slightly higher capital spending. On a full year basis, free cash flow was a use of $83 million, an improvement of $9 million compared to a year ago. As I mentioned earlier, the $9 million improvement included a negative impact of about $100 million related to a level of receivable sold under our Europe securitization facility. The impact of lower receivables sales was more than offset by other improvements in cash flow, principally strong trade working capital performance. Although, full year free cash flow was an outflow of $83 million, net debt did decrease by about $90 million during the year from $1.2 billion to $1.1 billion as we had fairly significant proceeds of divestitures and other assets. Slide 28 summarizes our cash balances at the end of the year. At the end of 2007, our Cash balances totaled $1.76 billion, an increase from the third quarter of $336 million. This increase reflects both the positive free cash flow in the fourth quarter of $187 million, as well as the completion of the Halla transaction. The Halla transaction did provide additional cash of about $140 million as well as moved $280 million of cash from Asia to the U.S. on a very efficient basis. At yearend, North American Europe cash balances totaled $1.5 billion, of which $1.2 billion was in the U.S. And availability under our revolving facilities continues to remain strong. All in all, very strong liquidity position, with no significant near-term maturities. Slide 29 provides a summary of our outlook for 2008 and certain key assumptions, which we provided in January at the Auto Show. We do expect product sales for 2008 to be about $9.7 billion, a change in sales from 2007 is almost entirely due to divestitures and plant closures, both those completed as well as those planned. In addition, to the right we've outlined with the key year-over-key change in production volumes for our customers. Although, we expect lower sales in 2008, we expect EBIT-R to improve to breakeven as we realized the benefits from our restructuring actions as well as additional cost reduction actions related to our 2009 imperative. Free cash flow in expected to be a use of $300 million in 2008, turning positive in 2009. Now, I'll turn the call back over to Don for some final comments.

[Don Stebbins:]

Thanks, Bill. And before we open the line for Q&A, I wanted to summarize our 2007 performance. In a nutshell, we delivered, we exceeded our objectives and although, we know there is much more work to be done and that the global production environment is uncertain at best, we are attacking 2008 with the knowledge that our liquidity is in good shape, that our sales are more geographically balanced that ever before and we've averaged over $1 billion of new incremental business wins over the past two years and we've addressed 18 of the 30 facilities that are the cornerstone of our restructuring plan and that our quality and safety performance has dramatically improved. So, although, I can say with certainty that 2008 will be another challenging year, I am confident that the Visteon team will continue to perform. We'd now be happy to take your questions.

[Derek Fiebig:]

Janice, if you can please remind the callers how to get in line for question-and-answer.

[Operator:]

(Operator Instructions) Your first question comes from the line of Joe Amaturo of Buckingham Research.

[Joe Amaturo:]

Good morning. Quick question, with respect to your pension fund, could you give us the asset return that you -- the actual asset return in 2007 and what the funding status of the US pension and OPEB was?

[Bill Quigley:]

Yeah, Joe. This is Bill. If you take a look at on a global basis with respect to our funding which will obviously be in our 10-K as we file. On a U.S basis we are about 89% funded at the end of the year and on a non-U.S basis about 75% funded, which is a significant improvement from the prior year, overall, about 82% funded on the pension front. With respect to returns they were obviously higher than our expectation at 8%, but were obviously -- as we look into 2008, we're going to monitoring that and just you know it's estimates based on the market.

[Joe Amaturo:]

Okay. And then on the OPEB side?

[Bill Quigley:]

Yeah. OPEB, again, will be disclosed. Our OPEB liability on a year-over-year basis has declined. Our total health and life is about $540 million for our Visteon plants, the hourly plants as well as the salary plants at about $121 million. So total is $600 million.

[Joe Amaturo:]

Okay. And then this is one other one. With respect to the overhead cost actions and the implementation cost could you give us a sense of the cadence throughout 2008 of when you expect to realize the cost savings and the outflows?

[Bill Quigley:]

Joe, if you take a look, we had charges in the fourth quarter actually about $63 million of which we have got some the 50/50 match on the escrow. A piece of that was about $11 million related to actions that are occurring for the 2009 imperatives. So as we look to be out here we'll have implementation costs as we talked. Those will be probably in the near term, and the savings as we go forward will be in the latter half of the year.

[Joe Amaturo:]

Okay. All right. Thank you.

[Derek Fiebig:]

Thanks Joe.

[Operator:]

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

[Jeff Skoglund:]

Hey, good morning.

[Mike Johnston:]

Good morning, Jeff.

