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 Matthew T. Stover - Susquehanna Financial Group, LLLP, Research Division Itay Michaeli - Citigroup Inc, Research Division Steven Hempel - Barclays Capital, Research Division Ryan J. Brinkman - JP Morgan Chase & Co, Research Division.

Good morning, and welcome to Visteon's Fourth Quarter and Full Year 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 me today are Visteon's President and Chief Executive Officer, Tim Leuliette; and Jeff Stafeil, Executive Vice President and Chief Financial Officer. We appreciate your interest in our company, and thank you for joining us to review fourth quarter and full year 2014 results.

We have scheduled the meeting for an hour, and we'll open the lines for your questions after Tim and Jeff's remarks. [Operator Instructions] As previously mentioned, the presentation deck associated with today's call is posted on visteon.com within the Investors section.

Also note that our Form 10-K was filed earlier this morning with the news release. Again, thank you for joining us. And now I will turn it over to Tim..

Thank you, Bob, and welcome, everyone. We have a lot to talk about today. So let's quickly move to the slide material, Page 2. To start off, as we looked at Q4 and we looked at the overall year, we have a continual focus obviously on shareholder value. In December, we did announce the sale of HVCC for $3.6 billion.

We'll expand a bit about, both the tax and the proceeds issue as we get through this material, both of which we'll give you some greater granularity and detail as we go forward. And then obviously, we also completed the divestiture of a majority of our Interiors business.

There's still some components remaining as we go through the process of the final closure with the buyer, but again that's now getting behind us. As we looked at the year from a financial perspective, it was a good year. Sales were $7.5 billion and EBITDA of $678 million, excluding the discontinued operations.

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

But as we looked at Electronics and the Corporate expense as a basis for going into 2015, it did give us encouragement. We had adjusted free cash flow of $111 million. We had a record new business win and rewin in Electronics of $1.3 billion.

I think as we've discussed before, there's been significant customer -- positive customer reaction to the combination of the 2 businesses. And we had a strong balance sheet at the end of December 31. Cash of $836 million, debt of $981 million. And as I said, a good leverage.

As we look at the midpoint of guidance for both '15 and '18, and I'll expand upon this on '18 in a little bit later, but we are maintaining our revenue and our EBITDA guidance for 2015 and '18. But we are increasing our adjusted free cash flow from prior guidance due to getting a little bit smarter and a little bit more capable on the tax situation.

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

While we are maintaining our EBITDA guidance, I know that there's concern out in the marketplace with exchange, et cetera, and we're cognizant of that. Obviously, the exchange rates have moved a bit since we gave that initial EBITDA.

But we have offsets and other actions that we are targeting to sort of maintain the position that we have previously stated. Moving on to the next page. This is sort of a timeline as to the events of '14.

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

We closed acquisition of JCI with a great deal of activity. That day 1 of management going around the world and meeting almost all the employees. We agreed also at that point in July to annuitize 1/3 of our U.S. pension liability.

And then we closed the acquisition of Thermal & Emissions product line of Cooper Standard that we put in place in the HVCC product line in August. Then in November, we completed the divestiture of Interiors. And then in the course of December, announced the transaction with HVCC.

So as we look back, it was a very, very full year, but we think a strong year for shareholder value creation which again is our priority. Going on to Page 4, the JCI integration. Let me just update here, we are on track to deliver the $40 million to $70 million in annual Electronics synergies.

Obviously, we include the midpoint of that in the midpoint of our guidance. We have begun that process. Those savings are starting to be reflected in 2015. The bulk of that coming and will be completed by the end of 2016. These synergies relate to numerous activities, but not just a singular focus there. They're in material and purchase materials areas.

They're in plant. They're in manufacturing, engineering and obviously SG&A efficiencies. We also expect to achieve some additional sales growth synergies related to new programs. And then we'll start to roll in, in the '18, '19 time frame.

But we're seeing again the strength of this combination, as I said in the fact that we had $1.3 billion of new business awarded last year. To achieve these synergies, we expect to incur additional restructuring integration and IT transformation cash outflows as we've discussed in '15 and '16.

