Visteon Corp (VC) 2007 Q2 法說會逐字稿

Good morning and welcome to the Visteon second quarter 2007 earnings conference call.

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

As a reminder, this conference call is being recorded.

Before we begin this morning's conference call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements.

Please refer to the slide entitled forward-looking statements for further information.

Presentation materials for today's calls were posted to the company's website this morning.

Please visit www.Visteon.com/earnings to download the material if you have not already done so.

After the speakers' remark, there will be a question-and-answer period.

(OPERATOR INSTRUCTIONS).

I would now like to introduce your host for today's conference call, Mr.

Derek Fiebig, Director of Investor Relations for Visteon Corporation.

Mr.

Fiebig, you may begin.

Thanks, Regina, and good morning, everyone.

Joining me on today's call are Mike Johnston, our Chairman and CEO; Don Stebbins, our President and COO; and Bill Quigley, our Chief Financial Officer.

Following our formal remarks we will be happy to take your questions.

Now I will turn the call over to Mike.

Thanks, Derek, and good morning, everyone.

This slide is one you're likely familiar with.

It shows our plan with its three pillars, restructuring, improving our base operation, and growing our business, all of which we are executing concurrently in order to make Visteon a more successful supplier, which we believe will lead to increased shareholder value.

As we have highlighted in our quarterly calls, our restructuring activities are well underway and we made solid progress in 2006 and are continuing to do in 2007.

We are improving the business by working on our base operations and Don will provide you with our progress on that front.

We continue to win significant amount of business during the first half of 2007 following up on an outstanding 2006.

Slide 3 provides our second quarter highlights.

Although we do not provide quarterly guidance as a matter of practice, our financial results were in-line with our internal expectations and with consensus expectations.

As we discussed in May, we completed the divestiture of certain noncore chassis operations and received the proceeds during the second quarter.

We also began construction of two new facilities here in the U.S., one in Michigan and the other in Missouri to support the growth of our interiors business here in the states.

We continue to advance the restructuring plan.

Of note we also realized significant reductions in our SG&A during the quarter, a portion of which will carry on in the second half.

With a net loss of $67 million, our EBITDA for the quarter was positive $15 million.

While this is below last year, it is higher than the negative $46 million we had in the first quarter of this year.

We also generated cash from operations of $146 million in the quarter and positive free cash flow for the quarter of $66 million.

Although it is not shown here, we did close on the additional $500 million term loan in the quarter, which given today's market situation looks timely, prudent, and well priced.

As I just stated, our business wins remain very solid as we once again won a significant amount of new business.

Slide four shows our 2006 and 2007 second quarter product sales by group and region on a consolidated basis from continuing operations.

As you can see, we remain well balanced by product group and we expect the balance to continue based on the new wins we had over the past six quarters.

Sales in the other category are lower reflecting the divestiture of the chassis facilities.

On a regional basis, there was a fairly significant shift, which Bill will expand on by customer.

North America decreased from 39% to 32% and Asia increased by 5 percentage points.

Europe and South America were about flat.

Chart 5 presents our regional sales, including our unconsolidated subsidiaries.

Our nonconsolidated sales were $425 million in the second quarter and nearly $800 million for the first half of the year with nearly 90% of these sales in Asia.

Taking these sales into account, the Asian region was 33% of the sales is larger than North America and just behind Europe.

South America was basically flat year over year.

We have an established position in Asia with GM, Volkswagen, high-end IKEA and Nissan and we've been growing in Asia and are well positioned to continue to grow with these established OEMs in the expanding Asian market and win incremental new business with the regional OEMs, particularly the young tigers in China.

Slide 6 provides direction on where we see things going for Visteon in the future in Asia.

We expect our sales, including nonconsolidated subsidiaries to grow from the current level of 33% to approach half of Visteon's total sales by 2009.

We are well positioned in the region with our [Hola], [Yanfang], and [Dukyang] operations.

We will have growth with our existing customers as well as with a number of the regional players.

Much of the growth in the Asian market will be fueled by the increase of the low-cost car segment.

This segment, which includes vehicles sold for less than $10,000 is expected to grow from its current level of 9 million units to 16 million units by 2013.

With our footprint and expertise in the region, Visteon's well positioned to capture a good deal of the growth, which will come from regional as well as global OEMs.

Since the beginning of 2006, Visteon has already won nearly $200 million of annual business for low-cost car platforms.

Now I'll turn the car over to Don who will provide an update on operations.

Thanks, Mike, and good morning.

Slide 7 provides an overview of the restructuring pillar of our three-year plan.

As we've stated before, the restructuring of our business is a difficult but vital step in making Visteon successful.

In 2006 we had planned to address 11 noncore or underperforming facilities.

We accomplished our goal by fixing three operations, closing six, and selling two businesses.

In 2007 we continue to make substantial progress.

In April we completed our previously-announced closure of our Chicago facility and we completed the sale of three chassis operations.

In June we also seized operations at our noncore fuel tank facility in Chesapeake, Virginia, bringing the total number of restructuring activities to five, leaving two facilities left to be addressed to achieve our objective of seven for 2007.

One of the remaining items for 2007 is our Connorsville plant, for which the terms of the closure have been agreed upon with the union and the facility will close later this year.