[Jeff Skoglund:]

Just let me dive into the interior business a little more just given how much that margins are below the corporate average. And I was wondering if I know you are not giving guidance by segment but just generically, can you talk about kind of the outlook for raw material -- the impact of raw materials there. The competitive landscape has obviously changed a lot over the last few years and has changed a fair amount over the last month. And then kind of what's the impact, I don't know if there is a way to separate the impact of Nissan truck volumes in there or any other significant movement in customer volumes, but maybe you can shed some additional color on kind of where that business is going around those metrics?

[Mike Johnston:]

Okay. Let's try to hit a couple of those questions. If -- for the interior business, I think you are right. The business globally has changed a significant amount over the past year -- past few years and will continue to change. I think the events of last week also are predictive in terms of there are still some distress in the supplier community on the side and there was another filing last night of a smaller plastic supplier. So that's going to continue to play out over the next couple of years, I think, which from our perspective provides us opportunity. As we look at the, our business as it exists today and what we expect over '08 and '09, we expect margin improvement as we go forward in each of the years. We do have a number of key programs that are coming on stream over the next eighteen months or so. We've got a tremendous footprint in our relationship, our investment in Yanfeng Visteon in China that separates us from, I think everybody else in the world, in terms of our positioning there. So from that perspective, when you look at the restructuring actions that are taking place and will take significant losses out of the interior segment, you combine that with the new programs that are coming on stream, our investment, our relationship with Yanfeng Visteon, I think for us the interior overtime is going to be a good business.

[Jeff Skoglund:]

Let me finally be a little more specific. You had bankruptcies a couple of years ago, like Collins & Aikman and a couple others, and some of the business that's coming online now was booked post that and do you expect a significant margin boost from that? And then, secondly, with some of the bankruptcies that were announced last week and some resourcing going on, is there a way you can maybe bring some of that business online on an accelerated basis to offset some of the volumes hits that you've have taken with customers like Nissan.

[Mike Johnston:]

Yeah. I mean we're certainly in there pitching trying to help out the customers anyway we can based upon the recent turmoil, and we are extremely confident that the business that we're launching that was won over the past couple years and that is going to launch -- is launching today quite frankly and over the next 12 months is good profitable business for us. So, that is certainly part of the margin expansion story as we go forward.

[Jeff Skoglund:]

Okay. And then second question would be on the working capital front, it was a big source of cash in 2007. And I think if I remember from your January presentation in Detroit, you expected a modest use, I think maybe $25 million in 2008. I guess the question is why shouldn't we expect little bit of payback for that in 2008? And how confident are you in that $25 million?

[Bill Quigley:]

Yeah. This is Bill. If you take a look at our trade working capital performance, it was strong in the quarter as well as for the full year. And you're exactly right, we did talk in January with respect that we will see some drag, we believe about $25 million as you stated in 2008, principally related to terms changes associated with Ford North America. I think the groups have done excellent job with respect to -- especially on the receivable front. You'll see it's a large driver of that free cash flow performance. With respect to past dues, building our tooling on a timely basis and recovering that tolling, so I think from that perspective we're in a good position at the end of 2007. To your point, I mean if something we got to continue to do and stand top of it, but I think there has been market improvement during the last several years with respect to receivables in general. And so, again, we've got to stay on it. We expect some drag next year, but again that's really related principally to commercial term changes.

[Jeff Skoglund:]

What's the dollar impact of that Ford term change?

[Bill Quigley:]

We estimate about $15 million to $25 million depending on their volumes.

[Jeff Skoglund:]

Got it. Thanks. By the way the slides are great this quarter.

[Mike Johnston:]

Thanks Jeff.

[Bill Quigley:]

Thank you.

[Operator:]

Your next question comes from the line of Himanshu Patel with JP Morgan.

[Ranjit Unnithan:]

Hi. This is Ranjit for Himanshu. Could you talk about your interior segment? I know '08 -- I think you said that product launches impacted your margins. I mean what's you --how do you think you're going to improve margin from that segment in '09 and 2010 going forward?

[Bill Quigley:]

It breaks down into a couple of simple buckets, probably three. The first is the restructuring actions. As we've laid out those 30 facilities, some of that is interior related. So as we execute on those facilities, the interior's business will improve because of that. Secondly, as we described as the new business that we won comes on stream and replaces the older business. The margin is substantially different and substantially better than the margin in the past, so that will be the third and then the -- for the third item would be the just normal running the business better Lean manufacturing, use of Six Sigma, less scrap and rework, et cetera. More uptime on the machines and we see that already in each of our interiors facility so that is beginning to happen as we speak and was partially the cause of the improvement in the fourth quarter.

