Robert R. Krakowiak - Vice President and Treasurer Timothy D. Leuliette - Chief Executive Officer, President and Director Jeffrey M. Stafeil - Chief Financial Officer and Executive Vice President.

Colin Langan - UBS Investment Bank, Research Division Ryan J. Brinkman - JP Morgan Chase & Co, Research Division Justin Barell Brian Arthur Johnson - Barclays Capital, Research Division.

Good morning, and welcome to Visteon's Third Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we begin this morning's conference call, I would like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the slide entitled Forward-Looking Information for further information.

Presentation materials for today's call were posted on Visteon's website this morning. Please visit www.visteon.com/earnings to download the material if you have not already done so. I would now like to introduce your host for today's conference call, Mr. Bob Krakowiak, Visteon's Vice President, Treasurer and Investor Relations. Mr.

Krakowiak, you may begin..

Thank you, Brent. Good morning, everyone. Joining us today are Tim Leuliette, President and Chief Executive Officer; and Jeff Stafeil, Executive Vice President and Chief Financial Officer. We appreciate your interest in our company and for taking the time to join us to review the third quarter of 2014.

We have scheduled the meeting for an hour and will open the lines for your questions after Tim and Jeff's remarks. [Operator Instructions] As previously mentioned, a presentation deck associated with today's call is posted on visteon.com within the Investors section. Also note that our Form 10-Q was filed earlier this morning with the news release.

Again, thank you for joining us. And now I will turn it over to Tim..

sales of $7.6 million, this is the midpoint of that guidance; adjusted EBITDA, excluding dis co, of $690 million; adjusted free cash flow of $145 million and $3.30 on an earnings per share basis. Let us move, if we can, to Page 3. I want to talk about the Q3-Q4 balance as we go forward. This is my third Q3 call since I've been in this role.

And I think I'm going to have the same speech I have every Q3, and that is to make sure the investment community understands the balance between Q3 and Q4 for us. Q4, and if you imply with our guidance -- the midpoint of our guidance would imply a Q4 of $212 million. We're comfortable with that number.

And why in the balance of Q3-Q4? First of all, we'll have the full JCI and YFVE -- excuse me, the Standard -- Cooper Standard T&E acquisition in the number if you want to go compare that, say, to Q2. And if you all look at our Q4 historically versus other quarters, it's always been the strongest quarter.

I have tried -- we have tried, since I've been here, to try to rebalance the large number of customer and engineering recoveries that we have in the Q4 and try to get that more stabilized over the year. But we have not been as successful in that as I'd like.

But the bottom line is it supports a stronger quarter than we typically would see on a revenue balance basis. So we see a good Q4. We're comfortable with that $212 million of implied guidance for the quarter.

Remember that the Q3 of 2014, we did absorb the $21 million of currency, the Hyundai strike in Korea, which is becoming almost an annual event every Q3. We had some -- you typically have the seasonal shutdowns. And we also took JCI in, in this quarter, and quite honestly, there was no synergy impact in Q3.

I'll amplify that in a moment with the action plan there, but that's begun, and you started to see some press releases as the quarter progressed as to some announcements on some consolidations and human resource implications. And we did have a bit of higher engineering cost year-over-year, again, to support this growth.

But in both cases, we were pleased with Q3 given the environment, and we're supportive and comfortable with our Q4 guidance. Moving on to Page 4. Again, the chart that I've shown you now every quarter and will continue to show is where the car is built and where do we sell stuff.

And the cars, again, the production during the quarter still heavily weighted to Asia. This will continue to grow, even though China is no longer having the high growth rates it used to have because of the sheer size of that business -- or the size of that market.

Even at mid-single-digits and upper single-digit growth rates, it's a phenomenal growth machine and will continue for some time. And so Asia will still be a larger component of the business. You see 54% of the vehicles produced that quarter; 22% Europe; 20% North America, 13% being in the U.S.

As you look at where we sold product during that quarter, you see that we're nearly half Asia, so we tend to mimic this production schedule -- or production balance around the world.

JCI's implication to us has been to strengthen a bit our European business because of the content, the higher content on electronics and the upper-end vehicles that they had in Europe, which tends to give us a disproportional higher amount in Europe.

But again, we tend, as I said, to mimic the world, and we'll continue to do so as our growth in the order book has tended to be Asia-biased as we go forward. 9% of our sales were in the U.S. 9% of our sales were in the U.S., and that leads us to the next chart, Page 5. 9% of our sales are in the U.S., and 23% of our sales are in U.S.

dollars around the world, 77% being in other currencies.

We've discussed in the past euros and wons and their implications, but I think the important part of this chart, and grimly as it may be but I think it gives you some good background, is to the exchange dynamics that occurred during the quarter, very interesting quarter from that perspective, of not just do we rely upon dollar euro or dollar won, for example, but we have a major business that's headquartered in Korea.

It sells products in Brazil and Europe, and then we translate those earnings back. So you have translation and transaction impacts that occur on these currencies. And year-over-year, we've seen the euro weaken. It was weak, and we've seen the Korean won strengthen versus the euro, versus the dollar.

But see the delta between the 2, one's almost 6%, one's 3% year-over-year. You've seen what's happened to the rupee, the Thai baht, a lot of major movements in currencies. And I draw your attention to both the Argentinian peso, which has been a problem, and that economy is weak as a result.

But look at the Russian ruble, and if you wonder if sanctions are working, there's an implication there as to how that economy and that currency is weakening. You have these operational exchange drivers here. Let's go to the right side of the chart and look at just the quarter impact of these actions.

