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Visteon Corporation (NYSE:VC)

Q1 2008 Earnings Call

April 30, 2008 11:00 am ET

Executives

Derek Fiebig - Director of Investor Relations

Michael F. Johnston - Chairman and Chief Executive Officer

Donald J. Stebbins - President and Chief Operating Officer

William G. Quigley, III - Executive Vice President and Chief Financial Officer

Analysts

Chris Ceraso - Credit Suisse

Jeff Skoglund - UBS

Joe Amaturo - Buckingham Research

Mark Warnsman - Calyon

Patrick Archambault - Goldman Sachs

Eric Selle – JP Morgan

Adam Plissner - Credit Suisse

Frank Jarman - Goldman Sachs

Derrick Wenger – Jefferies

Chester Luy – Barclays Capital

James Leda - Merrill Lynch

Operator

Welcome to the Visteon first quarter 2008 earnings conference call. (Operator Instructions)

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.

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

Derek Fiebig

Joining me on today’s call are Mike Johnston, our Chairman and CEO; Don Stebbins, our President and COO; and Bill Quigley, our CFO. Following our formal presentation, we will open up the lines for questions.

And with that, I will turn it over to Mike.

Michael F. Johnston

I’ll provide a high-level overview of the progress Visteon has made in improving our business before turning the call over to Don and Bill, who will provide additional color on the operations and the financials.

In January we shared our outlook for 2008 with the financial community and we highlighted the fact that 2008 is expected to be a significant year of restructuring as we close out the final year of our three-year plan. The actions we have taken over the past two plus years coupled with the actions we’re taking this year will put us in a position to be free cash flow positive in 2009.

We are targeting eight actions for completion during 2008. We completed one of the eight in the first quarter and we are confident that we will deliver on the remaining items before the end of 2008 and we continue to look to accelerate additional actions yet this year.

In addition to the three year plan we announced earlier this year that we have begun an initiative to further reduce our overhead cost structure primarily related to administrative and engineering cost. This initiative is expected to generate $215 million of cumulative gross savings over a three-year period and we are on track to deliver the results.

Customer diversification on a geographic and customer basis remains a key tenet of the Visteon improvement story and we continue to become less dependent on the North American market and Ford in North America. We continue to drive improvements in our core business as we focus on quality, safety, and operational excellence.

We currently are nearly at world-class levels for safety performance and our quality continues to improve. We realize that the near-term environment particularly here in North America is uncertain. However, with our improved global footprint and decreased dependence on the North American market we continue to build on the momentum we established in 2007.

Turning to our first quarter highlights on Slide 3, our sales diversification continued as our consolidated sales in Asia grew by more than $150 million, which I will highlight in a moment. Gross margin for the first quarter 2008 increased from a year ago by 67% to $195 million and despite a weaker US dollar our SG&A decreased by $21 million year-over-year.

Our non-consolidated operations which include YanFeng continue to grow. Sales were up about $125 million and profits increased by 67% year-over-year. We narrowed our loss for the quarter by $48 million from the same period last year even though our book tax provision was significantly higher. EBIT-R was positive $51 million for the quarter, an improvement of $97 million from first quarter 2007.

Our free cash flow remains on track and as of quarter end we had $1.6 billion of cash as well as additional untapped liquidity under existing facilities. All in all, the quarter was one in which Visteon showed solid performance as we continue to progress our goal of becoming free cash flow positive in 2009 and profitable in 2010.

Slide 4 presents our consolidated product sales by customer for the first quarters of 2007 and 2008. Overall sales were only down about $20 million from last year despite a large decrease associated with divestitures and closures of facilities, which totaled $340 million. Higher sales in Asia and favorable currency were partial offsets.

And has been the trend, we continue to have a fairly significant shift in the composition of our sales. Global sales to Ford decreased by nearly $200 million and represent 36% of the total, with our sales to Ford North America declining 5 percentage points to 12% of total.

Our Hyundai/Kia related sales increased significantly growing from 19% of total last year to 21% of total this year. This increase was driven by higher production volumes in Korea as well as global expansion in China and Turkey. We continue to grow our business with Chrysler related this year with launch of the new Dodge Ram.

Slide 5 presents our product group sales on a consolidated and non-consolidated basis. For our consolidated sales, the big change on a year-over-year basis was the reduction of our non-core segment, which declined from 14% of total in 2007 to 7% of total this year. The decline is attributed to the divestiture of our chassis facilities in Germany and Poland at the end of the April 2007, as well as our starters and alternator business last August and the sale of our North American aftermarket operations in January of this year.

This decrease was offset by increases in each of our other product groups with interiors and climate growing by two percentage points and electronics increasing by three percentage points. Our non-consolidated sales increased by $125 million or 35% to nearly $0.5 billion.

Turning to sales by region on the following slide, sales in Europe were down slightly reflecting the divestures I mentioned earlier. North America declined by five percentage points and now accounts for 26% of total product sales. Our Asian sales increased six percentage points and now represent 29% of total consolidated product sales as they grew by $158 million to $843 million. On the bottom of the slide is a regional split of our non-consolidated sales.