[Ranjit Unnithan:]

Any thoughts on where our gross margin from that business could get to over sort of by the 2010 time period?

[Bill Quigley:]

I wouldn't like to say we don't really forecast by segment.

[Ranjit Unnithan:]

Okay. Can you tell us your thoughts on cash and liquidity right now you expect about $300 million of cash burn in '08? '09 is expected to be positive, you are setting about $1.7 billion of cash. So are you considering potential acquisitions, is that a possibility or is this a cushion you think you need through '08?

[Bill Quigley:]

As we discussed even in January of this year, we feel very good with respect to the liquidity we have available especially in light of those current market. And we are obviously expecting a cash flow uses next year of about $300 million. So as we look today and given the markets, we are going to continue obviously to monitor where opportunities maybe presented to us or may emerge in the markets with respect to debt maturities. From an acquisition perspective, there are some limitations with respect to what we can do in that front under our debt agreements. It will be opportunist there as well, but I wouldn't suggest that you do something in the near term that would be of any size or magnitude, given what we've got on our plate with respect to moving forward and restructuring the company currently.

[Ranjit Unnithan:]

Okay. And lastly, I noticed some of your assumptions for the customer platform production has gone down a bit, I think in Europe and North America and you've kept guidance intact. Any thoughts on what happened and what is providing offsets?

[Bill Quigley:]

In January, we did note that we would be taking down, if you will, production volumes for a number of our customers. And we really haven't blocked and adjusted that much from that guidance. We outlined that in the January update. So we're looking at obviously Ford North America down about 4% on year-over-year basis, Nissan truck in North America down about 6%, Ford Europe about flat and Hyundai/Kia obviously up a bit on a year-over-year basis. So as we look even currently, with respect to the projections out there from a sour productions unit, we feel pretty good about those right now. Those are projections or assumptions that we have currently with respect to production volume.

[Ranjit Unnithan:]

Okay. Thank you.

[Operator:]

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

[John Murphy:]

Good morning, guys.

[Bill Quigley:]

Good morning, John.

[John Murphy:]

First question is just the follow-up on the loss that Ford backlog business. I am just wondering if you could expand on how much of that you think is really being resourced and how much is being insourced to Ford and is there, a big chunk of that business is going back into ACH?

[Bill Quigley:]

I'll take the piece of the insource. I don't believe any of it is being insourced to Ford or we haven't seen any of that. Again, the discussion topic and is predominantly around the power train control module business, that is in our electronics product group. This is a business that essentially Visteon has been single sourced for many, many years. And Ford, about a year and a half ago, two years ago I think started to dual source that product. So certainly that has impacted us negatively in the electronics segment as we move through 2007 and into 2008.

[Mike Johnston:]

John, Mike. One of things to remember is when we did the transaction that resulted in ACH, really all of the business for that product in North America really went back to ACH at that point in time. So any sourcing actions that are going on today would not be taken -- we don't have a base business that would be available to source to ACH. It all went to ACH with the transaction. So they're really -- we're not seeing any movement of other business into what now is ACH.

[John Murphy:]

And if we think your restructuring actions that you've outlined in great detail, which we greatly appreciate, how much of this do you believe that you can actually capture at the EBIT line or the EBIT-R line or the operating line whichever line you want to pick there without leakage?

[Bill Quigley:]

When you refer to leakage, actually being --

[John Murphy:]

Well, if we look at the cumulative savings that you have on slide 8 restructuring actions of $315 million in 2008, I mean do you believe you're going to actually -- is that a net number or gross numbers, I guess is the more simple question.

[Bill Quigley:]

Yeah. The gross as we -- as again we're trying to put some more transparency into the discussion. Those are gross savings numbers. As we look at what happens to the margins absent those restructuring, we try to capture that in our divestitures and closures, in volume mix, new business walks. So those are gross savings. We feel pretty confident with those gross savings.

[John Murphy:]

Okay.

[Bill Quigley:]

As we look out and what we've achieved to date, we've launched our restructuring plan. So from that perspective, we actually raised it earlier or later 2007 with respect to what we thought those savings would be. So from a leakage perspective, volume at the end of the day, obviously can impact our operating performance on a go-forward basis. But with respect to the savings and those gross savings, we feel very good about those gross savings.

[John Murphy:]

So we should think of those as sort of constant volume mix numbers, right?

[Bill Quigley:]

Yes.

[John Murphy:]

Okay. And then…

[Bill Quigley:]

Well, in constant volume and mix we've provided information with respect to what we think that environment will be in '08.