And you see 6.6% on the euro, a 4% swing on the won versus the negative 3.3% versus the won versus the euro. So again, a lot of dynamics here. And I guess I'd summarize it up best by saying this, that in 90 days, the Korean won moved almost 9%. And in the last 2 weeks, it's bounced back the other way, moving 4.5%.

So it's an interesting dynamic we're seeing in the exchange. And the bottom line of all this is, and this is net of hedging for us, is that we saw a $21 million hit on that quarter, but we absorbed it in our operational performance and other offsets so that we, again, holding our guidance for the year.

One point to note is that this currency impact for the year has been a total of $43 million of headwind. But moving on to Page 6.

One of the things that was important to us and we communicated to you, the investment community, is that the consolidation and the acquisition of JCI would also now start to bolster the revenue growth for the long term of that particular business, getting that business onboard, even though for about a 2-year period, when it was for sale or rumored to be for sale, it did not receive the kind of response back from the consumer.

We call that a -- from the OEM, we call that kind of a purgatory period, where it's difficult to win business awards if you don't know what your future is. But on July 1, the customers knew what the future was of JCI. It became part of Visteon.

So I want to look now on this page at what the reaction has been and what our order book has done and will do for the year for both businesses. First of all, we share with you on the upper left-hand corner of this chart the 2011, '12, '13 kind of new business and rewin business for both Climate and Electronics.

And you can see that for 2014, Thermal is maintaining its new business machine. It is out getting business, growing business faster than the competition, growing business faster than vehicle build. And it's solid. It's going to have a solid 2014. I'll explain a bit about that more in a moment.

And Electronics is now almost at the same level, at the same level, and had a tremendously strong third quarter, and we see it for the year. So on a combined basis, we're looking at $2.4 billion to $2.8 billion of awarded business this year, which, for these 2 businesses, is, by far, by far a record year.

Looking at the lower left-hand corner, if we look at Climate, you see that as we look -- and again, there's ranges here for '14 because of some business awards that we are anticipating could slip into January, February, so we are putting ranges here.

You see that for the most -- for the first -- on the left-hand side is that in 2014, Climate basically rewon 95% of the business it had. So the business it had in the marketplace, when it did come back up, it won about 95% of that. And incrementally, $500 million to $600 million of new business above the rewins will come in on a $5 billion business.

On the Electronics side, they won about 90% of the business they had before when it came up for rewin. And they will win somewhere between $700 million to $800 million of incremental business on a $3 billion business base.

Both of these businesses showing strong customer reaction and strong support, not just from its traditional customers, but we're seeing, especially on the Thermal side, a broader portfolio of customers and new customers to its mix, so very pleased with this page. This is the story of growth and shareholder value creation that we're very pleased with.

Now moving on to Page 7. JCI integration, we'll update that quickly. We completed the acquisition, as I said, on July 1. We have said to you previously that we would expect to achieve $40 million to $70 million in annual cost synergies due to that up to 2017. Minimal were done in Q3. I mean, we just got the keys. They start to ramp up in Q4.

And we do see the margin improvement as a result of that, and we're comfortable with the forecast of that. As we said, to achieve that $40 million to $70 million, we've spent about $40 million to $60 million in restructuring cost beginning in Q3, and I'll go through that. We did spend about $4 million. We began that process in the last quarter.

And additionally, we'll spend $30 million to $40 million on IT transformation and other integration costs through the end of 2015. On that, to date, we've spent about $11 million, of which $4 million was in Q3, the remainder in the first half of the year getting ready for this acquisition. And as you know, these are excluded from our adjusted EBITDA.

The bottom line, however, is that the commitment we made and the forecast we see are still consistent, and we still see this business achieving our goals. And the timeline of expenditures are in line with what we said previously. Moving on to Page 8. Interiors divestiture on November 1.

We announced that the bulk of the business had closed and transferred over to a subsidiary affiliate of Cerberus Capital Management. We started reporting these as discontinued operations in second quarter.

The components -- the businesses that were transferred over and officially closed on November 1 represent about 75% of the total package of assets being sold to Cerberus. The remainders which are in the Brazil, India and other locations will transfer over once government approvals are received, and those are expected, as I say, over the next days.

This is not something that -- there's anything other than just waiting for these to transpire and get received. Total annual sales of this whole Cerberus-related transaction is about $1 billion. What remains now, as you recall, we sold some assets to Duckyang earlier in the year. We've got the Cerberus piece. We have the 3 buckets of these transactions.

This is the last. The last piece is the one single facility we have in Europe. This represents a little over 1% of our revenue now. It's not in discontinued operations. It's still held at the corporate level, and we're working through with our customer on that to resolve and move that facility. That remains.

That will not be achieved by year-end, but I don't expect that to venture too far into 2015. And we'll update you and keep you apprised at this, but for the most part, we're now out of the Interiors business.

When you look at Page 9, some time ago, aspirationally, we talked about the potential of these 2 strong businesses and creating these 2 strong businesses, and that's what Visteon would be. That's no longer aspirational. That's where we are.

We have these 2 strong independent businesses with self-contained capability, industry-leading technologies and market positions, strong balance sheets in both continuing to work our overhead, continuing to work our lean corporate structure, and that will continue as we go forward.

Obviously, eliminating the Interiors piece allows us, again, to continue to work our corporate overhead piece. Climate is now a $5.1 billion business on an annualized basis; Electronics, slightly over $3 billion on an annualized basis. Both #2 in the world in what they do, and one with 13% market share, one with a 10% market share.