This quarter we also announced our intention to close our facility in Bedford,Indiana.

This noncore facility employees 600 hourly, 85 salary personnel and is expected to close in 2008.

In addition to these actions in the U.S., we are also addressing a number of our facilities in Western Europe.

In the U.K.

we have exited the brake business at our chassis facility in Swansea and we are taking steps to improve our operations in other countries in Western Europe.

We are confident that we will achieve our 2007 objective of addressing seven noncore or nonperforming operations.

At the end of the first quarter our escrow account balance was $219 million.

Chart 8 provides a recap of our restructuring activity and shows that 18 months into the plan we've completed 16 of the 30 activities and our expectation is that by the end of 2007 we will have addressed 18 facilities, leaving 12 remaining.

The work completed to date will generate annual savings of approximately $175 million of the total $400 million in annual savings that we expect to achieve upon the completion of our three-year plan.

The completed actions have generated approximately $120 million of savings to date.

The second pillar in our plan is improving the base operation.

We have focused on quality, safety, investment, and efficiencies and we continue to make very solid progress despite being negatively impacted by lower production and some unexpected premium costs.

Additionally, as in the first quarter, the second quarter results include nonreimbursed expenses related to our restructuring activities.

Our business equation, which compares our cost reductions to net pricing, was positive for the quarter and remains on track.

One of the ways we are improving our cost competitiveness is moving to lower cost regions.

Slide 10 represents the movement to lower cost countries for both our manufacturing and engineering head count.

For manufacturing the goal is to have 75% of our head count in lower cost countries for 2009.

As of June 30, 57% of our manufacturing personnel were in lower cost countries.

This represents an increase of 9 percentage points over the past six quarters as it has increased from 48% of the total at the end of 2005 as head count in lower cost countries has increased by 3300 employees while high-cost head count has decreased by 3800 employees.

For the engineering, the goal is to have half of our employees in lower-cost countries for 2009.

As of June 30, nearly one-third of our engineers were in lower-cost regions.

This represents an increase of 13 percentage points since the end of 2005.

As I've said in the past, the movement in engineering is expected to be more linear than the movement in manufacturing, but importantly we remain on track and continue to improve our footprint.

With all of the discussion regarding the upcoming UAW negotiations, I wanted to spend some time to highlight Visteon's hourly workforce here in North America.

Our current hourly workforce in the United States is just over 3,000 employees, which is shown in the dark blue on this chart.

Of these employees, approximately 2100 are represented by collective bargaining units with about 1300 represented by the IUE at our Connersville and Bedford facility, and about 800 nonmaster agreement UAW workers.

Visteon does not have any workers covered under the UAW master agreement.

The majority of our hourly workers in North America are in Mexico, as we have approximately 7,000 workers in Mexico.

Slide 12 shows some of our key operating metrics.

Our quality is measured by defective parts per million continues to improve in 2007, decreasing by 29% during the first half of this year.

Our safety performance also continues to improve, declining 23% in 2007 after a 45% decline in 2006.

We remain highly focused on our capital expenditures, as the first half of 2007 spend was $39 million less than one year ago.

We do expect second half capital expenditure spending to increase as we make investments to support near-term program launches.

Our premium costs were negative again in the second quarter and for the first half as we experienced about $29 million of premium costs associated with our European noncore operations, several difficult program launches, and some supplier issues.

Chart 13 shows the year-over-year change in volumes for the second quarter.

In North America we faced production declines at both Ford and Nissan, our largest customers in this region.

We expect the year-over-year comparisons to be more favorable for these customers in the second half of the year.

In Europe, Ford and PSA production were both higher.

Hyundai Kia also increased globally.

We expect these trends to continue for the remainder of 2007.

The third pillar of our plan is to grow the business and the momentum of $1 billion of new business wins in 2006 is continuing in 2007.

For the first half of 2007, we had approximately $450 million in new business wins.

Just over half of those wins were in climate, about a third were in electronics, with the balance coming in interiors.

By geography, more than half of the wins were in the Europe/South America region, about a quarter were in North America, with the balance in Asia.

In addition to the $450 million of new business wins, there are approximately $200 million of wins at our nonconsolidated operations.

I will now turn over the call to Bill Quigley.

Thanks, Don, and good morning, ladies and gentlemen.

Before I take you through our second quarter financial results, I want to point out that in light of the restructuring actions we completed during the first half of 2007, our consolidated financial statements now reflect the results of our suspension product line as discontinued operations.

This presentation is the as a result of Quarter 2 exit of brake manufacturing at our Swansea, U.K.

operation, and coupled with the sale of the three European facilities in the first quarter of this year, we have now completed the exit of this product line.

Accordingly, the financial results of this product line have been reclassified on the face of the statement of operations into a single line item entitled loss from discontinued operations net of tax for all periods, including previous 2006 financial results.

This financial statement presentation does not impact our net income nor EBITDAR.

The table at the bottom of this slide summarizes the impact of the reclassification of the 2006 financial results of this product line on certain key financial statement line item captions.

On a year-to-date basis, this product line generated sales of $94 million, all of Ford, with a gross margin loss of about $6 million and an operating loss of $7 million.