Restructuring cash outflows of approximately $70 million to rightsize SG&A and engineering staffs, which is about $55 million in 2015. And the IT decentralization and integration will cost about $40 million, and again that's over a similar time frame. We expect all of these, as I said, savings to be embedded by the end of 2016. Moving on to Page 5.

And this is a page we'll spend some time on, the update of the sale of HVCC. As you know, we announced the sale of 70% of our stake to an affiliate of Hahn & Co. and Hankook Tire. Transaction value of approximately $3.6 billion, which is -- reflects a purchase price of KRW 52,000.

The net proceeds are expected to exceed the amounts that we showed at Deutsche because again we're getting better and more detailed on our tax exposure, and Jeff will expand upon that a bit later.

Transaction is expected to close during the first half of 2015, subject to shareholder and regulatory approvals, all of which are in process per our anticipated timeline. From a use of proceeds perspective, we had discussed in the past, and we continue to focus on the plan to return $2.5 billion to $2.75 billion of cash.

And it's via what we say is a structured series of actions, sort of a tapestry of actions which include buybacks and a special distribution, which could include a large return of capital.

And as a primary component, minimized -- and we're focused here clearly on minimizing taxes for shareholders, not only minimizing taxes for the company itself and the transaction, but doing what we can for shareholders. The next points are important along that line.

It's estimated that between $500 million and $1 billion of the distribution -- and again we are finalizing and detailing this as we finalize the numbers.

But between $500 million and $1 billion of the distribution would be a qualified dividend if paid in 2016, leaving the remaining distribution to be treated, first, as a return of capital, which is not taxable, and then as a capital gain, if applicable, to the shareholder.

If we were to pay that in 2015, $1.5 billion to $2 billion could be a qualified dividend, leaving a far lesser amount to be treated as a return of capital. And this is in the complexities of U.S. tax laws. And there's a footnote down there to give you some background on that. This is not a discretionary issue in our part.

This is, obviously, a function of U.S. tax law. That's why we have said that we would allocate between the share buybacks and the dividends at closing, and we would expect all those actions to be completed within 12 months.

We see the cost benefit of the 2016 distribution of whatever would be in the dividend component to be advantageous to shareholders vis-a-vis a 2015 distribution. And you can see the math associated with that. Moving on to the next section, Page 7, the New Visteon. As you go forward, Visteon really now has 3 components. The Electronics group itself.

2014 financials, $2.4 billion, $221 million of EBITDA. It's the historical VC Electronics and the JCI. But also we have to -- you need to remember that the important contribution of bringing in YFVE from China into that portfolio on a consolidated basis and it is part of the infrastructure of that business that we did back in '13.

So there's a really a three-legged stool of capability now that exists within that Electronics Product Group. There will be, for a while, in Other Product Group, and that really represents the legacy facility in Europe that we do expect to be transitioned out of by the end of '15.

But in any case, it's a small and modest from both a revenue and EBITDA perspective. And then, we have corporate cost. And the corporate cost and corporate structure of this business really relate to the fact that at one time we were a multi-product group company.

And product groups were stand-alone with a corporate consolidating in over -- and guidance in governance role over a number of product lines. And we'll get to that subject a little bit later.

But the key is this -- is when we've assembled and where we're at today, is that we have a leading provider of cockpit electronics globally, we are the second largest provider of driver information, which is one of the critical building blocks of this business.

We have a balanced Asian, American and European footprint, I'll expand upon that a little bit more. The broad customer profile that includes everything from entry-level vehicles to high-end German luxury vehicles.

And we cover all the major cockpit electronic product line elements, including not just driver information but infotainment, telematics, as well as the HUD. And we have a very balanced global footprint, not only from a manufacturing perspective but from an R&D support and engineering perspective.

So as we go forward, we will just be this Visteon Electronics and a very small corporate center really incorporated into just one single company, and again I'll expand upon that in a moment.

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

The customer profile, you see Ford is our largest customer, followed by Renault-Nissan, followed by Mazda then BMW, GM/SGM, Honda, et cetera.

First of all, you don't see Hyundai anymore, and that doesn't mean we're not going to try to go get Hyundai as a customer for Electronics business, but it's a different profile of customers we've had in the past. And they're American, European and Asian, Chinese, all in that top 6, 7 group, much more balanced than we were before.

