Visteon Corp (VC) 2008 Q2 法說會逐字稿

Good morning, and welcome to the Visteon second quarter 2008 earnings conference calls. All lines have been placed on listen-only mode to prevent background noise. As a reminder, this conference call is being recorded. Before we begin this morning's conference call, I 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 statements" for further information. Presentation materials for today's call were posted to the Company's website this morning. Please visit www.visteon.com/earnings to download the material, if you have not already done so. After the speaker's remarks, 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. Derek Fiebig, you may begin.

Thanks, Regina, and good morning, everyone. On today's call Don Stebbins, our President and Chief Executive Officer will provide a business overview. Then our CFO Bill Quigley will review the financials. After that we will take your questions. Also joining us in the room today is our Chairman, Mike Johnston. With that, I will turn things over to Don.

Thanks, Derek, and good morning, everyone. During today's presentation, I will provide a brief look at the global market and an overview of our second quarter first half performance. As you'll see throughout today's presentation, our geographically diverse sales base, our restructuring activities and our focus on improving our cost structure are enabling us to show improvement in our financial results despite a very challenging market. Additionally, our recently completed debt transactions were excellently timed and now provide a debt structure with minimal maturities through June of 2013 and combined with our current cash balance of $1.5 billion provides us sufficient cash and liquidity to run our business and implement our plan. As we look at the remainder of 2008, there are significant challenges ahead. However, based upon our first half performance and our outlook for the next six months, we are maintaining our full year EBIT-R and free cash flow guidance. Turning to slide two, as you know, global production levels vary greatly on a regional basis. In North America, the market is going through a significant volume downturn as well as a significant shift in product mix. Europe remains fairly stable with pockets of weakness in some western European countries offset by growth in eastern Europe, while Asia continues to grow.

Commodity cost pressures are high and volatile and are not expected to abate in the near future. Our most significant exposures are in aluminum and resins. Aluminum market prices have been fairly stable this year, while resin costs have increased significantly and we continue to work with our customers and our suppliers to reduce the impact of these increases. Despite this difficult environment, our first half results significantly improved over last year. During the quarter we improved our margin substantially and, excluding one-time items, each of our product groups improved their performance. Our steady progress on our restructuring plan, our focus on reducing overhead costs and our drive to improve our operational efficiency are paying off. Additionally, as we will detail later our restructuring efforts are slightly ahead of plan and we have taken additional actions to offset some of the macro-economic issues.

Turning to our second quarter highlights on slide three. Product sales were down about $50 million to $2.8 billion as divestitures and North American production declines were offset by favorable currency and sales growth in Asia. Gross margin for the second quarter 2008 increased 49% from a year ago to $231 million, as we had solid performance in the quarter while our operating income increased nearly five-fold to $53 million. Despite higher restructuring costs and significantly higher book taxes, we narrowed our net loss by $25 million to $42 million. EBIT-R was $78 million for the quarter, an improvement of $63 million from second quarter 2007. And for the quarter we generated $53 million of free cash flow. As of the quarter end, we had $1.5 billion of cash as well as additional untapped liquidity under our existing facilities of approximately [$280] million. The second quarter was a quarter in which Visteon continued to show solid performance, and although the markets have become more difficult, we continue to progress our goal of becoming free cash flow positive and profitable.

Slide four presents our consolidated product sales by customer for the first half of 2007 and 2008. Overall sales were down about $70 million from last year despite a large decrease associated with divestitures and closures of facilities, which totaled $222 million. New business in Asia and favorable currency were offsets. And as has been our trend, we continue to have a fairly significant shift in the composition of our sales. Global sales to Ford declined by nearly $300 million and represented 34% of our total. Our sales to Ford North America declined 5 percentage points to 11% of total and we expect this to continue to decline in the second half of the year. Our Hyundai Kia related sales increased significantly, going from 19% of our total last year to 21% of our total this year. This increase was driven by higher production volumes in Korea as well as global expansion in China and Turkey.

Regionally, sales in Europe were up for the first half of the year as volume and currency more than offset the impact of divestitures. North America declined by 5 percentage point on lower Ford and Nissan volumes and North America now accounts for only 25% of the Company's total sales. Our Asian sales increased 6 percentage points and now represents 29% of total consolidated sales as they grew by $227 million to nearly $1.7 billion. On the bottom of this slide is the regional split of our nonconsolidated sales. Total joint venture sales were $970 million for the first half, up $776 million from a year ago. Our Asia joint ventures had significant growth, increasing 24% or nearly $200 million to more than $800 million for the first half and our joint ventures are profitable. Gross margin was $165 million for the first half and net income was $60 million, $30 million of which was our share. This represents a 30% increase over last year. As you can see, we are much more diversified and we expect to continue to capitalize on our strong position in Asia and to continue our growth of business in this region.