Our Asian joint ventures had significant growth increasing 41% or $115 million to nearly $400 million for the quarter. And our joint ventures are highly profitable. Gross margin was $73 million for the quarter and net income was $30 million, $15 million of which was our share. This represents a 67% increase over last year. As you can see we are much more diversified and we expect to continue to capitalize on our strong position in Asia and to continue grow our business in this region.

Now I will turn the call over to Don.

Donald J. Stebbins

Slide 7 shows our new business this quarter. We won approximately $125 million of new business, which is slightly below last year’s level, as certain of our customers have delayed sourcing decisions and in some cases have even cancelled platforms as they re-examined their product portfolio in light of certain market conditions. As you can see the wins this quarter were primarily in climate and interiors and almost exclusively in Asia and Europe.

Slide 8 provides the usual brief update on our operations. On the quality front, we continue to drive improvement as we lowered our PPMs for the first quarter of this year by 40% versus our performance in 2007. Regarding our safety performance, after posting a world-class performance in 2007, we stumbled our way into 2008 as we had an increase of 29% from full-year 2007. We fully expect to see year-over-year improvement for 2008.

Premium costs are down significantly from what we experienced in 2007. For the first quarter our costs of $4 million were $10 million better than first quarter ‘07. As we had discussed throughout last year, we suffered from labor, launch and supplier disruptions, which caused last year’s poor performance. We expect this year to be substantially better. Finally CapEx was $10 million higher than a year ago reflecting our investment in our new business. We still expect our capital expenditures for 2008 to be below 2007 levels.

Slide 9 provides an overview on our overhead cost reduction initiative. Over the next three years we expect this initiative to provide over $200 million in gross savings as we address our SG&A and engineering costs. Of this we expect $80 million in net savings in 2008. Compared to the first quarter of 2007, we reduced our costs by over $20 million or more than 8%. This performance was in spite of the weaker dollar’s translation impact.

Slide 10 shows our shift of manufacturing and engineering headcount to lower cost areas of the world. At the end of the first quarter 58% of our manufacturing personnel were in low-cost areas and since 2006 we have improved this ratio by 22%. Engineering is currently at 36% low-cost which represents a 19% improvement from 2006. We are on track with our plan and expect to continue to shift our footprint to lower cost areas of the world. However, we also do expect some growth in higher cost areas such as the United States in order to support our new business wins.

Slide 11 provides an update on our restructuring. During the first quarter we closed our interiors facility in Bellignat, France and consolidated the majority of its products into our existing French facilities. Our two U.S. facilities that are targeted for closure in the middle of this year remain on track and while the discussions regarding the sale of our Swansea plant to Linamar continue to progress.

During the quarter we also recognized $46 million in charges related to two German non-core fuel tank facilities, which we expect to be closed or sold by year-end. So as Mike mentioned we fully expect to achieve our restructuring goals and deliver over $400 million of savings.

As we announced in January, we did complete the sale of our North American aftermarket business to Centrum Equities. The business employed 575 people and manufactured climate control and suspension products as well as starters and alternators, which were primarily sold in the independent aftermarket. 2000 sales were $133 million with a gross margin loss of $16 million. Cash proceeds were $26 million and we had a book loss of $40 million, which was included in our numbers this quarter.

As I mentioned the discussions regarding the sale of our Swansea plant continue to progress. Importantly though while these negotiations continue, we have reached agreements with our customers to address the operating losses generated from the plant until these discussions conclude. Additionally, we are working towards similar agreements for our other loss-making operations in the UK.

I will now turn the call over to Bill.

William G. Quigley, III

This slide summarizes our financial results for the first quarter. Product sales of $2.7 billion were essentially even with the prior year, yet as Mike discussed we continue to experience a shift in the composition of our sales by customer, product group and region.

Our product gross margin for the quarter was $194 million compared to $115 million a year ago, a $79 million improvement. EBIT-R, which excludes asset impairments, loss on business divestures and net restructuring expenses was positive $51 million for the quarter as compared to negative $46 million a year ago, an improvement of $97 million.

Cost improvements in our product groups including restructuring savings as well as other actions we are taking to address our cost profile drove much of the improvement. Free cash flow in the quarter was a usage of $200 million, compared with $195 million last year.

Year-over-year, the improvement in EBIT-R as well as lower securitization levels were offset by increased cash outlays related to our restructuring actions, timing of recoverable value added tax assets, higher capital net spending and the net movement in pension and OPEB expense and cash payments. I will address each of these items in further detail.

On Slide 5, this provides a change in production volumes for the first quarter for key vehicle platforms by customer, which Visteon has significant content. These customers account for about two-thirds of our total first quarter products sales. Hyundai/Kia production volumes were 33% higher than a year ago reflecting both the significant increase in Asia Pacific volumes as well as increased Europe volume related to new business launched for this customer during the last year.

Ford of Europe production volumes, which were solid in 2007, were up 3%, while Ford North America was lower by about 7% or about 55,000 units. Production levels for Nissan North America were lower by 17% in the first quarter reflecting continued pressure on the truck segment. GM and Chrysler North America and PSA production levels for vehicles we have content on were also slightly lower in the first quarter.