On a regional basis, we're almost 1/3, 1/3, and 1/3 between Europe, Asia Pacific and the Americas. As we look at the product portfolio and we look at the business awards, Asia Pacific will grow considerably more than the other areas. So we'll see Asia Pacific, again, expanding up. But at this point, we're basically 1/3, 1/3, 1/3 in the world.

And it's on the far left chart, the by product, you see that again, we leverage our strength, which is in the clusters displays or driver information component of cockpit, which is our forte, and where we're the second largest in the world. Moving on to Page 9.

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

If you look at the historical new business wins and rewins that were embedded within the Visteon Electronics historical performance, you see $400 million, $500 million, $600 million a year, and then it jumped considerably to $1.3 billion last year. We would anticipate something of that magnitude again this year.

This is a strong support from customers. And again, a lot of this incremental win business, not just rewin business. So it's building a strong footprint. Because of the lead times, especially because of the sophistication of some of the systems, SmartCore and others, these are longer lead items than some other elements of the vehicle.

But they build a strong base in '18, '19, '20 that are embedded in the vehicle, difficult to resource, difficult to change once the vehicle is launched, very capable systems, very sophisticated systems that build a very strong business base as we look at the end of this decade going into the next decade of a business that's very viable, strong, well positioned.

And again, the customer reaction has been rather strong. As we go on to Page 10. In this area here, we had, in the Deutsche conference, referenced our 2018 midpoint of our guidance there to sort of give a feel from where we see this business headed. And again, we remain with those numbers for both '15 and '18 in the sales and EBITDA.

We did increase our adjusted free cash flow for both periods. I do want to say on the EBITDA side, and this is an area where we'll expand on the next slide, is that even though we envision a 40% increase in EBITDA between '15 and '18, it's difficult to say this, but in all reality, we know that's not enough.

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

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

We have an EBITDA target for -- midpoint of 2018 of $335 million, which does represent a $95 million improvement versus our guidance in '15, and that assumes certain things.

If you look at the right side of the chart, you see that embedded inside Visteon and Electronics and Corporate was, in a combined basis, about 8.6% SG&A in 2014; and our guidance this year represents 7.7%. We have, with a series of actions that we initially outlined and planned, see it down to 6.4% by 2018.

But we're very cognizant of the gray bars or the bars on the right side of that chart, which shows that really our peer group in North America is at about 6.2% and our global peer group is about 5.2%. So we're still carrying basically a greater cost than our peer group. We're aware of that, and we're cognizant of that.

And as we can get this HVCC transaction closed, get the Interiors pieces finally done and that the remaining piece off of our plate, we can start focusing more aggressively here. We've already begun that process by hiring outside consultants to sort of check and balance our own thinking here and begin the process.

But these issues remain and provide further opportunity for this company. We do need to get competitive. Why we are where we are today, simply a function of the fact that not too long ago, we were an $8 billion company with a $7 billion JV that we managed. We acted and we had the infrastructure of a $15 billion company.

We've continued to peel that onion over the last 2 years with a series of programs and actions. But now that we're finally down to the last remaining piece here and the strong piece of Electronics, we still have work to do. And we want to share with you the fact that we're aware of that and that we have a game plan to sort of address that.

As we move on to Page 12, we have said that from a free cash flow target perspective and therefore an EBITDA perspective, as we said when we referenced in the Deutsche conference, we've now increased the guidance on the cash flow side, and there you see a $75 million increase between '15 and '18.

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

And honestly, as the workload of these transactions get off our plate, we see, from both the tax effort and the other efforts of the company, ways to start addressing and optimizing the position that we have. So we have further work to do and we see the opportunities to work on those areas. As we look forward on Page 13, the future of the world class.

We see ourselves as a world-class innovation leader. Our agility, our ability to move quickly, our dynamic of becoming more of a software company and less of a hardware company and all the implications -- positive implications that implies is sort of driving this advantage.

We are a leading provider of cockpit electronics globally now, and we have a broad customer profile, both geographically and market position-wise. We have offerings across all major product lines and a very balanced global manufacturing R&D footprint as I said.