Slide six presents our product group sales on a consolidated and nonconsolidated basis. For our consolidated sales, the most significant year-over-year changes were the reduction in our non-core segment which declined from 17% of the total in 2007 to 7% of total so far this year. This decline reflects our divesture activities and will further decline in the second half due to the sale of Swansea. All of our core product groups have increased sales, year over year. Slide seven shows our new business so far this year. Wins for the first half of 2008 were $265 million. Climate made up 38% of the wins. Electronics were about one third of the total with the balance in interiors. From a geographic standpoint 40% of the wins were from Asia including $50 million of wins in India. Europe was 27%, South America was 9%, with the balance in North America. Total wins through the first half are slightly below last year and below our own expectations, as many of our customers are taking an additional look at their future product plans, which has shifted their decision making into the back half of this year. Despite this delay and the cancellation of some programs, we remain confident that we will achieve our internal incremental new and rewin targets.

Slide eight provides an update on our operations. For quality, we continue to improve as we lowered our year-to-date PPMs by 40% from full year 2007. For safety, we use lost time case rate as one of our performance metrics. For the full year 2007 our lost time case rate was 0.17 which was, if not best in class, certainly close. So far this year we are at 0.23 due to a number of slip and falls and we fully expect to be under 0.2 by year end. Premium costs are down significantly from what we experienced in 2007. For the first half premium costs were $10 million, down from about $29 million a year ago. Last year we had a number of labor, launch and supplier issues that contributed to higher premium costs and we are realizing the year-over-year improvements that I highlighted in January. Finally CapEx spending of $154 million was slightly higher than last year, largely reflecting spending on new business. However, we still expect full-year capital expenditures in 2008 to be about $310 million as compared to $376 million in 2007.

Slide nine provides an update on our overhead cost reduction initiative which we announced in January. Over the next three years, we expect this initiative to provide $215 million of gross cumulative savings as we further address our SG&A and engineering expenses. We expect about $80 million of net savings this year from this initiative. We have reduced our cost from the first half of 2007 levels by more than $55 million, which represents a 10% reduction despite currency translation challenges. The weaker U.S. dollar does make it more difficult. However, we are still on track to deliver these savings. This initiative is a significant priority for us and we will continue to take the actions required to make Visteon a leaner and more efficient supplier. On the restructuring front, we completed the closure of two fuel tank facilities in Germany and we ceased production at our Indiana facility in the second quarter. Our Missouri facility ceased production in July. Taking into account actions taken to address the U.K., we have completed 27 of the 30 restructuring actions we had originally identified and are already ahead of the 26 we had planned on completing by the end of 2008. By year end I expect to have 29 of the 30 facilities addressed. We are also taking actions in addition to the three-year plan, including the divesture of our North American after-market business and the announcement last month that we will be closing our Durant, Mississippi interiors facility and consolidating that work into other plants.

Turning to the sale of Swansea on slide 11. The sale to Linamar was completed on July 7th and represents a significant milestone in our restructuring of our U.K. business. In 2007 our Swansea plant had sales of about $80 million and negative gross margin of about $40 million. Our second quarter results reflect $32 million of losses related to this sale, with the remaining balance to be recognized in the third quarter. Additionally, customer agreements are now in place to mitigate the manufacturing losses at three of the remaining U.K. manufacturing facilities. Last fall we highlighted the significant losses in our U.K. operations and indicated it was our top priority to address these operations during 2008. With the sale of Swansea and the agreements with our customers, we are delivering on this commitment.

Slide 12 provides an overview of our sales by region, market trends, and what we expect for the second half of the year. We expect sales to be about $4.5 billion in the second half, which is $1 billion lower than the first half of the year and will result in full year sales of $100 million less than we had projected on our first quarter call. Europe is expected to make up 42% of second half revenues, as production in total is projected to be flat year-over-year, western Europe should be stable to slightly down with eastern Europe increasing. In Asia production is expected to continue to increase and the region should represent one third of our total sales in the second half. In North America, we anticipate additional declines in production with recovery not expected in the near term and sales are expected to be about one fifth of the total in the second half. Finally, for South America we expect stable production levels for the second half. So in summary, despite the substantial challenges in the North American market, the significant volatility to commodity prices and the stress that these facts have called in the tier 2 and tier 3 supply base, we have had substantial improvements in our financial results due to our geographically sales base, the success of our restructuring efforts, the cost and efficiency improvements in each of our product groups. The back half of the year will provide significant challenges, but by continuing to aggressively address our costs, engaging with our customers and our suppliers and progressing our restructuring planning, we are maintaining our full year EBIT-R and free cash flow guidance. I will now turn over the call to Bill.