Note that there is no impact on our net results for 2006 from this presentation.

Now if you turn to slide 16, I'll take you through the financial results from the second quarter.

Product sales of $2.8 billion were essentially even from a year ago.

However, as we explained during our first quarter call, we continued to experience a significant shift in our customer and regional sales, which I'll discuss in more detail on the next several slides.

For the quarter we had a net loss of $67 million or $0.52 per share.

Included in this result or $13 million of non-cash asset impairments and can $12 million of accelerated depreciation expense as a result of our current year restructuring actions.

EBITDAR for the quarter was a positive $15 million as compared to a $119 million a year ago.

As we previously disclosed our 2006 EBITDAR results did benefit from certain items totaling about $71 million, principally the release of OPEB and pension liabilities of $49 million related to the transfer of the to ACH manufacturing facilities and the associated Visteon salary supporting these operations to Ford Motor Company, as well as favorable commercial settlements of $22 million.

Cash from operations was $146 million in the quarter, $38 million higher than a year ago.

Capital spending in the quarter was $80 million, $18 million lower than the prior year.

Free cash flow for the quarter was $66 million positive, which included a $24 million reduction in the level of receivables sold under our European securitization facility.

Total receivables sold under this facility were $92 million at the end of June, 2007, as compared to $116 million at the end of March 2007.

These financial results are in-line with our expectations and we are reaffirming our 2007 full-year outlook for EBITDAR and free cash flow.

This slide highlights our product sales for the second quarter of this year and last.

Total product sales in 2007 of $2.8 billion were $14 million higher than a year ago.

Sales to non-Ford customers of $1.7 billion increased $230 million or 15% compared to the prior year and represented 61% of total sales, increasing by 8 percentage points.

Ford sales of $1 billion for the quarter decreased $216 million and represented 39% of total sales.

On a regional basis, sales from our North American facilities were lower by $170 million, reflecting a decline in Ford vehicle production of 86,000 units and a decline in Nissan vehicle production of about 32,000 units.

The impact of past Ford sourcing actions also lowered sales on a year-over-year basis.

The decline in North American sales was offset by increased sales in both Europe and Asia, reflecting strong production levels and new business launches.

Europe and Asia sales also benefited from favorable currency of $111 million and an increase in directed source parts.

Finally, we did complete the divestiture of the three European chassis facilities on April 30 of this year.

This divestiture lowered second quarter 2007 sales by about $96 million.

The next slide further details the year-over-year change in our product sales.

The left box provides the year-over-year change in sales on a regional basis, the right box provides the same information for non-Ford sales.

As noted in my previous comments, the divestiture of the European chassis facilities reduced Ford sales by $67 million and non-Ford sales by $29 million.

Ford sales in North America were $275 million lower on a year-over-year basis, driven principally by lower vehicle production and past sourcing actions reducing our content per vehicle.

These reductions principally impacted our Chicago facility, which we did close in April of this year and certain of our electronics and climate facilities.

Ford Europe vehicle production was higher than a year ago, up 49,000 units, and favorable currency increased sales by $54 million.

On the non-Ford side North American sales were $62 million higher than a year ago, primarily reflecting the launch of new business partially offset by the impact of lower Nissan production volumes.

Europe non-Ford sales were up slightly while Asia non-Ford sales increased significantly, reflecting new business in growth and higher directed source parts of about $90 million.

Currency increased non-Ford sales by $57 million.

As we discussed earlier in the year, we did largely anticipate these changes in the composition of our customer and regional sales.

Turning to slide 19, this slide provides our product gross margin for the first two quarters of 2007 and for the second quarter of 2006.

On a sequential basis, gross margin improved by about 125 basis points in the second quarter of 2007 as compared to the first quarter.

Gross margin in each quarter was negatively impacted by items such as accelerated depreciation expense and benefit plan curtailments and settlements largely related to our restructuring actions.

The increase in our margin of about 125 basis points reflects the operating efficiencies and the benefit from slightly higher sales.

Much like the first quarter of this year, our second quarter 2007 gross margin decreased when compared to the same quarter a year ago.

The decline in gross margin year-over-year of $158 million represents about 560 basis points.

The bottom left side of this slide highlights items totaling $87 million or about 310 basis points that contributed to this decline.

In the second quarter of the 2006, gross margin was favorably impacted by OPEB and pension liability relief of $49 million, as I previously mentioned.

Gross margin in the second quarter of 2007 or costs related to our restructuring actions of $38 million, accelerated D&A of $12 million, and $26 million related to the chassis divestiture, of which $10 million qualified for reimbursement from the escrow account.

The remaining change in gross margin of $71 million or 250 basis points is highlighted in the lower right of this slide.

Volume and mix lowered gross margin by $85 million, principally reflecting lower volumes, previous sourcing actions and unfavorable product mix in our electronics and climate product groups principally in North America.

As we have addressed in our previous calls, we do expect the year-over-year margin impact in these businesses to moderate in the second half of the year.

Volume and mix was partially offset by a positive business equation, cost savings in excess of customer pricing on the margin line of $9 million, albeit negatively impacted by performance issues at certain operations that Don referenced in his comments, and $14 million of favorable currency benefited our margin.