As we move on to Page 14, our near-term objectives will remain to grow the Electronics business. The net-net of business that rolls off and productivity that we give and all those elements still show already a book of $500 million growth, net-net-net, and we expect to add to that this year. We're bolstering our business with new business wins.

We've just gotten -- expanding opportunities for the SmartCore and some of our more technically driven activities. And we continue to develop world-class electronics to sort of interface with the connected car as it evolves. We have to deliver on the synergies and cost savings. The plan to deliver the $40 million to $70 million is on target.

We are in process of that. That's not something that is waiting to occur. It's starting to work its way through the 2015 financials and will be completed by the end of 2016. We do have some legacy issues and the implications of the sell-down of the HVCC assets and addressing our overhead, and we'll continue to do that.

We have the remaining European facility as I said we'll work through, and we'll continue to drive our SG&A and fixed costs down to be more in line with what we are now. And we will continue to drive shareholder value as we have since we arrived. We'll continue to return cash to shareholders through share buybacks.

And through this process of dividends and other elements, as necessary, to address the proceeds, but we'll always continue to keep that in mind as we go forward, and we'll continue to evaluate potential value-creating M&A opportunities that make sense and tuck-ins as we have continued to do to enhance the software and other capabilities of our Electronics business.

So we are committed to shareholder value. It's been a good, I think, solid year for that. It's been a busy year. We've got some more to do in 2015. And with that, let me turn it over to Jeff, and he can start giving you some details on the financial results of the year..

a $95 million cash contribution, which we've talked about earlier; next, it includes a $29 million adjustment to net working capital. This reflects that the business had a shortfall versus the target amount set in the sale agreement.

Note the target amount was set by using monthly 2013 average working capital balances, plus certain agreed-upon adjustments with the buyer; it also includes a $13 million payment related to the Indian operation that was sold on December 1 or 1 month after the initial transaction closed.

This $13 million is made up of 2 approximately equal $6.5 million pieces, one reflecting a shortfall of the working capital target set for India, and the other reflecting a payment to relocate the business into a new facility to free up space in Visteon's existing production facility.

Finally, it includes the transfer of a South Korean joint venture that had $10 million of cash on hand. The second category of payments relating to this transaction -- or relating to the Interiors reflect $73 million of cash spent on the business to enable the sale and fund business losses and consist of the following items.

First, we paid off our AR factoring in France. At the end of Q3, this represented $12 million of consolidated debt on our financial statements. Second, we paid HVCC approximately $17 million to acquire the Indian Interior operation. The Indian operations were actually part of the HVCC structure and were reasonably profitable.

To enable the sale to Cerberus, we first needed to purchase these operations from HVCC. Finally, the Interior operation had approximately $44 million of cash outflow in Q4 prior to the sale. Also note that we still maintain title to certain real estate from the Interiors business that is currently being rented to these operations.

The value of this real estate is estimated between $30 million and $35 million. In addition, we transferred approximately $15 million of pension liabilities to the buyer as part of the transaction. Moving to Slide 27. We provide our 2015 full year financial guidance. It should be noted that these amounts exclude our Climate Product Group.

Additionally, our full year guidance assumes adjusted EBITDA and adjusted free cash flow for the other product groups are -- where Other Product Group is breakeven.

Please note that the financial metrics related to the Other Product Group will fluctuate quarter-to-quarter but we expect the consolidated results for the entire year to be approximately breakeven.

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

For the full year, we project midpoint sales of $3.3 billion, adjusted EBITDA of $240 million and adjusted free cash flow of $40 million. Our sales and adjusted EBITDA guidance is in line with the guidance given at the Deutsche Bank conference in January.

However, we have increased our adjusted free cash flow guidance by $20 million to reflect lower expected cash payments during the year. Regarding exchange rates, we have generally seen negative developments in the euro since we set our plan.

That said, we continue to hold some hedges and are identifying a variety of cost reduction actions such that we are not modifying our guidance. Now let me turn it back to Bob for Q&A..

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

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

I actually just had several questions on Slide 5. I just wanted to make sure I understand that. One, can you just clarify to make sure I'm looking at this right, that if you wait to 2016, you're essentially saving about $1 billion in terms of what is taxable.