Thanks, Don, and good morning, ladies and gentlemen. Slide 14 provides a summary of our second quarter financial results. Product sales of $2.78 billion were essentially even to the prior year, yet as Don just reviewed, we continued to experience a shift in the composition of our sales across customer, product group and region. Our product group gross margin for the quarter was $230 million compared to $154 million a year ago, a $76 million improvement. EBIT-R was positive $78 million per quarter as compared to $15 million a year ago, an improvement of $63 million. Cost improvements in our product groups, including restructuring savings as well as other actions we are taking to address our cost profile, drove much of the improvement in EBIT-R. The second quarter also reflects a curtailment gain from employee post-retirement benefits related to the closure of the Bedford facility, which we have discussed in the past. Our net loss for the quarter was $42 million and improved by $25 million compared to 2007 despite $18 million of net unreimbursed restructuring cost and an increase in income tax expense of$ 21 million. Free cash flow in the quarter was positive $53 million, compared with $66 million in the prior year.

Turning to first half 2008 financial results on the following slide. For the first half of 2008 our product sales of $5.52 billion were lower by $71 million from a year ago. However, on lower sales our product gross margin increased by $155 million to $424 million. And EBIT-R of $129 million compared to a loss of $31 million in 2007 represented an improvement of $160 million. Despite an increase in tax expense of $55 million and $41 million of restructuring expenses that were not funded by the escrow account, our net loss narrowed by $73 million to $147 million. Free cash flow was a use of $147 million for the first half compared with $129 million a year ago. Echoing Don's comments, our first half financial results reflect a solid improvement over the prior year and are indicative that our restructuring and cost reduction efforts are taking hold despite a weakening production environment in North America. I will address each of these items in further detail in the following slides.

Slide 16 outlines the production and volume performance of our key customers for the second quarter and first half as compared to the prior year. These production volumes reflect vehicle platforms for Visteon derives significant sales. Two customers, Ford of Europe and Hyundai Kia represented approximately 40% of Visteon sales in the first half of 2008 and both enjoyed increased production year-over-year. Ford Europe production volumes were up 11% for the first quarter and 7% for the first half. Kia production increased by 17% in the second quarter and 22% year to date. The remaining five customers experienced production declines for both the second quarter and year to date. In total, these customers accounted for about 25% of our sales. Ford America sales were $660 million and production was lower 15% in the second quarter and 11% in the first half. PSA was down 6% to date and Nissan truck production was lower by 21%, with each of these customers representing about $300 million of sales in the first half of the year. And finally, GM and Chrysler platforms for which we have content were lower by 6% and combine for about $175 million of sales.

Slide 17 looks at our product sales for the second quarter by region. Although sales were essentially flat, there was a significant shift between regions. Sales in Europe and Asia increased by 5 and 3 percentage points respectively, while sales in North America declined by about 7 percentage points. As you have become accustomed to, the bottom of the slide provides the drivers of the change in sales in a year-over-year basis. Currency and the impact of our restructuring activities significantly impacted sales. Favorable currency increased sales by $163 million, reflecting a weak U.S. dollar, while divestitures and plant closures decreased sales by $222 million. Divestitures include the sale of the European chassis business and the starters and alternators business in India, which we completed in 2007, as well as the North American after-market business which was completed in January of this year. These three divestitures account for about $125 million of the change. he remaining change relates to plant closures, including those completed such as Chicago, Chesapeake and Connersville, as well as plants expected to be addressed under our restructuring plan. Excluding currency divestitures and plant closures, sales in North America were lower than a year ago, principally reflecting lower Ford and Nissan North America production. Sales in Europe and South America were slightly ahead of last year and our Asia sales increased by $97 million.

As you can see, this slide further highlights the fact that the geographic distribution of our sales has been a mitigating factor against the mounting challenges of the North American market. Slide 18 provides gross margin comparisons for the second quarter. Product gross margin in the second quarter of $230 million was $76 million higher than a year ago an as a percent of sales increased 290 bases points from 5.4% a year ago to 8.3% this year. In the quarter, gross margin was impacted by a number of factors that were largely restructuring related. Divestitures and plant closures reduced margins by about $21 million, while restructuring related items increased margin in the quarter by $23 million. The most significant item included in this category in the current period is a curtailment gain related to the closure of our Bedford facility of about $25 million. As we have highlighted in previous updates, we also include in this category the impact of items such as accelerated depreciation expense, as well as asset dispositions. In total, volume and mix were slight positives as the performance in Europe and Asia helped to offset the sales decline in North America. Currency was favorable $43 million and net cost performance, which includes a benefit from restructuring actions was a solid $41 million for the quarter.