The remaining $9 million reduction in gross margin principally reflects the net impact of customer commercial settlement settlements on a year-over-year basis.

SG&A expenses for the second quarter totaled $145 million or 5.1% of total product sales.

Second quarter expense is$49 million than last year and $24 million lower than the first quarter of this year.

The bottom of this slide highlights the key drivers of the year-over-year improvement in SG&A.

On a year-over-year basis, net cost efficiencies, including the impact of the salaried reduction program totalled about $22 million, and accounted for nearly half the improvement.

Stock-based compensation expense was significantly lower in the quarter, driven by a decline in our stock price in the second quarter of this year as compared to our increasing stock price in the quarter a year ago.

We also benefited from lower accounts receivable reserves compared to a year ago, reflecting improved performance in our working capital management.

This performance is also reflected in our cash performance.

The European chassis divestiture did reduce SG&A by $3 million in the quarter.

For the remainder of 2007, we do expect our SG&A spending to be lower than a year ago, yet not at the same levels of the current quarter given the benefit realized for stock-based compensation and receivable reserves, which is not expected to recur.

Slide 21 summarizes our restructuring actions in the quarter as well as activity in the escrow account.

During the second quarter we had $53 million of restructuring charges, qualifying cost principally related to the right sizing or closure to a number of manufacturing operations, as well as further salary reduction actions.

This amount is fully reimbursable from the escrow account.

The bottom of this chart provides an update of where the escrow account stands as of the end of the second quarter.

The balance in the escrow account at the end of June was $219 million and we did have an outstanding receivable due from the escrow account of $42 million, which we expect to receive in the third quarter.

Under the terms of the agreement, the escrow account funds provide first hour coverage for the initial $250 million of costs incurred and we then share the costs evenly thereafter up to the original $400 million.

We are able to used interest used to date for the account before we cross the cautionary threshold.

We do expect to have a minimal amount of cost sharing in 2007 as we continue to progress our restructuring plan.

The next slide reconciles net income or loss to EBITDAR for the second quarter of 2007 and 2006, as well as provides the key drivers of the year-over-year change.

In the second quarter we did recognize total asset impairments of $13 million in connection with the completion of the divestiture of the European facilities and the closure of our Chesapeake Virginia facility.

EBITDAR was positive $15 million in the second quarter of 2007.

The key drivers of the $104 million change in EBITDAR from a year ago are summarized at the bottom of this slide and reflect the items I previously discussed.

Depreciation and amortization expense increased by $10 million, driven principally by accelerated D&A associated with our facility restructuring actions.

Slide 23 provides the same reconciliation for the first half of 2007 and 2006.

Although net income decreased by $273 million, EBITDAR was $222 million lower, as it excludes non-cash asset impairment as well as the extraordinary gain associated with the acquisition of a logging facility in Mexico a year ago.

The key drivers of the year-over-year performance are highlighted on this slide as well, summarizing the items discussed today and in our first quarter update.

Those drivers principally being nonrecurring OPEB and pension liability relief in 2006, the impact of divestiture and restructuring actions in 2007, volume and mix, and our business equation performance.

I should note all other of minus $26 million principally reflects the net impact of customer commercial settlements on a year-over-year basis.

While commercial settlements provide a benefit in both years, 2006 amounts were higher than those realized to date this year.

Turning to free cash flow, cash from operations of $146 million was higher than the second quarter a year ago, primarily driven by improved trade working capital.

We continue to focus on all components of working capital and it shows in our performance.

After $80 million of capital spending, free cash flow is positive $66 million in the quarter.

As Don spoke, while capital spending was lower year over year for the first half of 2007, we do expect full-year spending to be about $370 million, or about even with last year to support a number of significant customer launches in North America and Asia.

While our net debt is up only slightly year over year and from year end levels, we ended the quarter with almost $1.5 billion in cash, providing us with significant liquidity heading into the second half of 2007, which we will talk about on our next slide.

Our debt levels are higher due to the cumulative financings we completed on a seven-year secure term loan last year and April of this year of about $700 million in total.

Slide 25 provides our cash balances and global distribution of cash.

Cash balances as of June 30, 2007, are approximately $1.5 billion with over 75% in North America and Europe, reflecting the additional $500 million term loan closed in April of this year.

This additional term loan provides us with the liquidity required to not only execute our three-year improvement plan, but to provide a prudent level of insurance in a period of significant change for the auto sector.

At June 2007, our combined U.S.

ABL and European securitization facilities have available capacity of approximately 485 million, 252 million available in the U.S.

and 233 million in Europe.

While we're aware of our debt trading levels, our primary focus continues to be the maintenance of adequate liquidity to execute our plan.

We will, of course, continue to evaluate our liquidity in light of the performance and needs of the company as well as industry dynamics.

As I mentioned earlier, we are reaffirming our 2007 full-year outlook that we gave during our first quarter earnings call.

We do expect our product sales to be about $10.7 billion for the year.

Our EBITDAR is expected to be negative $35 to $135 million and free cash flow is expected to be a use of $180 million to $280 million.

Our improvement plan does remain on track.

We are addressing our noncore and nonperforming operations and remain focused on the efficient use of our cash resources.

With that we'll now be happy to take your questions.