I would like to move to this next section and talk about disruptive technologies a bit.

Again, on these calls, where we'll spend more time with the investment community understanding that this is a technology-driven business now and where that technology focus is, I'm going to focus on 2 disruptive technologies that we have in our portfolio and are now receiving awards and some imminent award to be received on what is dramatic changing technology.

The first is what we call the Fusion, the smart core of creating of an HMI interface in the cockpit ecosystem, second to none. I'll spend time there. And the HV iCool, which we referred to historically, I think, as Climate-in-a-Box, how it changes, how vehicles are designed and cooled.

These 2 disruptive technologies, which I'll deal with here very shortly on Page 12, starting with the Fusion award. This Fusion, and we'll refer to it as smart core from time to time, this is a business that's been awarded.

I want to explain a bit here about -- when you look at a cockpit ecosystem, you will find that there are some suppliers that supply the head-up display. There are some suppliers that supply the telematic control unit, the connectivity element, TCU, of the vehicle.

There are some suppliers that supply infotainment, and there are some suppliers that are in the instrument cluster business. But there's a very few of us that do all 4 of these and do them well. Visteon is one of them. But not as opposed to just selling this as a single -- as single pieces but consolidating that into a single system.

The fusion of that has become a significantly technically attractive business to our customers. And as I said to you before, this technology was buried inside JCI, and we were excited about the opportunity, and the customers have been equally excited. This integrates these 3 -- these 4 systems into a single system, reducing design complexity.

It's going to offer tablet-quality graphics in the vehicle. It uses a single chip. It has Visteon design collaboration that will allow up to 16 unique core processors. It enables us to run multiple languages on the same chip. It provides seamless integration across from cluster to center display to HUD and infotainment.

Data can move, visuals can move, graphics, from one to the other. We also can download from the cloud the appearance and the graphics and the content of these pieces, such as driver information and infotainment.

And for those of you that will join us out at the Consumer Electronics Show in January in Las Vegas, you will see vehicles that come with a blank screen and we will download clusters and download infotainment packages from the cloud right there at the show.

This also allows us to update those products over time, meaning that when the vehicle comes off lease, we're going to allow the customer to upgrade that product to current and attractive visuals, which will enhance the resale value of vehicles. This award has been -- and there's others coming in this area. It's a significant one for us.

And this particular technology by itself will pay for the JCI acquisition. As we go to Page 13, Fusion is a disruptive technology. It's disruptive to the customer. It's disruptive to the OEM in a very positive way and what it allows us to do.

I won't go through the benefits on here line by line other than to say this is a markedly different approach to the business for which it's receiving strong customer support. Let's move on to Page 14, where the same thing is occurring with HV iCool.

Typically, in the past, separate components in these systems of a condenser and compressor and HVAC system have now integrated into a single system that we can put anywhere in the vehicle. This is a technology that's evolved from our electric vehicle and hybrid vehicle components. It allows us to change the design of the vehicle.

It's a single module which can be pretested and shipped to the OEM. And as I said, we can design it to fit under seats. We can design it to fit it in the engine compartment. We can design it to fit in the trunk. We can design it to fit into empty spaces in the vehicle structure. It no longer needs to sit and take up space in the instrument panel.

And that is shown on the next page, Page 15, taking a cross-section of the vehicle and looking at the impact of where you have to package the HVAC system today versus what iCool allows you to do. iCool allows that instrument panel to collapse back up against the dash panel.

It gives you significant more space, but it also allows you to use that space for anything you want. One of our customers is looking at that to expand screens across the instrument panel. Another one is looking at that to take in essence space out of the vehicle.

It allows you to basically take 4 inches out of the wheel base of a vehicle and take the package dimension down. And 4 inches plus the removal of the cross-car beam can add up to almost 100 pounds of weight saving. So this technology has significant implications.

And then for your reading and as shown on Page 16, this disruptive technology has, as I said, very positive implications to the consumer and to the OEM, what it does. And again, we have a unique role here, a unique, patented role in bringing this technology to the table.

As I go forward here, and as Visteon goes forward, I think it's important, as I go here to the summary on Page 17, to understand that we are changing the way vehicles are designed. HVAC iCool system will forever change how vehicles are cooled and heated and how that format is.

We're changing the way the vehicles communicate with the Fusion smart core processor and technology that we're utilizing, changing the way the drivers interact with their vehicles.

The vehicle itself is becoming a mobile device, and the graphics and the interface and the flexibility and its connection to the cloud has to be as capable as any phone or any mobile device that exists today. These systems drive that. The reaction has been to fuel those -- that order book.

And I talked about the new business wins and the rewins I discussed a few slides ago. So again, pleased with the reaction, pleased with how that's flowing through the third quarter and pleased with the order book. And with that, let me now turn it over to Jeff to talk about the financial results..

Great. Thanks, Tim. Hello, everyone. I'll start on Slide 19, where we present our key financial results for third quarter compared to the third quarter of last year. As we explained during the second quarter earnings call, we have reclassified the majority of our Interiors business as discontinued operations in our financial statement.

Our income statement has been adjusted to exclude Interiors' specific income and expense, and the Interiors' net profit has been reflected on one line as discontinued operations.

The top half of this slide highlights results for our continuing operations, while the bottom half of the slide, we provide financials, including our discontinued operations. As we have explained on prior calls, our financial results are impacted by a number of items that make year-over-year comparisons difficult.