So there's obviously an incentive to wait for a special dividend in '16? And secondly, how should we think about buyback tenders in that context? Would you be willing to do those before a special dividend? And then just any general thoughts on why the emphasis on special dividend, I mean, versus a large buyback or a tender..

Sure. Your first question relating to delaying to 2016 is true point. If we paid a dividend in 2015 versus 2016, there's approximately $1 billion difference between what would be counted as return on capital versus qualified dividend.

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

As we look at share buybacks, to the degree we do share buybacks, as we always said, we'll be looking at the price where our stock is trading and making sure we're doing economical events for our shareholders, and also understanding that we have a significant amount of cash relative to our market value.

And we certainly need to be cautious about paying premiums for our cash position. But we'll be looking at that and making further announcements as we get to close.

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

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

Exactly the balance of where we come out on that will be a function of what Jeff has just said as we ascertain where we stand with the share prices and what other options that we have. But think of those numbers as thresholds for which we would have to achieve.

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

Got it. And when we look at guidance, it remains unchanged.

Has that been updated for the latest currency assumptions? Or is there any change in the underlying currency guidance?.

If -- our guidance reflects the currency assumptions that we have today, we haven't changed it for currency. We acknowledge and understand the currency environment for which we deal, and we have reaffirmed revenue and EBITDA, and increased free cash flow in that environment..

Your next question comes from the line of Matthew Stover with SIG..

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

And I know that there's been other things that you've discovered within the organization as you've sort of proceeded through. I'm just wondering if you might share some of the bigger items that would act as offsets to that currency headwind..

Yes, Matt, a couple of things. One is the -- we do still have a hedge. Our hedges in place help mitigate some of that amount a little bit more. But you're right that -- we had talked about a $10 million headwind when we were at the Deutsche Bank at the current spot rates.

You could probably say that, that's probably close to double if you held the current spot rates through the year. As we look at -- and I should say it does help us in some other areas. The lower euro will certainly help us in some of our restructuring charges. It will certainly help us on the disposition of our remaining Interiors asset in Europe.

It will help us on some of our CapEx that's not dollar based. But overall, it does prevent -- or present some headwind. I think as we look at our operations, I think we have opportunities to continue to drive the overall business. The actual operating plan is one part.

Our SG&A cost reductions, Tim talked about little bit earlier, are another area such that, at this point, as we're -- certainly, currency, as you know, plays a key role for us. But as we look at all of those factors today, we looked at it and we're still comfortable with the $240 million..

Okay. And the other questions on the euro Interior business.

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

Yes, if you looked at our balance sheet, it's somewhere close to $200 million at the end of 2014. And that's up a reasonable amount from where it was the year before, probably up about 1/3 from where it was before..

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

Just had actually a long-term margin question around Electronics. If I look at 2018, it looks like you're just above 10% in your guidance. Some of the peers in the group seem to be, at least, projecting higher margins.

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

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

Good question. We're obviously cognizant of the fact that -- again, this gets back to part of our SG&A discussion of the fact that we still have expenses and cost that preclude us from being at peer level. So you've got both of -- you've got an element there.

We also have -- we're pleased with the margins on the new products -- programs that have been awarded. We see that as being an increase in the overall margin as those businesses roll through.

But I think net-net-net, we, as the year will progress, we'll start talking more about margin targets and margin improvements as we go out, and we clearly got to be more above the 10% range than we are.

I think the issue of getting these transactions behind us and making sure that we get our cost base done internally and in the proper balance is the beginning of that process, but we're seeing improvements on the factory floor.

As you'll recall, if you go back and study, we had some pretty good margins developing on the Visteon Electronics side where we embedded the JCI asset. To some degree, they had lower margins. And it is going to take a while for those to work through the process. But net-net-net, we should be north of 10% clearly.

And we'll outline a game plan as the year progresses of how to achieve that..

And just one other dynamic as you look at the numbers, Itay. Our engineering expense, and this is an engineering-led business. Our engineering expense, we generally expense when incurred. And we expensed -- and usually we have heightened amount of engineering activity a couple of years before programs launch.