As we look for the rest of the year on the North American production front, we are revising our full year 2008 production forecast for Ford North America to 2.6 million units, a 100,000-unit decline from our previous expectation. We also project full year production volumes for Nissan trucks with significant Visteon content will be about 20% lower than a year ago. These declines are also largely due to increased projections for Ford of Europe as well as Asia production volumes.

Slide 16 provides a comparison of our product sales for the first quarter of this year and last. Total product sales of $2.7 billion in the first quarter were $19 million lower than a year ago. Although sales were essentially flat, sales to non-Ford customers increased significantly offset by lower Ford sales.

Sales to non-Ford customers of $1.8 billion increased $165 million compared to the prior year and represented 64% of our total sales. This increase reflected the impact of currency, increased new business and higher Hyundai/Kia production volumes. These factors were partially offset by the impact of divestitures and customer pricing.

Ford sales were lower in both North America and rest of world primarily reflecting the impact of divestitures and plant closures. Ford North America sales of $339 million decreased $121 million and represented 12% of total sales. Ford rest of world sales of $639 million decreased about $63 million and represented 24% of total sales.

Currency and the impact of our restructuring plan did have a significant impact on sales in the first quarter. Currency did increase sales by about a $181 million primarily related to the strengthening Euro. Divestitures and plant closures, the majority of which were completed during 2007 reduced sales by about $340 million.

Divestitures do include the impact of the European chassis business that we completed in May of 2007, the starters and alternators business in India which we completed in August of 2007 and the North American aftermarket business completed earlier this year. These three divestitures alone account for about $225 million of the change.

In addition to divestitures, product sales also reflect a number of plant closures both completed and planned. Closures we completed in 2007 include Chicago, Chesapeake, and Connersville and account for approximately $100 million of the change in 2008.

We also include in the plant closure category, the impact of plants that will be addressed in our restructuring plan, an example being Bedford, which we expect to complete later this year. Excluding currency, divestitures and plant closures sales were essentially flat in North America and Europe. Sales in the Asia-Pacific region increased, by over $140 million, reflecting both higher production volumes and new business.

Slide 17 provides a comparison of product group gross margin and the key drivers of the year-over-year change. Product group gross margin in the first quarter of 2008 of $194 million was $79 million higher than the year ago. In the quarter gross margin was impacted by a number of factors that were largely restructuring-related. Divestitures and closures reduced gross margin by $27 million.

In addition, other restructuring related expenses resulted in an increase in gross margin of $24 million on a year-over-year basis. We include in this driver such items as accelerated depreciation expense, asset dispositions and benefit curtailments, and settlements. The improvement in these costs is largely attributable to the non-recurrence of a $17 million Canadian pension settlement in the first quarter of last year.

Volume and mix had a slightly favorable impact on gross margin, new business launches and increased Hyundai/Kia volume offset production declines with our other customers. Currency also improved margins by about $30 million primarily related against the strengthening Euro. The largest river of improvement in gross margin was positive net cost performance of $34 million.

Restructuring savings and improvements, and overhead costs were significant drivers as were ongoing improvements in materials and manufacturing efficiencies across the globe. These cost improvements significantly exceeded customer pricing in the quarter.

Slide 18 presents our product segment results for the first quarter of this year. Year-over-year gross margin improved in both absolute dollars and as a percent of sales for all three of our core products groups. Climate sales in the first quarter were $874 million and gross margin was $83 million or 9.5% of sales. Gross margin as a percent of sales increased 463 basis points when compared with a year ago. Volume, and currency, special items, and cost performance, all improved margins year-over-year.

Favorable volume was driven primarily by increased Hyundai/Kia sales. Special items include lower accelerated depreciation expense associated largely with our Connersville facility. And again the sale-leaseback of a facility in UK completed in the first quarter of this year.

Net cost performance includes restructuring savings related the closure of our Connersville facility as well. Electronic sales in our first quarter were $968 million. Gross margin was $93 million or 9.6% of sales, an improvement of 262 basis points from the prior-year.

Special items primarily increase accelerated depreciation had a negative impact. Favorable volume and currency was driven predominantly from new lighting programs launched last year and the impact of the stronger Euro. Net cost performance improved gross margin by 238 basis points. We do expect volumes in the electronics product group to be lower on a year-over-year basis in the second half of this year primarily related to four specific sourcing actions largely attributable to powertrain control modules.

Interior sales were $841 million for the quarter and gross margin was $14 million or 1.7% of sales, a 90 basis point improvement over the prior year. Volume and currencies in special items were slightly favorable including the non-recurrence of accelerated depreciation for the Chicago facility which we closed in 2007. Net cost performance was positive for the quarter despite costs related to two new facilities in North America for the launch of Chrysler business in the second half of this year.