The adjusted financial information presented on this slide excludes these items and represents how we manage the business internally. As non-GAAP financial measures, this adjusted financial information is reconciled to U.S. GAAP financials in the attached appendices on Pages 34 through 36.

Additionally, year-over-year comparisons are impacted by the consolidation of our Yanfeng Visteon Electronics operation starting in November 2013, the acquisition of Johnson Controls Electronics business in July 2014 and the acquisition of Cooper Standard's Thermal & Emissions division in August 2014.

These transactions explain a considerable portion of the year-over-year growth in sales, adjusted gross margin, adjusted SG&A and adjusted EBITDA. For example, the $35 million increase in adjusted SG&A versus the third quarter of last year reflected approximately $30 million in increased costs related to the JCI and YFVE transactions.

The SG&A increase also reflected $2 million related to currency as well as higher HVCC SG&A to support future growth. Adjusted EBITDA excluding discontinued operations was $142 million in the quarter, $16 million better than last year.

The year-over-year increase reflects the impacts of YFVE and JCI Electronics acquisition and improved Climate performance despite unfavorable currency impacts and higher engineering spend to support future growth in both Climate and Electronics.

As you can see on the table on the right, negative movements in foreign exchange and higher engineering expense were $21 million and $16 million, respectively, unfavorable versus last year. We will cover these metrics in more detail in a moment.

Adjusted EBITDA including discontinued operations was $136 million in the quarter compared to $128 million last year. Adjusted free cash flow was $18 million, $19 million higher than last year.

The increase was largely driven by trade working capital timing, partially offset by lower nonconsolidated dividends due to the sale of our Yanfeng Visteon joint venture in late 2013. I will cover these metrics more in the following pages. Turning to Slide 20.

We highlight the transaction-related items that have impacted our financials in 2013 and 2014. In November 2013, we acquired a controlling interest in our Yanfeng Visteon Automotive Electronics Chinese joint venture, also known as YFVE, and began consolidating the business.

Later in 2013, we sold our 50% stake in Yanfeng Visteon Automotive Trim, or YFV. These transactions increased our consolidated sales and adjusted EBITDA but significantly reduced our year-over-year equity income and nonconsolidated dividends.

Our consolidated results were also impacted by 2 acquisitions which were completed in the third quarter of 2014. In July, we completed the acquisition of Johnson Controls Electronics business, and in August, we acquired the Thermal & Emissions business of Cooper Standard.

These 4 transactions have a significant impact on Visteon's financial results and make year-over-year and quarter-over-quarter comparisons difficult. Also, as I mentioned last quarter, we began classifying the majority of our Interiors business in discontinued operations.

On an annual basis, this action reduced Visteon's sales by approximately $1 billion. But in this case, prior periods have been recast to conform to this presentation as well. I would also like to point out that we have included expected fourth quarter 2014 sales and adjusted EBITDA implied by the midpoint of our full year guidance.

Sales are expected to increase to $2.1 billion in the fourth quarter, while we expect adjusted EBITDA of approximately $212 million, plus or minus $15 million. As Tim discussed earlier, the fourth quarter is typically our strongest quarter of the year, driven by strong sales and the timing of engineering spend recoveries.

Additionally, the Other product group has benefited from a commercial recovery in the fourth quarter of between $10 million to $12 million in years past, and we expect it to repeat this year.

Lastly, on a year-over-year basis, we will benefit from a full quarter of YFVE and JCI Electronics profits as well as from operational improvements across the business. The transactions on Slide 20 have had an impact on our financial results, but as Tim mentioned earlier, currency has had a significant impact as well.

on Slide 21, I will take you through these foreign currency impacts in a little more detail. The top of the slide, we highlight the key currency movements which have impacted Visteon during the third quarter of 2014.

These impacts include both operating exchange, driven by year-over-year movements in exchange rates, as well as balance sheet revaluation impacts, driven by movements in rates within the quarter. The bottom of the slide highlights the combined impact of the movements in currencies on sales and adjusted EBITDA.

Currency positively impacted third quarter and year-to-date sales by $29 million and $60 million, respectively. Stronger Korean won and euro were the most significant drivers, but our results have been impacted by a number of other currencies, including the Indian rupee, the Thai baht, Brazilian real and the Argentine peso.

Although the year-over-year impact of currency on sales has been positive, the currency impact on adjusted EBITDA has been negative. Specifically, the impacts were $21 million and $43 million for the third quarter and year-to-date 2014, respectively.

The year-over-year unfavorable impact in Climate is largely driven by the strengthening Korean won, which positively impacts Visteon's sales but negatively impacts our profits since we have more cost exposure to the won than sales exposure.

For Electronics, currency had a $10 million unfavorable impact on the third quarter results, primarily related to losses on balance sheet amounts denominated in currencies other than functional currencies, largely in Japan and Brazil.

The Other product group had an unfavorable currency impact of $2 million in the third quarter versus last year, largely explained by the weakening Brazilian real.

As we highlighted at the bottom of the slide, the year-over-year changes in currency negatively impacted third quarter and year-to-date margins by 120 basis points and 90 basis points, respectively, versus last year. Moving to Slide 22.

We provide an illustrative third quarter 2014 results for our Climates and Electronics product group, adjusted to exclude the year-over-year impact of currency movements I discussed on the prior slide.

On a constant currency basis with third quarter 2013, Climate adjusted EBITDA would have been $121 million in the quarter or 10.2% of sales, up from $114 million and 10.1% of sales in the third quarter of last year.