Regina, if you could open up the line for questions and remind the listeners how they would get in the queue, please.

Thank you.

(OPERATOR INSTRUCTIONS) Our first question is from Chris Ceraso with Credit Suisse.

Thanks, good morning.

Hi, Chris.

Just a couple things.

Bill, thanks for all the detail on those walks.

That's good stuff.

Can you give us an update maybe on the status of the U.K.

operations, when will these be addressed, how many facilities there are you targeting?

I know there's some sensitivity on things that haven't been announced, but maybe to the best you can speak to the U.K., what's the status there now?

We've got five facilities in the U.K.

I think we've highlighted that as an area of concern in part of the restructuring plan.

Things continue to improve there.

As I mentioned, we did exit the brake business out of our Swansea operation.

It's one in many steps that have been taken.

We also moved some of our electronics production out of another one of our facilities there into lower-cost regions.

We continue to make headway, working with both the customers and labor in terms of addressing that situation.

Was that brake business unprofitable?

Yes, it was.

Then just one other question on the cash flow.

I don't think I saw it on the statement, but in the comments I thought you said that it did close in the second quarter.

Was the $90 million of proceeds from that asset sale in the cash flow for Q2?

Yeah, Chris, it's approximately about $84 million or so, but yes, it's in the cash flows.

Okay.

All right.

Thank you.

Our next question is from Ronald Tadross of Banc of America Securities.

Good morning, guys.

Could you just update us on to the extent you can or have how much you're losing in the plants you hope to either close or sale or address by the end of '09?

I don't think we've -- Ron, this is Don.

I don't think we've --

Commented on that.

-- discussed that number.

Right.

Okay.

Let me ask you something similar, then.

On slide 19, the 85 volume mix negative, does that include margin on new business?

Ron, that would include margin on new business, but obviously with the compression of the volumes really principally in North America, it's pretty much muted.

So it's going to have a mike change as we're replaced from a sourcing respective with lower priced parts, if you will, there's going to be a mix change.

A pretty big portion of that's going to be volume.

So when you say muted, does that mean -- assuming that most of your plants are not running at adequate utilization, does that mean you're not getting a 10 to 15% margin on the new business, at least until you get the utilization up?

I think on a year-over-year basis, which is what that slide addresses, is that we do have that mix change with respect to actions taken by the customer, obviously, really starting middle of last year.

So what's happening, basically, we are getting a negative margin mix on those products.

So we're having new business come in that's lower-priced than business that's exiting.

Okay.

I know this is hard to do, but if you were to isolate a production line where that has a bunch of new business on it, are you guys seeing the margins you would like to see on that business, or are other utilization issues either on that line or in those plants making it hard to see those margins?

On the new business, we're very satisfied at how that's operating and the margins that we're achieving there.

This really is a mix issue as we go from let's call it some of the older legacy product into the newer operations.

Okay.

Just finally, on that volume mix, the $85 million, when you talk about your $175 million or so in cost reductions, is that focused at least on part on addressing the negative volume mix?

Do you need that to address the negative volume mix?

As we progress the plan over time, Ron, we do, obviously, need the benefits of our restructuring actions to offset that type of a trend.

But again that trend we don't see continue for the next two years or so because we're basically going to get to a level now post the end of the second half where year over year we're not going to have this large of a variance.

Right, right.

Okay, good.

Thank you very much.

The other point on that, Ron, would be that many of those products that we're changing out are in those older plants that are targeted for restructuring.

Okay.

Thanks.

Our next question is from John Murphy of Merrill Lynch.

Good morning, guys.

Hi, John.

I was just wondering, and I know this isn't exactly a cash number, but you guys are about $175 million through your targeted $400 million in cost saves.

And if we juxtapose that with your negative cash assumption of $180 million to $280 million and I assume you get the remaining $225 million in this restructuring program, it gets you just to marginally cash flow break even or even continuing to burn cash.

Is that the correct way to think about that?

And is there a lot more restructuring to come after we get through this program?

I'll take that.

In terms of is there a lot more restructuring to come, no.

The plan addresses everything we think at this point in time needs to be addressed given what we know in terms of volumes and programs that have been awarded.

So we think that after we get through these 30 facilities, that we'll be well set.

As Mike showed you, about 50% of our revenues are going to be Asian-based, so we think we're going to be in a very, very cost competitive-type position.

So, no, there isn't any substantial restructuring left to do as we would look at things today.

I think the other point to make there as well, just tagging along with Don is that $175 million is basically a per annum run rate.

As Don mentioned in his opening comments, we've realized life to date since we launched our restructuring programs about $120 million in savings, cumulative.

There's still a piece, obviously, that $175 to be recognized here in the future as we move forward and those plans are finalized, executed, and we get the benefit from those.

That $175 million is in the context of the $400 million in annual savings that we still anticipate to receive as we execute our restructuring program.

Okay.

When we think of the company strategically as you step forward beyond this current restructuring program and think of the three segments, just wondering what you think the real big synergies of of having the three segments together and if you consider a divestiture and hunkering down on one of your core competencies like climate and electronics and be a consolidator there in that segment.

Is that something you guys have thought about as you get beyond this restructuring programs?

Yeah.

One of the things that we've really come to realize is that the synergies at the product level really aren't there between the three product groups.