[John Murphy:]

Yes.

[Bill Quigley:]

So in that context, yes, in that environment.

[John Murphy:]

Then if we look at, as you are divesting smaller businesses overtime, you seem to be alluding to -- running into sort of a labor hurdle and working with labor to get out of these businesses and my understanding was you really got in rid of the large majority of your UAW Tier 1 workers with ACH or with return of ACH to Ford. And these are anything in particular or you need going on here with these labor hurdles or they just sort of the standard practice of getting out of the business?

[Mike Johnston:]

I don't think we've try to talk in any detail about labor difficulties. I would say that labors are one of the constituencies that we have to work with when we are closing these facilities and its standard operating procedure so to speak to deal with them on a fair basis as we exit. And I think we've been very, very successful in all of the -- again, we've completed 18 of the 30 actions and really with no disruption to speak of. And so we've been quite successful in our methodology and our process that we use and I think everything's worked up very well so far.

[John Murphy:]

Okay. And then just lastly on the Ford escrow account. How much is left in the escrow account at this point?

[Bill Quigley:]

Yeah. Yearend it was about $140 million. We have a receivable on the books which you'll see as we file our K next week of about $22 million, which came into one of the accounts of this year in '08. So I look at $144 million on face and there was a $22 million claim against it, so $118 million, $120 million.

[John Murphy:]

Okay. Thank you very much.

[Operator:]

Your next question comes from the line of Rod Lache with Deutsche Bank.

[Rod Lache:]

Hang on. Next question, I guess Rod is not there please?

[Operator:]

One moment sir. Mr. Lache your line is open.

[Rod Lache:]

Sorry, can you hear me?

[Mike Johnston:]

Yes. There you go, Rod.

[Dan Gobstan:]

I'm sorry about that. This is [Dan Gobstan] for Rod. I apologize. I just have one question. The impact of divesting on profitable businesses is the savings from that included in your restructuring savings?

[Mike Johnston:]

We had indicated I think specifically with respect to the North American aftermarket that was not necessarily facility action. So that savings, although, in our projections is not in that cumulative gross savings of $420 million.

[Dan Gobstan:]

Okay. Thanks everything else has been answered, I appreciate it.

[Bill Quigley:]

Thank you.

[Mike Johnston:]

Thanks, Dan.

[Operator:]

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

[Patrick Archambault:]

Hi good morning.

[Mike Johnston:]

Good morning, Patrick.

[Patrick Archambault:]

I guess just one question about the guidance of breakeven for this year. Just trying to pencil to that, you know with the I guess headwind on the revenue side of about a $1 billion, you are walking from a negative EBIT-R of I guess minus 50 to breakeven and it sounds like you have maybe about a $150 million of cost savings rolling on. That would imply that really your negative contribution margin on that last $1 billion would maybe be 10% or lower. And I just wanted to see if, am I thinking about that right? Is it because a lot of the business that's being lost was relatively low quality or maybe assist the new stuff that's launching and replacing at around the net basis is just much better quality. Like how do we think about that?

[Bill Quigley:]

Yeah. This is Bill. We tried to provide some of that transparency again in January with respect to how we look and our drivers of EBIT-R on a year-over-year basis. To your point, we do have significant savings, gross savings obviously in 2008 versus 2007. Our net plant restructuring is about $70 million. We've had, obviously, our 2009 imperative, which should draw in another $80 million or so and then just the base business efficiencies are about $80 million. Yet, divestiture and closures as well as volume mix in new business from a contribution perspective, those are year-over-year impacts to us of about $180 million. So you are right, we have got the savings coming online, but at the same time if you look at it just on a contribution perspective, without the sales, you've got fixed costs to deal with. Those fixed costs, as we deal with them are on the gross savings number. So we've got a lot to do obviously, but that doing in $1 billion in business, on a year-over-year basis is coming down, we've got to take the costs structure out, that's related to those businesses.

[Patrick Archambault:]

Okay. Thanks. And just in terms of piggybacking on some these interiors questions. How are the contracts set up on most recent business wins including the ones that are on your backlog in terms of cost escalators for raw materials? Would they automatically adjust upwards if feedstock prices continue to rise as they have been?

[Bill Quigley:]

Yeah. Without being specific, we do have coverage on raw material with most of our customers on price escalations that usually is a, let's say, kind of the standard is kind of a six-month time lag for that. Some are better, some are worse in terms of timing, but there is language that covers us.