Electronics adjusted EBITDA would have been $60 million or 7.9% of sales, $33 million higher than third quarter 2013 adjusted EBITDA and in line with third quarter 2013 margins. Turning to Slide 23. This slide isolates the unfavorable currency impacts on our product group margins as well as the impact of increased engineering cost.

Engineering cost increased year-over-year by $16 million, reflecting increased investments in product development to support our future growth. Adjusting for the increased investments in engineering as well as the unfavorable impact of currency, 2014 adjusted EBITDA margins would have been 9.2% versus the 7.2% reported. Turning to Slide 24.

We compare our 2014 third quarter and adjusted -- third quarter sales and adjusted EBITDA to last year's results. Q3 2014 sales were $1.97 billion or $486 million better than the third quarter of 2013.

The increase was driven by the consolidation of YFVE and the acquisition of JCI Electronics as well as from higher year-over-year sales in Climate, which benefited from net new business wins with Hyundai-Kia and Ford, among other customers. Total sales including discontinued Interior operations were $2.2 billion in the third quarter of 2014.

Adjusted EBITDA for the third quarter was $136 million including discontinued operations or $142 million excluding it.

Adjusted EBITDA increased versus 2013, reflecting the benefits of YFVE and JCI Electronics transactions, partially offset by increased engineering cost to support future growth, unfavorable currency and lower profits from the Other segment.

The decrease in the Other segment primarily relates to the wind down of certain programs at our facility in Brazil.

As a reminder, the Other product group represents operations previously reflected in our Interiors segment which were not included in the Interiors transaction parameter with Cerberus and, as such, are not considered to be held for sale as of September 30, 2014. Turning to Slide 25.

We show our third quarter sales and adjusted EBITDA for our 2 product -- main product groups, Climates and Electronics. I will cover each in more detail on the following pages. On Slide 26, we provide an overview of Climate sales and adjusted EBITDA for the third quarter and for year-to-date 2014 versus the prior year.

Climate sales in Q3 2014 were $1.2 billion, up $80 million or 7% compared with 2013. For the first 9 months of the year, sales increased $205 million versus 2013.

The year-over-year increase for both the quarter and year-to-date periods largely reflects new business wins with Hyundai-Kia and Ford in Asia and North America as well as favorable currency impacts largely related to a stronger Korean won and euro, which more than offset the negative impacts of a weaker Thai baht in the third quarter and a weaker Thai baht and Indian rupee on a year-to-date basis.

Year-to-date customer agreements include a $12 million commercial claim recognized in the second quarter. Adjusted EBITDA was $112 million in the quarter and $376 million year-to-date. For both periods, adjusted EBITDA was largely in line with 2013 despite the impact of unfavorable currency and higher engineering cost I previously discussed.

Higher volumes, net new business wins, commercial claims and a positive business equation in both periods contributed favorably on a year-over-year basis.

On a year-to-date basis, the $1 million year-over-year increase in adjusted EBITDA reflected an $8 million improvement to HVCC profits, partially offset by a $7 million decrease in profits for non-HVCC legacy plants in South America and South Africa.

Climate's adjusted EBITDA margin was 9.2% in the third quarter, 90 basis points lower than the same period last year. As I previously mentioned, on a constant currency basis, Climate adjusted EBITDA margins would have increased to 10.2% or 10 basis points higher than third quarter of last year.

As I mentioned last quarter, we have initiated a substantial effort to reduce our exposure to the Korean won by localizing more of our supply and production globally. These efforts will begin to have meaningful impacts in 2015, but we will continue to remain significantly exposed to the Korean won in the foreseeable future. Moving to Slide 27.

Electronics sales for the third quarter of 2014 were $760 million and adjusted EBITDA was $50 million. On a year-to-date basis, sales were $1.6 billion and adjusted EBITDA was $157 million.

Sales increased versus 2013 for both the quarter and on a year-to-date basis, largely driven by the YFVE consolidation and JCI Electronics acquisition and net new business wins primarily in Asia. Adjusted EBITDA increased $23 million in the third quarter versus last year and $74 million on a year-to-date basis.

For both periods, the increase was primarily driven by the YFVE and JCI Electronics acquisitions and new business wins. As I mentioned, currency and increased engineering cost both had unfavorable impacts on adjusted EBITDA.

As Tim highlighted, the JCI Electronics integration has gone well and as expected as we continue to integrate the engineering, IT and overhead structures of JCI Electronics into Visteon Electronics. We are creating one fully integrated company, which will make it difficult to provide separate financial results for JCI Electronics going forward.

With that said, we are comfortable with the guidance previously provided for the Electronics business, and we are confident we will achieve the $40 million to $70 million in annual synergies we previously discussed. Moving to Slide 28. We take a closer look at the sales growth within Electronics product group.

As shown on the previous slide, most of the year-over-year sales growth within Electronics has been a result of the YFVE consolidation and the JCI Electronics acquisition. This is not a surprise to us. In the past, we have shown how the drop in vehicle electronics sales has masked the growth in cockpit electronics business.

On this slide, we also show how much of the growth in Visteon Electronics is YFVE-related. Since 2011, YFVE sales have grown nearly 17% annually compared with a 7.7% annual increase in the remaining cockpit electronics business.

During Visteon's bankruptcy and for the period shortly thereafter, we launched most of our global business awards in Electronics out of our YFVE operation due to customer concerns associated with the bankruptcy. Many of these new wins launched in 2013 and 2014.