So as you look farther out past 2018, 2019, 2020, we have a lot of new growth coming. And thus, we have a larger amount of engineering expense to fund that growth a couple of years before, which does impact our EBITDA margin as well. So as -- if growth would ever tail off, you'd actually also see a higher impact on EBITDA margin..

I think one of the metrics that impacts that, some sort of insight, is that on a $3.2 billion business, you win $1.3 billion of business in 1 year, you then, obviously, translates to some engineering effort and work. And we'll probably have something of similar nature this year.

So we are -- to further adjust comments, living in an environment of significant growth as the decade rolls out and paying for it today, and we do expense most of that through the P&L..

That's very, very helpful.

My quick follow-up, anything you can offer in terms of cadence commentary around particularly the Electronics business in 2015?.

With respect to?.

Just margins essentially, just kind of normal seasonality or any....

You mean [indiscernible]?.

Quarter-to-quarter..

Quarter-to-quarter..

Exactly, yes..

You'll have a higher margin. It goes still with sales. So usually, Q2 is probably higher sales. As you look at Q3, it's a bit of a lower sales period because of shutdowns, so it does impact the margins. So generally, the first half of the year has a bit more revenue.

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

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

Yes. And some additional granularity, we receive about 25% of our gross engineering spend back from customers. So net, it's about 9%, 9.5%; gross, about 12%, 12.5% or so. And as you look at that on average -- as you look at that, we try to recover that on a quarter-by-quarter basis and try to homogenize it over the year.

But no matter what we do, we end up getting a disproportionate amount typically in the fourth quarter. So the fourth quarter tends to be a little bit overstated at times because of recoveries. So we'll give greater granularity as we go forward. But this year is going to be a tough one for you guys to model. I understand where you want to go.

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

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

It's actually Steven Hempel on for Brian Johnson. Just a question, I guess, to follow up on Itay's, just to kind of put it in a little bit different way. As we look at Electronics organic growth, it looks like it was down a little bit here in 4Q.

I guess, a, what were the major drivers there on 4Q? And then how should we think about the cadence of organic growth through 2015?.

Yes, I think one of the elements, and we talked about this in the last call, was that a lot of our organic growth in Electronics has always been in the YFVE segment or business, I should say. Remember that was essentially an entity controlled but not consolidated by Visteon prior to the transactions we did in the fourth quarter of 2013.

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

And that business, it was easier to put more volume into -- we tended to put a lot of volume in there, and that was one of the reasons we wanted to get that consolidation in. So I think a lot of our organic business growth had been put there. I think as we look forward, I think a couple of things on organic, just sort of the growth curve.

We also talked about the JCI business. The former JCI business had a relatively flat profile over the next couple of few years through 2017, '18. The Visteon business, including YFVE had a, I will say, a more beneficial growth profile, and it factors into about that 5% or so rate we talked about at Deutsche Bank.

As we looked beyond 2018, the new business that we won, let's say, in 2014, the $1.3 billion or so we talked about earlier with $800 million of new business as well as business we'll win in 2015, et cetera, should help fuel more organic growth. But those 2 factors, probably JCI and the YFVE, hopefully, answer your question..

Yes, if you go to Page 10, and this is a reiteration of what we gave at the auto conference, is that we don't expect significant revenue CAGR over the short term because of the elements that Jeff just mentioned, the JCI issue, primarily being one of that as far as it being in purgatory during the '12, '13 time frame, and now that's impacting their growth.

But we see this significant growth coming business awards that was mentioned. But we don't anticipate a significant sales revenue CAGR until you get to the '18 timeframe and beyond. But we do anticipate significant a EBITDA CAGR.

And so that's just a cycle of business, and that's just a function of what we inherited when we purchased it, and we understood that when we got in..

Okay. And then just a follow-up here. In terms of -- I mean, if you look at Slide 14, you're saying you're valuing potential value-creating M&A opportunities, I assume that's most likely for Electronics you're moving forward.

I'd guess are you more interested in M&A now versus maybe a quarter ago? What's the maybe potential size of potential M&A moving forward? And then in relation to that, as Visteon is basically a stand-alone Electronics company now moving forward, any interest from other companies moving forward, kind of provide an update on that as well?.