They really are designed, engineered, purchased as unique products by the customers and they're seen that way in the market.

So what we've done and what Don's set up in his organization is really to establish those three products as very [atonamous], independent businesses.

I can tell you that our strategic planning around that is greatly refined, our assessment of the capital needs for each of those businesses is greatly refined.

We think that we're significantly creating value in aggregate by improving the value of each one of those businesses and we're very confident that we're doing that.

As you go forward with that scenario, then, you can imagine a lot of flexibility in the strategies that the company can pursue.

So while we're focused on the restructuring and achieve all the targets we set out there for ourselves, at the same time we're creating, we think, significant flexibility in the strategic direction of the corporation.

Thanks a lot, Mike.

Our next question is from Rob Lache of Deutsche Bank Securities.

Good morning.

Can you hear me?

Good morning.

Yes.

You lost me on this $120 million savings cumulative versus the $175.

I understand the $175 is annualized, but can you maybe just help out and just present the -- what is the annual savings -- what is the savings you achieved in 2006 versus '05 and what is the '07 versus '06, if you looked at it that way, just to bridge it?

Yeah Rod, if look at our savings in '06, I think we've actually talked about this in the past, our savings from actions taken were about $55 million in 2006.

So obviously life to date, we're looking at about $120 million.

So as we look at the savings from our restructuring programs, we've got obviously the difference sitting in 2007.

So you're going to get another $120 million or so incrementally in '07; is that right?

Yes.

And when you mention the business equation line in your walk, I presume that that's not just savings.

That includes pricings, raw materials --

Exactly.

That includes change in raw materials, economics from a manufacturing perspective, all of those elements as well as customer pricing.

That is a net number.

Okay.

And then how can we frame the savings from these two plants to be addressed in the Connersville.

I know the Connersville loss a lot of revenue but still has something like 900 people, right?

Yeah.

Those numbers haven't been talked about, so we won't comment on that.

Okay.

Have you given a trajectory or some target for 2007 ramping up to that $400 million in total.

Is it another $100 million?

This is Derek.

In the January presentation, we laid out what the cumulative savings were expected to be over the life of the next three years and you can see that it goes up again in 2008.

Remember, at Connersville, we do have a lot of cost there associated with closing of the facility, accelerated D&A, plus it's not a profitable plant for us so we would expect there being a benefit associated with that plant going away when we get into '08.

Okay.

Lastly, can you review what some of the key covenants are on this term loan and the ABL and securitization facility?

Sure, Rod.

If you look at that, that's obviously all posted as public information.

But as Mike indicated, it does not contain much in the way of financial covenants.

From that perspective, that's good given the current markets.

So that's on the $1.5 billion term loan.

And obviously from the U.S.

ABL as well as Europe securitization levels, their what I'd call a normal course covenants, but no real financial covenants from a cash flow maintenance or a leverage maintenance.

So we're pretty pleased with the action that we took in April given the current circumstances.

Okay.

Thank you.

Our next question is from Brett Hoselton of KeyBanc Capital Markets.

Good morning, gentleman.

Good morning, Brett.

Two questions here.

First of all, as far as the restructuring actions, it sounds like you feel you're pretty much on track.

My question is, as you look forward to 2007, 2008, is there an opportunity to accelerate the restructuring actions and is that potentially an opportunity to accelerate some of the restructuring savings?

We're working as hard as we can to pull every '08 activity into '07 and get these things done as quickly as we can.

Is there an opportunity, sure, we're working it hard.

We'll have to wait and see if we'll get them done.

And then on the business win side.

My question is, are there any material surprises as you look at your business wins over the first half of this year?

In other words, either in terms of the amount of business win or maybe the geographic or product mix of the business wins?

I don't think we've been surprised by any of it.

We had a great year last year, this year was pretty strong.

I'd say that we have introduced some driver awareness product that quite frankly has been very, very well received in the marketplace, so is that a surprise?

No, we kind of expected it, but something a little bit deferent in terms of the product portfolio.

But I would say that we're right on track to where we thought we would be at this point in time.

Then to a previous question.

I think it might have been Ron's question, can you just run through again -- on one end, you're happy with your new business margins, on the other end your new business margins are lower.

I think you're referring to maybe some of the legacy businesses and some of the new businesses coming on line, and those--- I was a little confused.

I was hoping you could explain that again.

Sure.

In terms of the business that we've had over many years, the margin on that business is better than some of the margins that business that is coming on stream is replacing, that legacy business.

I don't think it's anything strange in terms of the way that works.

Again, very competitive pricing on the new programs.

Those primarily are in low cost facilities and the older business, the older legacy business primarily in higher cost businesses.

So as that transition occurs in terms of winding down the legacy business, you're starting to feel lower capitalizaton in those plants.

Again, those are mainly the facilities that have been targeted for the restructuring activities and so we're just kind of going through that time lag in terms of fully ramped up in the new lower cost plants and having shuttered the older legacy plants.

Okay.

Thank you very much.

Our next question is from Eric Selle of JPMorgan.

Good morning, guys.

Looking at Connersville, backing in the numbers, it seems like there's about 700 manufacturing employees; is that correct?

That's about right.

Okay.