SG&A expenses for the first quarter totaled $148 million, or 5.4% of total product sales. SG&A expense is $21 million lower than the first quarter of last year despite the impact of currency. The chart at the bottom of the slide outlines the key drivers of this improvement. Efficiencies related to the impact of our salary reduction program and other cost improvements totaled about $15 million in the quarter.

Four other factors combined to reduce SG&A an additional $6 million year-over-year. Changes in our accounts receivable reserves had a favorable impact on SG&A of about $3 million reflecting our continued focus on customer account management.

Lower incentive compensation expense principally related to a lower stock price reduced SG&A by $5 million. Other costs primarily reduced costs associated with our securitization facility in Europe reduced SG&A by another $5 million. These three factors were offset by currency which increased SG&A by $7 million year-over-year.

As we’ve communicated in previous business updates, restructuring actions will have a significant impact on our earnings and cash flows in 2008 as we continue to execute our plan. As Don stated in the first quarter, we recognized $46 million of restructuring charges related to actions for three facilities in Western Europe, as well as costs related to staff actions in both North America and Europe.

We are now in the 50-50 cost sharing match under the escrow account and as a result $23 million of these charges were Visteon funded. You should note we did receive about a million of reimbursement for other qualifying costs that are not classified as restructuring in our financial statements. The net impact of restructuring in our 2008 first quarter cash flow was an outflow of $28 million.

Cash received from the escrow account in the quarter was $22 million and cash outflows were $50 million, mostly related to completed actions such as Connersville and Bellignat as well as our overhead cost actions. This compares to a cash inflow of approximately $35 million in the first quarter of 2007.

Slide 21 provides our income tax provision for the first quarter of this year and last. Income tax expense in the first quarter of 2008 of $51 million was $34 million higher than a year ago. In this quarter both the mix and overall increase in profits in countries where we pay tax contributed to a $20 million increase in the provision compared to a year ago, however, we have made strides in addressing cash taxes paid in certain countries and we have, for book purposes, established reserves to reflect positions subject to audit of about $13 million in the quarter.

We do continue to carry deferred tax valuation allowances in various countries, which generally prevent us from tax benefiting losses and accordingly our effective tax rate will remain volatile for the foreseeable future.

In certain situations, however we can benefit these losses if there is adequate pre-tax income from other categories of earnings such as increases in other comprehensive income account, such increases as in the past largely driven by currency translation, and pension and OPEB re-measurements. Despite the volatility in our tax provision we continue to expect our cash taxes for 2008 to be about $100 million, even as profits grow in taxable jurisdictions

Slide 22 provides a reconciliation of our net loss to EBIT-R for the first quarter of 2008 and 2007. EBIT-R was $51 million in the first quarter of 2008, a $97 million improvement from a year ago. The top of the slide provides the walk from net loss to EBIT-R and the drivers of the change are detailed below and reflect all of the items I’ve previously discussed.

Turning to free cash flow on Page 23, free cash flow in the first quarter was a use of $200 million, slightly higher than last year. Factors favorably impacting free cash flow in the first quarter compared to year ago were a lower net loss and improved trade working capital, partially offset by net capital investment, that’s capital spending and the change in depreciation expense. Further, last year’s cash flow use of $195 million included an impact of about $41 million related to lower levels of receivables sold under our Europe securitization facility.

Other changes in cash flow of $130 million were higher by $94 million as compared to a year ago, representing net restructuring cash outflows of about $30 million, the net impact of OPEB and pension expense in excess of cash contributions of about $20 million and an increase in value-added tax assets of about $30 million.

Net debt at March 31, was at $1.23 billion compared to about $1.1 billion at the end of the 2007, obviously reflecting free cash flow performance in the quarter, offset by proceeds from asset dispositions.

Slide 24 summarizes our cash balances at the end of the quarter. At the end of the first quarter, cash balances totaled $1.6 billion, a decrease from year-end 2007 levels of about $145 million. The change from year-end reflects a free cash flow use of $200 million offset by cash proceeds from assets dispositions including $26 million for the North American aftermarket divestiture concluded earlier this year.

At the end of the first quarter North America and Europe cash balances totaled about $1.4 billion of which almost $1.1 billion was in the U.S. Availability under our revolving facilities remains strong, about $400 million in total. It is important to note, we continue to drive cash flow performance throughout each of our product groups. As an example our 2008 compensation plans have been adjusted to include product group specific as well as corporate cash flow objectives.

This slide provides a summary of our full year outlook for 2008. We are affirming the guidance for EBIT-R and free cash flow that we presented at the Auto Analysts meeting in January. We are still expecting full year EBIT-R to improve year-over-year to about breakeven. This improvement includes the benefits from our restructuring plan as well as additional cost reduction actions relating to our overhead cost structure initiative.

We are also affirming our full year free cash flow guidance at a use of about $300 million plus or minus $50 million. Free cash flow is expected to be a use in 2008 before turning positive in 2009. We are adjusting our full year outlook for product sales for 2008 to be about $10.1 billion. This is higher than our original guidance primarily reflecting our latest currency assumptions for 2008.