[Patrick Archambault:]

Okay. Great. And lastly just on slide 28 with the cash, can you just provide us with -- you probably disclosed it last quarter, but can you just provide us a bit the U.S cash from last quarter Q3?

[Bill Quigley:]

From the third quarter?

[Patrick Archambault:]

Yeah.

[Bill Quigley:]

Yeah U.S. cash was about $500 million.

[Patrick Archambault:]

Okay. Great. Thank you very much.

[Bill Quigley:]

Thanks.

[Operator:]

Ladies and gentlemen, we have time for one more question. Your next question comes from the line of Doug Carson with Banc of America.

[Doug Carson:]

Hi, guys. Thanks. Just a quick question on the cash, with $1.02 billion on the balance sheet that's U.S related, as your guidance is for $300 million burn, which is total company. Can you give us an idea of how much you could burn in North America, giving I think North America will probably be more challenged than the rest of the world. Trying to get an idea of what the U.S balance could look like at the end of '08?

[Bill Quigley:]

This is Bill again. We don't actually provide, obviously geographic distributions of what our free cash flow would be, but if you think about that $1.2 billion in the US. I think you really need to think about on a Europe and U.S or North America combined basis. I think we've shown actually with this balance of $1.2 billion, now that we can access all those cash balances, both in the U.S as well as Europe and move that cash around. So obviously, if we'll have need in Europe we'll put the cash there to execute our restructuring as well as have the opportunity to bring cash back from Europe into the U.S as we needed.

[Doug Carson:]

That's why we'll think about the availability in the U.S at like 1.5, then.

[Bill Quigley:]

Yes.

[Doug Carson:]

To include Europe.

[Bill Quigley:]

Yes. You need to look at the full North America and Europe balances of cash.

[Doug Carson:]

Okay.

[Bill Quigley:]

Plus we have obviously two facilities. The US ABL, which remains, obviously we have not utilized anything there other than letters of credit and then we have additional liquidity available under our Europe securitization facility. Again, we haven't really utilized that. We have an ambit level of about $100 million utilization in it.

[Doug Carson:]

You guys have done a good job kind of increasing liquidity here. The $280 million cash that was moved from Halla, If we got in a crisis, let's say, down the road '08, '09, is there any kind of more potential to generate cash from overseas from Halla?

[Bill Quigley:]

I think we've done this in the past obviously from a transactional perspective. This is a good -- it was both a good financial as well as operational transaction quite frankly, the transaction Halla transactions referred with this in 2007. There are some limitations with respect to the term debt on what we can do there on Halla. But we still have some availability, if you will, to look for additional transaction such as that. But again it's an operational benefit, as well as obviously a great financial benefit with respect to accessing that cash very efficiently.

[Doug Carson:]

At the Auto Show you guys comment on liquidity at the end of big concern and put a lot of effort into improving the liquidity and with discussions about looking at various bonds across your cap structures there is a focus on the 2010 bonds. And since Detroit, they are down 6 or 7 points and I am wondering at $81 million price does that change the interest in buying some of those back, given the focus on liquidity, because they're at about 18%. Just wondering if that has increased the focus given where the price is?

[Mike Johnston:]

Yeah. This is Mike. I would say our goal throughout the year was to position ourselves at the end of '07 with sufficient liquidity, so that we kind of removed that as an issue for folks looking at us and give ourselves the flexibility coming into an uncertain '08, frankly, to just continue to execute our plan and we find ourselves right where we wanted to be. And so we have the ability now to maybe opportunistically look at some possible uses of that, but frankly we wouldn't disclose what that is today, we just feel good that we got ourselves where we wanted to be and we have the flexibility to execute our plan going forward.

[Doug Carson:]

Sure. Thanks. And last quick one. On the vendor side, obviously there are some small vendors that have been having lot of trouble and some recent bankruptcies. Can you give us an idea of the scope of how many vendors you have that you'd kind of put maybe on the hot list of who's having problems because there is a lot of working capital problems at your competitors. Right now they are trying to fund some of these troubled vendors.

[Mike Johnston:]

Yeah, we have, we do have a hot list that we track pretty closely. I mean it hasn't changed very much from last year in terms of the number that remains fairly stagnant in terms of the number we track, the names change every once in a while. But from our perspective, it's going to be a challenging year for the smaller suppliers and we are on top of it. We are watching it.

[Doug Carson:]

Not a significant change. Okay. Thanks a lot, guys.

[Mike Johnston:]

Thank you.

[Bill Quigley:]

Thanks, Doug. That concludes our call for today. I will be around to answer your questions for the rest of the day. Thanks for your participation.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may disconnect at this time. Good day.