Are the employee savings, is that comprised of most of the savings you expect from there, or is there other stuff?

Is that pretty much most of the EBITDA loss there?

That's a part of it.

A significant majority.

As well as, obviously, it's a cost structure that as we move that business to a lower cost facility, which we've talked about, which is in Mexico, we're going to obviously get some more leverage on that current cost structure.

So it's carrying both.

Obviously, a higher labor force as well, it's just a fixed cost structure in light of the volumes that it has currently.

Then looking at 2008, I know a lot of the focus is in the U.K., but what are the big plants we should focus on that are big milestones for you guys in '08?

We have not publicly disclosed the plants in the restructuring and we will not do so.

Okay.

Finally, you guys are flush with liquidity.

If you could prioritize amongst the following list of where would you place your number one use of that liquidity, being an OPEB buyout, debt reduction, or just cash for operations, could you prioritize that use of your cash?

I think, Eric, we kind of try to highlight it in our comments on slide 25 from a cash balance perspective.

We took action in the first quarter in April, obviously, given what we expected to be kind of a dynamic industry.

And we bolstered, if you will, our liquidity by adding on $500 million to our term loan.

Obviously, that was in light of upcoming events, most notably being UAW union negotiations.

So it's hard for us to currently hypothesize on what we would do with respect to available liquidity, post a favorable and uneventful agreement.

So what we're focused on right now is operating the plan, executing our plan, we've got that liquidity in the event there is a disruption and in the event there is not, we'll use those funds from an alternative perspective on where we see best fit to return to the company.

Right now, we've got the flexibility that we sought when we executed that additional liquidity in April.

Okay.

Thanks a lot, guys.

Our next question is from Douglas Carson of Banc of America.

Great.

Thanks, guys.

Just a quick question on cash.

Previously, I think you said 15% of the cash was in the U.S., now 75%'s in North America.

Can you break down U.S.

versus Europe or North America versus Europe?

Yeah.

If you take a look on slide 25, at June 30 we had cash balances in the U.S.

of about $700 million.

So that includes the new loan, okay.

All right.

Separately, on SG&A, certainly that number has gotten better.

What's the right kind of level for that going forward?

That's been moving around quite a bit.

I think, citing slide 20, as we look at our performance in the second quarter as well as year-to-date, we did get some benefit, if you will, in the second quarter related to the stock-based compensation as well as the ability to lower outstanding reserves for trade receivables given our collection performance and our focus on past dues.

That's not -- those aren't events that recur.

So we would look at it that we're not going to be at $145 million spend for the next two quarters, but probably rather adjusting for those two items of about $20 million or so, I would feel comfortable that we would spend for the second half per quarter.

All right, great, guys.

Thanks.

Your next call comes from Robert Barry, of Goldman Sachs.

Hi, guys.

Good morning.

Hi, Rob.

A couple things.

One, just a clarify, Bedford, you had defined that as closing in first quarter; is that right?

?

I don't think we -- I'm looking at Derek, I don't think we said when in '08 that would close.

We said early.

Earlier.

Okay.

Could you give us a little color on what's been happening with the level of pass-through revenue this quarter versus year ago.

And as we go forward, is there any headwind or tailwind from evolving mix of pass-through revenue in the backlog?

As we commented in our financial results today, we are actually seeing an increase in directed source parts, or as you refer to them pass-through as we continue to penetrate certain regions, most notably in Asia in the first quarter of about $90 million.

So that's really that profile of our interior's business as well.

That kind of sale volume does not hold the same type of manufacturing margin.

We get more of an assembly or coordination logistics margin on that.

From that perspective, we've disclosed what we're seeing year over year, increases in there, which is positive because we are penetrating customers with that business.

And as we look through to '08, is that a headwind or a tailwind?

I don't think there'll be a substantial increase in the amount of pass-through as we go into '08 and '09.

Okay.

Then finally, I wanted to follow-up on a comment you made before in response to an earlier question about the three businesses being [siloed] and not really seeing material synergies between them.

Could you just elaborate on that?

Were you meaning to imply that there could be some strategic logic to separating the businesses, or not necessarily having them remain together?

We indicated that there's some strategic logic to having them operate as independent businesses.

What we said on the synergy, just to be clear on this, there's a lot of synergy across any three businesses, but where there isn't synergy is in the product.

So that was our conclusion.

From an engineering standpoint, there is no engineering design that wraps all three of those products together to give you an advantage.

So that's where we came to the conclusion that running them as independent businesses made the most sense.

Where we can leverage synergy, whether it's on the commercialization side or maybe commodity purchasing side or areas like that, logistics, obviously, we take advantage of that synergy.

But on the product design side of it, specifically, we did not see synergy between those three product groups.

So was that kind of an academic review or is there potential to actually take some steps to act on that conclusion?

We expect to act on that conclusion.

We just think there's tremendous flexibility in running those as independent stand-alone businesses and we'll look at where's the best place for the overhead structure for each of those businesses and is there opportunity for a leaner approach?

We think there is and we'll take advantage of that.

But for now you continue to see from an overhead perspective them still remaining under a Visteon umbrella, just to be clear?

To add on to Mike's point is, what, 18 months ago or so we moved into the global product groups to that structure and has been running the businesses that way.