Our outlook also includes our latest assumptions related to 2008 divestitures and production volumes as previously discussed. We do believe the remainder of 2008 will continue to be a time of uncertainty and as a result we remain prudent in our outlook as we lookout over the rest of the year.

Now, we will be happy to take your calls or your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from Chris Ceraso - Credit Suisse.

Chris Ceraso - Credit Suisse

On the expectation that you’ll be cash flow positive in 2009, is there an industry level of sales for U.S. or North America that goes along with that and what is it?

William G. Quigley, III

As we discussed in January we obviously marked from an industry perspective what we thought production volumes at that time would be for ‘08. As we looked into ‘09 and as you can probably imagine we were not looking at any really significant recovery moving from ‘08 levels the time in January into ‘09. So I’d preface to that without specifics that we looked at effectively somewhat of a stable market from ‘08 to ‘09.

Chris Ceraso - Credit Suisse

Even if we’re talking about another 15 million unit year you should be cash flow positive next year?

William G. Quigley, III

That’s our objective.

Chris Ceraso - Credit Suisse

And then secondly on the 2008 guidance for EBIT-R and cash flow, can you update us on what you’re thinking about raw materials, how much has it hit you for so far? What’s the expectation for the full year?

William G. Quigley, III

I think I have on every call on the last couple of days, obviously, commodities continue to be a potential headwind. If we look at our landscape we have been fairly successful with respect to customer arrangements or agreements with respect to offsetting of commodity costs.

If you think about Visteon, if you think about our various product groups, we obviously have exposure to aluminum in climate, from electronics perspective it’s largely in purchase components, but there are raw materials such as copper. And then obviously in interiors, its larger resin buy if you will, a plastics buy. So as we look at that, we don’t expect commodity prices to actually decline from levels currently. But from that perspective we continue to work with the customers with respect to recoveries.

Chris Ceraso - Credit Suisse

But you outlined a figure, Bill, in terms of either the gross or the net impact ‘08 versus ‘07 from commodities?

William G. Quigley, III

We’ve not provided that, Chris.

Chris Ceraso - Credit Suisse

On commodities, we’ve seen that a few companies have had gains on mark-to-market on their hedges, was there any of that in the first quarter for Visteon.

William G. Quigley, III

Nominal, Chris, from a commodity hedge.

Operator

Your next question comes from Jeff Skoglund - UBS.

Jeff Skoglund - UBS

On the EBIT-R guidance for the year, I think you beat most people’s expectations for the first quarter and if I’m doing the math right, it looks like your guidance implies that EBIT-R should be down year-over-year for the balance of the year is that accurate or am I looking at that wrong?

Donald J. Stebbins

Although we’re exceedingly pleased with the progress the company is making as shown by the year-over-year results, I think that given the uncertainties that’s created by the US recession, the difficult credit markets, raw material/commodity prices at or near record highs we all think it’s prudent to leave the full-year guidance unchanged right now.

Jeff Skoglund - UBS

And on the raw material side I think it’s probably baked into the net performance number, but did you give an impact for the quarter?

William G. Quigley, III

You are exactly correct. It is in the net cost performance as is obviously customer pricing and other issues. We’ve not provided that information. I think it is needless to say that we will continue to work with the customers with respect to arrangements on recoveries with that, Jeff.

Jeff Skoglund - UBS

Do you expect that to be an increasing headwind throughout the year? Was there a lag effect where some of the recent increases didn’t necessarily impact Q1, but will increasingly impact the coming quarters?

William G. Quigley, III

Yes, I do think that will be increasing as we move through the year.

Donald J. Stebbins

Yes, so we’ve got arrangements, contracts with suppliers, as they come off contract, with respect to oil, who knows what that cost could be as we move during the course of the year. But it probably is something that would be an incremental challenge to us as we move through the year.

Jeff Skoglund - UBS

And then we talked before about the interior business and you have some contracts rolling off that are not as profitable as some one’s that, or at least you anticipate coming on stream over the coming quarters. You did see some margin improvement in interiors, but when should we really to start to see the impact of some of those less profitable contracts rolling off and the more profitable ones rolling on?

Michael F. Johnston

We have two significant launches that we’re just in the start-up process with right now. One is for Chrysler here in North America and the other is for PSA in France. And so I would say that those will fully launch late this year, let’s say late third quarter, early fourth quarter of this year. So you will see that benefit of those two programs really start to pick up speed fourth quarter, first quarter of next year.

Jeff Skoglund - UBS

The support agreements that you had with customers for the UK plants, did that affect the full quarter or does that come on line at some point or even was that an impact in prior quarters?

Michael F. Johnston

It impacted two-thirds of the first quarter.

Jeff Skoglund - UBS

Lastly pension and OPEB, you’ve got guidance in the 10-K for cash outlays, or for pension and OPEB in the year. I was wondering if you could discuss what your outlook for the expense was for each for those.

William G. Quigley, III

Yes, I think actually we provided that in January as well. If you take a look at our total combined OPEB and pension expense, we are looking at in 2008 about $50 million and as we’ve discussed we do have some obviously curtailment gains and losses as we continue our restructuring plan and on the cash side we said about $140 million between the two, OPEB and pension contributions, during the course of 2008.