Well, I think our appetite to do the kinds of things we like in that space hasn't changed. I think we have constantly looked at putting investments into software companies, typically smaller, as a result of -- we like to find companies in more of a start-up phase or early phase for which we can gain some technology.

Obviously, we're always open to opportunities that make sense. We've got some, obviously, capability in our balance sheet. But at this point, there's no major acquisition on the table that we're thinking about. And we're happy with the business we've got. We're happy with the order book we've got. And we're happy with, as I say, the business backlog.

And we've got a lot to execute in '15, so that's sort of the primary focus..

Okay.

So not a lot of interest right now from other companies in terms of Visteon as being a stand-alone electronics?.

Well, that's not the kind of stuff that we would comment on if it was true or not true. I mean, the issue is, is that we've got a business that we're very proud of, and we're proceeding accordingly. We envision ourselves as one of the small, little consolidators in this market.

We may not be as large as some, but in the segment we're in, we're a very dominant force. And we're acting accordingly..

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

Great to see the higher HVCC proceeds.

I'm just curious whether you've had any preliminary discussions with the IRS about how much of a special dividend could be considered a tax-free return of capital? How do you think those discussions are progressing? And what actually drives their determination? And how can we think at this stage about the potential range of what could be considered a tax-free return?.

Ryan, it's Jeff. I guess, I'll refer you back to Slide 5. Have we had conversations? We've done quite a bit of work around this. There's more work to do, and that's why we provided the range you see on Page 5.

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

Thus, if we pay a dividend or a distribution in 2015, we're going to, first, have to pay through the gain effectively on the HVCC transaction. So we've estimated that to be between $1.5 billion and $2 billion. And it will be -- anything over that amount -- and we're working to narrow that range with discussions and a lot of work.

But anything over that amount would be a return of basis. Anything under that amount would be a qualified dividend. If we wait to 2016, because we don't have any operations in the U.S, the current E&P of 2016 is expected to essentially be close to 0 or maybe slightly negative in the U.S.

So then we would look at our cumulative E&P -- and because we have a large NOL and other things in the past, it brings the amount down by about $1 billion, such that anything between $0.5 billion and $1 billion -- and we're, again, working to refine that range, anything up to that amount would be a qualified dividend.

Anything more than that amount would be return on capital. And we'll continue to peel that onion back as we go forward and get closer to close..

As we said, we would be much more definitive and specific, when we come to the transaction close, as we lay out the game plan. But we wanted to, at least, make the shareholders aware of the calculus of the different tax years and the kind of issues that we're dealing as we prepare the plan..

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

Can you give us like just an updated, I guess, end-of-year net underfunding pro forma for both Interiors and HVCC? Like what should we have in our model going forward?.

This is roughly about right, Ryan, and you have to look through the numbers. But I think the U.S. pension liability underfunded amount is about $188 million. I mentioned the legacy Interiors operation is close to $200 million.

And then I think the remaining amount of pension has a certain piece relating to HVCC and a certain piece relating to, we'll say, the new Visteon. And I think that piece relating to the new Visteon is about $69 million. As you go forward, all that is being calculated just from an awareness -- at least, on the U.S.

piece, if you go back to the U.S., it's being calculated on a 4% discount rate, which is, obviously, a bit lower than we were at the end of 2013. We used closer to 4.75% rate there. If the U.S. rate was increased to something like 5.5%, give or take, the U.S. underfunded amount would go away..

Okay. I want to thank you all for joining us today and appreciate your support of the company. Let me turn it back to Bob..

Okay. Thank you very much, Brent. I'd like to thank everyone for their participation in today's call. If you have any additional questions, please feel free to contact me at your convenience. And I'll just turn it back over to Tim for some final comments..

So again, we've had a tremendous, I think, year of shareholder value creation. We have a lot of tools in our toolbox to sort of continue that process in 2015.

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

But at this point, we're pleased to say with the work that the tax people have done and others is that we're now approaching about a 4% net tax rate eventually on the HVCC proceeds, which is a very positive event. We'll continue to work that. And we're going to continue to grow Electronics business which again is getting good customer reaction.

So again, thank you for your support through the year, and we look forward to a prosperous and good 2015. Thank you..

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