We are folding more and more of the administration of those -- of the administrative costs into those product groups.

Essentially, we were -- let's take purchasing, probably, as one example where we were a centralized purchasing environment and now about 80% of that is separate into the -- pushed into the product group and we're running it that way.

So do we continue to see building up the product groups and letting them generate some of the SG&A savings for the organization and moving from a -- let's call it a centralized model to a more decentralized model and where the product groups are able to control their costs, yes, we're moving towards that model.

Okay.

I appreciate the clarification.

Thanks.

Thanks.

Our next question is from [Chester Luey with Lockley Capital].

Good morning, everyone.

Just a few questions here.

Can you talk a little bit about the big drivers for working capital being a source of cash in the quarter.

It looks like change in accounts payable was a big positive swing here.

Also, how should we think of working capital changes for the year?

You're right.

From a trade working capital perspective, we're very pleased with the performance in the quarter.

As I commented in the first quarter, at some point in time it's going to get a diminishing return on the trade working capital and what you can wean out from a cash flow perspective.

We're continuing to work all elements of trade working capital.

Obviously, working with suppliers, following up on customers with respect to collection and continuing to improve our operations from an inventory turns perspective.

But at some point in time it does diminish.

We do get some favorable returns from Ford, Ford North America, but as that regional shift changes from a sales perspective, we're not going to get as much benefit as we move forward.

I think we're working real hard on trade working capital, the business is focussed on it but at some point in time we're going to get some diminishing return as it hits a level, I would call a perfect environment.

We did get some pickup on suppliers.

Our purchasing group working through the business groups and the product groups, they continue to work that side of it.

I think our liquidity, our cash balances are providing some cover if you will to assist the suppliers in those negotiations.

If you step back and look at our cash flow for the quarter, you'll note there's a line item, other changes.

It's positive for '07 $98 million versus '06 of $37 million.

The benefits we received from the OPEB and pension liability relief a year ago were non-cash.

Is from that perspective, they're basically a big subtraction from our net results from a year ago.

So our cash profile of our results in 2007 versus 2006 is what I'll say of much higher quality with respect to the actual cash portion or the cash contribution of those results, albeit we are year over year having a greater loss.

Right.

In terms of the yearly working capital source or use, where would you guide that to?

Are we talking more like neutral working capital source use of cash this year or modest positive?

Chet, this is Derek.

Based on what we'vedisclosed for EBITDAR and CapEx and where the D&A is tracking, I think you'll get that there will be a source of working capital for the year.

Okay.

As you look at your debt maturities and prices on your securities, the 8.25 have come down quite considerably given the high-yield market correction.

Would you look to buy this, particularly after the big three UAW negotiations are over?

I think that from my other comments, looks to, those aren't completed and we continue to keep an eye on our trade level or our trade debt, provided our flexibility, and that's what we're at right now.

So I would rather not comment, post an event that hasn't occurred yet.

Thanks.

Ladies and gentlemen, we have time for one last question.

Our last question is from Adam Plissner with Credit Suisse.

Thanks.

Just starting out, you had mentioned some lag delays between legacy business rolling off and new business coming on.

Is there any particular scenario we should be aware of where there are significant runoff events from past sourcing actions, even if they relate to the facility closures that you have scheduled where the past sourcing action occurs, the business rolls off, but because of constraints and the timing of the facility closures we have some sort of material falloff of earnings or cash flow before it can be addressed?

I think that's all captured in the guidance for the year and in the backlog guidance that we've given as well.

So that's all captured in what we've said publicly.

Okay.

Maybe on slide 13, if you could help me, remind me, on the key platform slide by customer, is there any way you could rattle off maybe the top three platforms by customer?

And then in particular, you had mentioned the second half you expected things to be a bit more favorable on the North American side?

What particular platforms you're referring to?

Well, in terms of Ford North America, I think if you remember the back half of last year Ford volumes in North America went down fairly dramatically.

So what we're looking at is a more stable year-over-year environment, and that's across almost every platform.

In terms of Nissan,volumes have been lower, but that too started in the back half of last year.

So we're looking for a more stable environment in terms of year-over-year performance there.

Last year as well in the back half we had a fairly significant strike at Hyundai.

We're not projecting that at this time.

We think that will go more smoothly.

So that too will provide us with, let's say, a more stable production environment year over year.

Okay.

Derek, is that something you've provided in the past where you have maybe top three platforms by customer that we could use as a tracking mechanism?

I think people are pretty well aware what we have on Nissan.

It's mainly on the truck side here in North America, we're pretty balanced across Ford.

We have talked to different things at different times of presentations and I'd be happy to help you with that after the call.

Great.

Last question.

On commercial settlements, I know it's an issue that came up last year and this year.

Is that something that you actually forecast in your earnings and you forecast in your free cash flow estimate?

Is there something unusual you're expecting in the back half of the year?

How do you go about planning for that?

No.

We absolutely do forecast just like our productivity deals, it's part of the negotiation process and we forecast it and track it.

All right.

Thanks, gentleman.

Well, that concludes our call.

I'll be around all day to answer your questions.

Have a good day.

Thanks.

Thanks.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may disconnect at this time.

Good day.