Operator

Our next question is from Joe Amaturo - Buckingham Research.

Joe Amaturo - Buckingham Research

On the cash flow slide that you put up, could you give us a sense of how that should trend as we progress through 2008, and what are some of the main items to continue in that bucket?

William G. Quigley, III

As we look at the free cash flow for the quarter obviously the use and the other changes of $130 million, let me just restate what’s walking through that right now for the first quarter. We do have some timing with respect to value-added tax. It’s a drag in the quarter of about $33 million. We expect that to trend out during the course of the year, so it’s not going to be a repeating feature, if you will.

From a restructuring perspective that’s got a net outflow of about $30 million as we discussed during all of our business updates and we do expect 2008 to be obviously a cash use if you will from the restructuring perspective. That will probably trend down negative. That gets a little lumpy with respect to recoveries from the escrow account in the ultimate cash payments made to execute the restructuring actions. And then we have got net OPEB pension cash payments negative about $20 million.

Also what’s in here is that you’ve got interest on our bonds, which is paid in the first quarter and the third quarter, so you’re going to have a hit obviously in the first quarter. So in a nutshell, I would expect that $130 not to recur during the course of the year.

Joe Amaturo - Buckingham Research

As it relates to the Swansea customer agreement you referenced at two-third of the quarter, is there any way that you can quantify what the benefit was in the first quarter as a result of that customer agreement?

William G. Quigley, III

It’s about $6 million.

Operator

Your next question comes from Mark Warnsman - Calyon.

Mark Warnsman - Calyon

Regarding the Slide 10, movement to lower cost and basically engineering headcount, I am curious as to what trends you are seeing in low-cost countries and when you think about the weakness in the U.S. dollar the relative productivity of an engineer in a low-cost country versus say North America or Europe and also the availability of those engineers in low-cost markets? Is this a trend that you see continuing? How long can it continue? How do you go about evaluating the relative pluses and minuses of sourcing engineering from low-cost markets?

Michael F. Johnston

In the simplest sense we look at the lowest delivered cost of the service to us, so certainly in a start up situation you do have some inefficiencies and typically you would see let’s say two engineers for every experienced engineer here and so you’ve got to bake that into your cost model as to whether or not a benefit or not.

Certainly as you point out the weakness in the U.S. dollar also plays into that, but you have to also recognize for us we’ve got substantial engineering resources in Europe and so that benefit, so to speak, of the U.S. dollar isn’t translating towards us. So we look at the lowest delivered cost for the service, we continually evaluate whether that makes sense to do for both the business and our customers and we’ll continue to do that as we look forward.

But certainly from our perspective you do have to service the customer and so there will always from our perspective be significant engineering support in the high-cost countries to service the customer base.

Mark Warnsman - Calyon

On Slide 15 regarding key platforms and production units. Oftentimes the focus is on Ford and non-Ford business, but if we look at the non-Ford business, how would you characterize your present customer mix? Do you consider the underlying businesses of your customers to be particularly strong or is that something that you’d like to diversify yet further in the non-Ford side of the business?

Michael F. Johnston

Two points there, one is it’s not really a diversification away from Ford. We would like to grow the Ford business profitably like we would with any customer. So it’s not a diversification away from Ford.

We also recognize the fact though that we are underweighted so to speak with some of the other major automotive manufacturers around the world and so certainly we are trying and would like to expand those relationships.

Mark Warnsman - Calyon

And what might be the top two or three? What’s the best way for you to go about doing that in a general sense? What are those underrepresented OEMs particularly looking for?

Michael F. Johnston

I think all the OEMs look for the same thing, quality, delivery, service, cost, technologies and certainly that’s how we’re trying to compete. It is very, very important for us to make sure that any of the new programs that we win are profitable new business, so we don’t compete below that level, so to speak.

Also perspective as our quality statistics are showing we are producing a much better product today than we did before. And we continue to drive that down and I expected that we’ll be able to compete with anybody in terms of a quality and a cost perspective if you look at our footprint.

Manufacturing and engineering that too from a cost perspective is going to allow us to complete with anybody. So from our perspective or my perspective we’re doing the right things, calling on the customer and just pounding the payment so to speak to win business.

Operator

Your next question comes from Patrick Archambault - Goldman Sachs.

Patrick Archambault - Goldman Sachs

Slide 18 where you present the product group results. In electronics can you give us a sense of, does the Q1 impact does it include the impact of the engine electronics de-sourcing from Ford and can you quantify that for us and give us a sense of what offset it to help bring those margins up year-on-year?

William G. Quigley, III

The electronics business does include the results of powertrain control modules obviously. So that is a clean stub if you will, with respect to the performance of that product group. They’ve done very well with respect to our material usage and manufacturing efficiencies in the product group.

You recall a year ago the first half was very difficult for our electronics business. Concurrently though as we’ve stated as we go into the second half, that powertrain control module business will further exacerbate the results from a sales perspective and then obviously potentially from a margin perspective. That’s part of that closure and divestiture analysis that we are looking at year-over-year.