This growth in YFVE has always been captured in our forward sales CAGR projections but is not clearly reflected in our historical financial statements since the entity was not consolidated prior to late last year.

Today, the launch of our new business awards are distributed more around the globe based on normal business requirements as the concerns around our historical bankruptcy have long passed. Moving to Slide 29. We take a look at our cash flow and our capital structure.

Free cash flow was negative $29 million in the third quarter and negative $29 million in the first 9 months of 2014. Note that the impact of our discontinued operations are included in these figures for both free cash flow and adjusted free cash flow.

Adjusted free cash flow, which excludes restructuring and transformation-related payments, was positive $18 million in the quarter and positive $64 million year-to-date. Adjusted free cash flow for the third quarter was $19 million higher than third quarter 2013.

This variance is more than explained by calendar-driven trade working capital payment delays, which unfavorably impacted the third quarter of last year. Cash balances, including cash held for sale were $1.1 billion as of September 30, and we closed the quarter in a net cash position of $66 million.

As mentioned previously, we initiated a $500 million accelerated stock buyback program during the second quarter. The $250 million capped portion of the program was completed on October 15. The remaining portion of the program will be completed no later than May of next year. Turning to Slide 30. We provide our 2014 full year financial guidance.

As Tim stated, we are reaffirming our full year guidance. For the full year, we project midpoint of sales of $7.6 billion; adjusted EBITDA of $690 million, excluding discontinued operations; adjusted free cash flow of $145 million; and adjusted EPS of $3.30 per share, excluding discontinued operations. Now let me turn it back to Bob for Q&A.

Thank you, Tim and Jeff. Brent, please open the line for questions..

[Operator Instructions] Your first question comes from the line of Colin Langan with UBS..

Any color on the FX impacts? You listed 8 different currencies. Any color on which ones we should be focused on going forward as the biggest drivers? And you also highlighted that the Korean won has moved.

Does that mean we have a tailwind heading into Q4 related to that currency?.

Yes, Colin. I think you can definitely take the Korean won to the dollar and the Korean won to the euro as our 2 most significant exposures. The dollar to the euro, too, as well. So take those 3 and focus on those. As you look at Q4, we've seen a lot of movements, as you said. We have seen the won.

When I was looking at it just before the call, it was under -- just under a KRW 1,090, which is almost back to where it was last year. If you look back in June or July, it was just barely over KRW 1,000. It was like KRW 1,008 at one point, so it has moved significantly.

But those 3 currencies -- those 3 relationships on currency are going to be the 3 to watch for us..

And does the recent move mean that it's not going to be a, if it stays where it is, not a drag into Q4?.

We've seen -- the one movement has been favorable, certainly, over the last few weeks. The euro has crept down a little bit. It's gone down, $1.25 or maybe just under, so that's been a little bit negative. But I'd say in the last few weeks, if we sat here today, we're probably slightly favorable to where we ended the quarter..

And is that baked into your guidance? Or how should we think about what you're baking in?.

I'd say our guidance for the fourth quarter is roughly based on the October exchange rates, as we said a couple of weeks ago, which wouldn't change, which probably is maybe mildly favorable to where we are today. I mean, today, it's mildly favorable to where we were a couple of weeks ago..

Okay. And then any comments on the Bloomberg article that you were considering splitting off Climate and Electronics? It definitely seems like, based on the results of Electronics, it's a pretty solid business.

How do you think about that long term at this point?.

Well, I think, Colin, we have been consistent, and I think the article probably picked up on some of the dialogue, I think, we've had with all of you over the last year or 2, which says we have 2 strong businesses. We want to integrate JCI into the group and get performance there, so we can establish that business as a measurable business.

And then we were -- would expect that the marketplace would start to react favorably to that story. But we've always said -- and I think one of the things that drives us here is that there are 3 primary objectives this management team has with respect to the shareholders and the investors.

And that is our first priority is shareholder value, our second priority is shareholder value, and our third priority is shareholder value. And to that degree, that we're open and we focus on optionality, and then we look at scenarios is something that we do routinely and will continue to do.

If we see ourselves at some point where we're not seeing the proper value for these businesses and in the aggregate of the Visteon stock, we'll look at our options. But at this point, there's nothing to report, nothing to say.

And as I said, anytime we talk about M&A actions or this or that, I said you guys will always be the second to know, but that's not something we discuss or report publicly. But I don't see anything new.

I think this was -- these articles and the Jim Cramer piece were basically reflections of the dialogue and communication we've had with you over the last 12, 18 months..

And just one last question. In terms of -- there's some speculation about assets being on the market for Thermal. I mean, how do you think about -- do you still want to be a consolidator in that segment? And then some of the prices out there seem a little bit high.

I mean, how would you consider -- what kind of valuation levels do you think are reasonable for that kind of business?.

Well, again, we don't comment specifically on M&A activities. We've always said that we have a balance sheet at both HVCC and at Visteon that affords us the opportunity to look at opportunities -- acquisition opportunities if they come along.

And we are acquisitive if it makes economic and strategic sense, to the degree that events occur that make both economic and strategic sense, we'll take a look at them. We're not in the business typically of overpaying for assets. So if you think it's overpriced, I mean, that's your thoughts. But I guess at this point, we are in the market.

We look at both external and internal and growth opportunities, and we evaluate them accordingly..

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

Most parts suppliers have actually lowered their full year outlooks this earnings season, just given a bit of deterioration in the markets, not a lot but a bit, in 2Q earnings and then the adverse currency.