And so again it is clean with respect to what’s going on the top line with respect to powertrain control modules, but as model year changeovers occur in the second half, most notably in North America, it will be pressured.

Patrick Archambault - Goldman Sachs

Can you remind us of what the cash balance was in the US as of the fourth quarter?

William G. Quigley, III

As of the fourth quarter the US balance was $1.190.

Operator

Your next question comes from Eric Selle – JP Morgan.

Eric Selle – JP Morgan

Yes, can we get that cash at the end of the first quarter as well for the U.S. cash while we’re on that topic?

William G. Quigley, III

Eric, its $1.060 billion.

Eric Selle – JP Morgan

Looking at your non-consolidated net income it looks like you’re almost halfway to your ‘07 number all the way through the first quarter, is that sustainable it looks like it’s growing very rapidly?

Donald J. Stebbins

Yes, the Asian operations are going very well, the markets continue to grow and our market position in China specifically is quite strong so, yes, we expect it to continue.

Eric Selle – JP Morgan

And then further on that subject, as you look at look at YanFeng, how separable is that from your other businesses over there and if you were to decide to sell that does the bank have any claim on that, I know it is not consolidated, so it’s not 25% of EBITDA, could you freely use those proceeds?

Michael F. Johnston

YanFeng is the cornerstone of our business in China. So most of the joint ventures we have are under the umbrella of YanFeng, so it is an entity that way. But, it supplies a lot of our customers so to try to carve that out as a separate entity, just wouldn’t make sense for us strategically and it’s a great foundation for us.

Don talked about the growth and the various customer mix that we have in Asia. And YanFeng is a key asset that allows us to grow that business with other customers as they in fact expand in Asia or in China. So we look at YanFeng as a very integral part of our strategy today.

Donald J. Stebbins

And as the customers go more and more towards global platforms and global sourcing, YanFeng is certainly a key component of our ability to compete.

Eric Selle – JP Morgan

And then finally just on restructuring charges what are the cash and expenses for the year, do you have those numbers?

William G. Quigley, III

Yes, we’ve actually in the non-GAAP reconciliations, Eric. We’ve actually moved it up a bit, we’re looking at restructuring charges and other reimbursable costs for the full year of about $160 million and then reimbursement from the escrow accounted at about 50% obviously, so $80 million for the full-year.

Operator

Your next question comes from Adam Plissner - Credit Suisse.

Adam Plissner - Credit Suisse

On Slide 17 the disclosure is just a little bit different, when you broke out the currency gain in gross margin of $30 million, I think it was offset a little bit by a negative impact in SG&A, where was that before or maybe you can put in perspective. Were currency gains how big were they in let’s call it overall 2007 and maybe bridge us to your outlook, how much are you viewing this currency gains as the opportunity get you back to breakeven EBIT-R?

William G. Quigley, III

Currency, I think prior slides probably was depending on the magnitude of it was counted in our all other pillar if you will and again you are referring to Slide 17, right? So that $30 million for example on that depending on obviously the moves in the various currencies that we operate in and it was probably buried in the all other, but again we are trying to provide transparency with respect to driving the business.

If you think about just the Euro if you look at a quarter-over-quarter, the Euro the weighted average a year ago was about $1.31, $1.32 to where it is today. And the Euro moved obviously during the course of 2007 upwards and so we’re probably getting the biggest benefit if you will in the first quarter with respect to currency. And as we go through the rest of the year that benefit year-over-year is not going to be as substantial.

As we looked to the rest of the year in the forward rates so on and so forth, we’re marking at about $1.57 right now, but it’s again two fold. Our assumption for 2008 that we shared in January, the year-over-year is already in those numbers as we moved through last fall and probably the largest benefit is in this quarter with respect to currency.

Adam Plissner - Credit Suisse

And how about Bill just separately from that, any other let’s call them special items and/or commercial settlements and/or curtailment gains that help us. To let us think about the bridge to your breakeven EBIT-R, what do you include to get there, are there curtailment gains baked into that expectation, and are there special items baked into that? Maybe just to strip out what the core net cost performance benefits are?

William G. Quigley, III

And you’ll see as we progress the year and we have talked a bit about it, Adam, previously. As we look at the closure for example Bedford, we have disclosed publicly that that’s going to result in a curtailment gain to us, very similar to the Connersville gain. So if you look at it year-over-year it’s somewhat muting it actually. It will be almost equal quite frankly. It’s about $40 million and that gain will come in during the course of the next two quarters.

With respect to that, we are going to continue to have probably some choppiness with respect items that arise from our restructuring, but again I think the largest piece really that we called out publicly is going to be the curtailment gain with respect to Bedford during the course of this year.

And probably the last point I want to make is we will have some costs at the back end of the year with respect to further implementation of our overhead cost actions. We talked about that in January. We’ve got about $30 million or so of implementation costs that we spoke of as well as our non-reimbursable restructuring costs.

Adam Plissner - Credit Suisse

If I could just summarize, Bill, the $17 million settlement that occurred last year in the first quarter that was a benefit year-over-year this year that carries through. On top of that there is a $40 million curtailment gain that will occur over the next couple of quarters. And then on top of that we’re talking about there are really aren’t any other specific special items?

William G. Quigley, III

Adam, yes, but to your point on the curtailment gain, there was a curtailment gain as well in 2007.

Adam Plissner - Credit Suisse

So not year-over-year, so that’s flat.

William G. Quigley, III

Correct.

Operator

Your next question comes from Frank Jarman - Goldman Sachs.

Frank Jarman - Goldman Sachs

On Slide 4, Ford North America decreased to about 12% of your consolidated sales this quarter. What should we expect to be the future run rate going forward, is there a chance this goes lower through the year and into next year?

Michael F. Johnston

Yes. When we look at North America in total we’re down in the 26% range, you get offsets then coming within North America. Don talked about new program launches that come on and so on. But we’ve also publicly said that by 2010 our Ford North America number will drop to about 6% of our revenue and as Don said, we don’t see that continuing. We want to grow that business and grow it profitably with among the three core products that we manage today.

Frank Jarman - Goldman Sachs

And then on the other cost cutting actions, as you shutdown Bedford this summer, can you give me a sense for what the full run rate savings will be associated with that plant closure?

William G. Quigley, III

Yes. Year-over-year, I think we’ve actually publicly said it’s about $40 million with Connersville.

Frank Jarman - Goldman Sachs

As you think about liquidity, you still do have the 2010 note maturity down the road, any update to your thinking on that and potential to repurchased bond from the open market?

William G. Quigley, III

Obviously we have the ability to do that under the term loan and we’re just going to continue to do what we’ve been doing, which is just monitoring the markets. We are really focused on executing our restructuring plan, but obviously we keep an eye on that maturity.

Operator

Your next question comes from Derrick Wenger – Jefferies.

Derrick Wenger - Jefferies

When do you plan on filing the Q?

William G. Quigley, III

We plan on filing the Q later this week.

Operator

Your next question comes from Chester Luy - Barclays Capital.

Chester Luy - Barclays Capital

Can you give us a sense of your distressed supplier cost for the quarter and where you see this trending for the year?

William G. Quigley, III

We have talked about this. There has been an ambient level of distressed supplier costs in ‘07 as well as in ‘08. We don’t really have to public disclosure what that is, but it is not that significant quite frankly. Our purchasing groups and our product groups are doing a good job with respect to managing of the supply base and working with the supply base quite frankly. But from that perspective it’s not been something very significant to us at all.

Michael F. Johnston

It’s included in the net cost performance.

William G. Quigley, III

Yes.

Chester Luy - Barclays Capital

Can you share with us the size of your annual steel and resins purchases and also will you be able to quantify the impact of higher steel prices on the 1Q results?

William G. Quigley, III

Yes, steel is not really a significant exposure for us. It is more from a aluminum perspective, on a resin perspective and we’ve not really put out what those exposures would be. We continue to obviously just to work with the customers with respect to what we can do out from a recovery perspective, or a sharing of those costs. But again steel is not the exposure at Visteon.

Chester Luy - Barclays Capital

As you look at your present product portfolio in your three major businesses are you planning to de-emphasize any of these?

Michael F. Johnston

No, not at this point in time, we think we have good market positions in all three. We’ve talked about our climate and interiors business being ranked number two in market share. We think we have a great global footprint on those and we’ll continue to grow those, and Don talked about the new business wins.

In electronics, there is a number of products within the electronics’ group in driver information, audio infotainment, we have very strong positions in, and we continue to win business there and grow those as well. So we think, we’ve got three products that we can compete globally grow and improve the financial performance of and that is what we are all focused on the execution to accomplish them.

Operator

Your last question comes from James Leda - Merrill Lynch.

James Leda - Merrill Lynch

About 2009 free cash flow guidance, I think you are on the record saying positive maybe 10 plus/minus. Can you just remind us having put that in context are you still comfortable with that guidance and going with it and then rehash for us with the bigger parts of that year-over-year improvement it will be.

William G. Quigley, III

In terms of, we are absolutely comfortable to say that free cash flow positive in 2009 and with respect to that just emphasizing year-over-year as we move from ‘08 into ‘09 from a cash flow perspective we highlighted that at the Analy In presentation.

Obviously we are going to have an EBIT-R improvement as we move through our restructuring and overhead cost action efforts and it’s about $200 million improvement year-over-year from ‘08 to ‘09, as well as ‘08 is a significant restructuring year from a cash perspective.

So if you look at the cash flow ‘08 versus ‘09 we’re not going to have those cash outflows that we expect to have in 2008 as we wrap up most of the actions during the course of 2008. Those really are the big drivers.

It’s an improvement in EBIT-R of about $200 million we’ve got some restructuring impact and obviously from an OPEB and pension perspective we are seeing some as well from ‘08 to ‘09. So those really haven’t changed quite frankly as we view the business right now.

Derek Fiebig

Well thank you for participating in today’s call and I’ll be around for the rest of the day to answer your questions.

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