So my question is given that you're not lowering guidance today and given that the industry production and currency really are somewhat of a headwind relative to a quarter ago, is it fair to say that your underlying business can do better in the second half of the year that you've imagined several months ago? And if so, what are the biggest drivers there? Is it more the customer recoveries in 4Q, the JCI synergies? Or is it just more little things adding up or [indiscernible]?.

Well, there's a lot behind that, Ryan. I think first of all, as we forecast the year, we try to be realistic in what we saw as expectations in the marketplace. As I say, as you know, we don't use the customers' volumes. We kind of -- we use a third party to assess the volume basis of how we forecast the businesses.

Secondly, we push aggressively on the operational acumen of the organization. And when issues occur or arise such as the currency issue, we force and we find opportunities to offset. So as we've seen the body blows of currency, for example, this quarter, we worked around them.

And we feel very comfortable with the mix of customers we have and the launches of the new products we have to the point we're seeing a little softness, for example, in some volumes in selected customers in Europe, but we're seeing a little strength in others in other locations.

So I think our portfolio balance is such that we've been able to offset some of the negativity that we do see in selected markets. We are exposed to Russia. We are exposed to Brazil, and we're seeing some of that flow through.

And I think what was interesting is that in absence of all of that, we probably would have increased guidance, elevated guidance as opposed to just maintaining guidance. So there is -- I think the important message here is that there's some darn good product opportunities here.

There's a good customer mix and customer portfolio and a very good operating team that Jeff and I and all others, who have arrived here and I have the privilege of working with, who address and deal with issues when they arise. So for the most part, we've got good business growth.

We've got a good market position, and we've got an operating team that addresses issues when they surface. So for that part, we're comfortable maintaining guidance, would have liked to have increased guidance, but again, with the softness you represented -- you reflected and the currency, we decided to not increase but just to maintain guidance..

Okay, great. Then sort of the last question. You already got the question from Colin sort of, I guess, probing on how patient you're willing to be for investors to sort of come around to properly valuing your 2 remaining business.

So I guess sort of approach it from a different perspective, what avenues are available to you, short of separation, to get investors to more properly value the 2 business? I mean, your communication is already excellent. You've done so much already to kind of simplify the business.

What more -- is it just kind of more the same? Is it execution? Is it passage of time? And by that, what -- how do you plan, short of separation, to get people to focus on just the fact that Electronics trades at a crazy discount if you take the face value of HVCC?.

Interesting question. I think, first of all, probably, you would never associate the management team here with having the patience of Job. I don't think we're going to hang around the hoop here waiting for years for some sort of resolution to this.

But on the other side, remember that for the first time, today, for the first time, we reported Electronics with JCI consolidation. And for the first time, today, we have shown what reaction from the consumer, from the consumer to the OEMs have been to that business model from a standpoint of order book and order intake.

So I think we're going to let this digest, and then, of course, we're going to have the end of the year coming up. And I think the January conference that we usually have around the auto show here is always a big one for us to talk about strategy and options and what have you.

And I think we'll continue that process of focusing our January discussion on our strategic direction. But at this point, this is the first quarter that we reported the Electronics piece, and this is the first -- and next quarter will be the first quarter Electronics -- the Interiors results will be gone.

So I mean, we are in the sequence of the cleanup that I think we've mentioned numerous times. And let's get to the January conference, and we'll sit down. And I think we'll explore more strategic options at that event..

And I guess, Ryan, I'd just also emphasize performance as something we're -- we focus on as we continue to turn that new business awards into new sales and into profits. Cash flow will be a huge element to us, obviously, getting you guys better communication on what the overall cash flow and tax picture of this business will look like.

We also think it can drive value into the Visteon equation as well..

Your next question comes from the line of Itay Michaeli with Citi..

This is actually Justin Barell on behalf of Itay. Just had a quick question on Slide 6 that you posted with regards to the new business. So $700 million to $800 million of incremental wins in Electronics.

Is there any way you can give us a sense of how much of that's from the JCI business?.

It's hard to bifurcate that out because we -- I would say that yes, there's components in there -- take for example the Fusion smart core technology. That award that basically emanated from JCI may be easy to trace.

But for example, there's driver information pieces and infotainment pieces that are already coming from the combined group, so it's kind of hard to separate who got what and where it came from. But then you did mention it. I do want to make sure that we're clear.

How do we measure new business award? And what we do here is we measure the first year of the business award. And as we look at these things, these typically have, on average, about a 5-year award.

The first year is sort of kind of what I'll call almost a good average because it goes up the first, the second and third year, and then it starts to fall off the fourth and fifth year when you look at vehicle life, et cetera.

So if you want to look at the aggregate amount of what these awards are, some of our peers and competitors will multiply that by 5 or so and say that's the value of the award.

We typically think that it's a better approach for you to analyze our business, to look at it as what is the annual impact on -- and it's basically the average annual impact of this business awards, and that's what those reflect.

And it's going to be more and more difficult because immediately beginning the end of the first -- of the third quarter here, the first quarter that we had consolidated, we started consolidating and combining engineering groups.

So that will be practically impossible to trace the heritage or the award locale as to who should be accountable for it going forward..

Sounds good. And then just, I guess, a follow-up on the whole JCI piece. You mentioned that in Q4, we should start seeing a ramp in synergies. Are you able to give us kind of a quantifiable number to that or maybe relative to restructuring? Although I know it's not like-for-like since restructuring is factored out of EBITDA, so....

Yes. That's a good question. To some degree, the synergies really kind of lose their -- they will lose complete identity because it will all just be wrapped into other businesses. But as we model it, as we think about it, there's a few things that need to happen for those synergies to really get going.

The first was obviously the combination of the 2 entities. And Tim mentioned, in late Q3, we did some adjustments on headcount to bring some of those efficiencies in. Another -- one of the big milestones from an administrative perspective will be bringing our -- getting off of the JCI service agreements and bringing that work in-house into Visteon.

That's going to be driven heavily by IT. And that integration, bringing all those operations onto our IT systems, will be going on through the first half of 2015, and we'll have more opportunity there.

But things like purchasing, things like engineering and manufacturing synergies will start to ramp somewhat modestly, I'd say, in Q4, not too much but really starting to build in 2015 and, I'd say, somewhat modestly at first but will really start once the IT systems are fully integrated.

And we can get some of the other synergies in the back half of 2015..

Your final question comes from the line of Brian Johnson with Barclays..

Just want to drill down a bit in Electronics, housekeeping question and then maybe more of a strategic midterm outlook question. Housekeeping, just what kind of -- you talked about the Q4 recoveries.

What percent of those or how many million dollars are you expecting in Electronics?.

$30 million..

Yes, I think it's about $30 million. But just remember, as you look through our -- we get recoveries every period in Electronics and in our other business as well. The average probably in the mid-teens or so for the year, give or take on the other quarters. And then are higher, obviously, in the fourth quarter..

Let me look that number up. Go ahead..

Second question is we recognize that the whole goal is to create one Electronics business, but if we sort of think of the book of business JCI brought with it combined with your book of business, where roughly is the EBITDA margin range we ought to be thinking about?.

We still see this as a 10% EBITDA kind of business or so going forward, but it's going to take a while to get the JCI assets to that point, again, through the synergies and through the consolidation. But can we do better than that? Maybe we can do better than that.

But at this point in time, that's the kind of number we've been talking about externally, of at least getting it back to double-digit EBITDA.

I think the important part here is, and again, we expand upon, amplify -- to give you an example of where the other opportunities are which bring interesting margin opportunities for us is when we talk about downloading clusters and downloading infotainment packages, remember that some place in the cloud, that has to exist.

And what -- the ability that JCI brought, combined with our own assets, is not only to do the cockpit ecosystem and the array of products that exist there, but now every bit of information in the vehicle, every bit of information that leaves the vehicle or every bit of information that comes down to the vehicle comes through our node.

We are the node that, that information comes through and exits or enters. Accordingly, it provides us an opportunity now to start expanding into those assets that do download that data or that information. So it allows us to expand to connected services over time.

And that's what is going to also fuel growth, and there's some very interesting margin opportunities in those particular segments. So as we look at the core business of cockpit ecosystems -- and that should work its way back to double-digit EBITDA margin during the cycle here.

But the opportunity set for the other array of businesses that it opens up is also very attractive to us..

Yes, which leads then to my final question. You kind of brought $300 million-ish backlog to the wedding. They brought $300 million of backlog to the wedding. You talked about their margin profile being lower, the business that was running through in prior quarters.

But where is that backlog relative to where you want to be? And just more broadly, where is that backlog relative to the type of sophistication, complexity, scalability, cloud-based margins, wherever you want to go? How much of that kind of business is in the backlog versus to be signed?.

The backlog, a lot of question and content there. The backlog reflects an array of businesses for which -- for the most part, clearly fit our profile and clearly fit our projected path of where we want to take the business.

The issue of the margins that they contain, again, the margin issues here, for the most part, embedded inside JCI was the fact that they carried more SG&A and they carried more infrastructural cost than our business base did.

And as we work through that and clean that up, we're looking at those margins being, if that's the question, consistent with our own once we achieve that cleanup. And the issue is you can't get the cleanup done next week. There's a process here.

There's some manufacturing facilities and the longer lead items that Jeff had mentioned, there's some shorter lead items on SG&A. But overall, the pricing of that is not the problem. The cost was the problem, the cost infrastructure issues are the kind of stuff we do well and are already working towards.

I hope -- does that answer the question?.

Yes. That's what I was looking at. And then I guess the final question is kind of the things you talked about in terms of disruptive technology, future cloud-based opportunities.

When we kind of bridge that into backlog and new business signings, are we seeing any of that yet? Or is that more where the signings are going to be coming from?.

In Q3, you saw the Fusion smart core cockpit ecosystem award. And I would suspect, the next time we talk, that you will also see an iCool award or 2 in the backlog..

Okay.

And roughly how many years until those are in showrooms?.

These are basically 2017 calendar, 2018 model. It's typical of where we're at are today. And just an interesting point there. When we launch these products, again, we know that it will be iPhone 9 when they launch, so the technology is reflective of the future, not today. So interesting stuff coming, interesting stuff coming..

Very good. Well, thanks, everyone, for your participation in today's call. If you have any additional questions, please feel free to contact me at your convenience. And I'd just like to turn it over to Tim for some final comments..

Thank you, Bob, and thank you all for your support and what have you over the years and your interest in Visteon. We continue to focus, as I said, on shareholder value and the creation of a better business here. We're pleased with the team. We're pleased with the progress in Q3, and we look forward to a good Q4 and a good 2014. Thank you all..

Thank you..

Thank you..

Thank you. This concludes Visteon's Third Quarter 2014 Earnings Call. You may now disconnect..