Slide 19 presents our product segment results for the second quarter of this year. Year-over-year gross margin improved in both absolute dollars and as a percent of sales for our climate electronics product groups. Margins in our interiors product group are slightly lower year-over-year, but did increase as compared to the first quarter of this year. Climate sales in the quarter were $879 million and gross margin was $78 million, about 8.9% of sales. Gross margin as a percent of sales increased 293 basis points when compared with a year ago. The change is largely due to volume, mix and currency. Favorable volume was driven primarily by Hyundai Kia sales. Special items, primarily lower accelerated depreciation related to Connersville also had a favorable impact. Our net cost performance also includes a restructuring savings related to the closure of our Connersville facility. Electronic sales in the quarter were just over $1 billion and gross margin $115 million or 11.5% of sales, an improvement of 418 basis points from the prior year. Special items primarily increased accelerated depreciation for certain North American production assets had a negative impact. Favorable volume and currency was driven predominantly from new lighting programs launched during last year and the impact of a stronger euro. Net cost performance improved gross margin by 340 basis points in the period.

Interior sales were $844 million for the second quarter and gross margin was $25 million or 3% of sales. Gross margin as a percent of sales increased from 1.7% of sales in the first quarter this year, but was below last year's second quarter by 67 basis points. Volume and mix was unfavorable in the quarter, primarily related to North American production declines. Special items also contributed to the decrease reflecting commercial settlements reached a year ago. Net cost performance was positive for the quarter despite costs related to two new facilities in North America for the launch of Chrysler business in the second half of this year. Slide 20 provides an overview of SG&A expenses for the second quarter as well as year to date. SG&A expenses for the second quarter totalled $156 million or 5.6% of sales. This is higher than the second quarter last year but in line with our first quarter results this year. SG&A expense for the first half of 2008 totalled $304 million or 5.5% of sales. There were a number of items that impacted SG&A spending that are highlighted on this slide. As discussed earlier this year we did expect nonrecurring implementation costs associated with our overhead cost reduction efforts. These costs were about $10 million in the quarter and $14 million year to date. And we do anticipate these costs to total approximately $30 million for the full year.

(Inaudible) increased SG&A by about $7 million in the quarter and $2 million year to date and currency was a $6 million drag for the quarter and $12 million for the first half. All others comprised primarily of the non-recurrence of lower accounts receivable reserves that provided a benefit last year. On a year to date basis, SG&A costs are lower than last year by $10 million as we continue to drive our costs efficiencies. Cost efficiencies totalled $19 million for the quarter and $36 million for the first half of the year. Moving to restructuring. Slide 21 provides an overview of the charges for the second quarter, as well as the net impact on cash flow of these actions for both the quarter and year to date. In the quarter we recognized $29 million of restructuring charges while $7 million of other qualifying costs which are included in cost of sales. Of the total $36 million, half is reimbursable from the escrow account. $25 million of charges and costs were the result of sale of our Swansea plant, as Don highlighted in his comments. At the end of the quarter we had $97 million remain in the escrow account and outstanding receivable due from the account of about $16 million. As we outlined again earlier this year timing of our restructuring actions do have a significant impact in our 2008 free cash flow and is detailed at the bottom of the slide.

The net impact of restructuring on our second quarter cash flow is an outflow of $2 million, representing cash payment of $28 million, partially offset by $26 million of cash received from the escrow account. Recall that in the first quarter, restructuring cash payments to complete actions taken were higher than receipts from the escrow account by about $28 million. So the net impact of cash flow to date was an outflow of $30 million. This compares to a cash inflow of approximately $65 million in the first half of 2007. Slide 22 provides our income tax provision and cash taxes. Income tax expense in the second quarter of 2008 of $49 million was $21 million than a year ago. In the quarter, both the mix and overall increase in profits in countries where we pay tax contributed to a $20 million increase in the provision compared to a year ago. However, we have made strides in addressing cash taxes paid in certain countries and for book purposes, we have established reserves for cash positions taken of about $10 million in the quarter. W continue to carry deferred tax valuation allowances in various countries, which does generally prevent us from tax benefiting losses and accordingly our effective tax rate will remain volatile for the foreseeable future. As we discussed in the past in certain situations, however, we can benefit these losses if there is adequate pretax income from other categories of earnings such as increases in our other comprehensive income account, those increases largely driven by currency translation and pension and OPEB remeasurements. Despite the volatility in our tax provision, we do continue to expect our cash taxes for 2008 to be about $100 million even as profits increase in taxable jurisdictions.

Slide 23 provides a reconciliation of net loss to EBIT-R for the second quarter of 2008 and 2007. EBIT-R was $78 million in the second quarter of 2008, $63 million higher than a year ago. The top of the slide provides a reconciliation from net loss to EBIT-R in the year-over-year drivers of the change are outlined at the bottom of the slide, which reflects a cumulative impact of all the items I previously discussed. Slide 24 provides the same net loss to EBIT-R reconciliation for the first half of 2008 and 2007. EBIT-R was positive $129 million this year compared with negative $31 million last year, an improvement of $160 million. The first half of 2008 benefited from strong cost performance, restructuring related items and currency. Excluding the impact of divestitures and plant closures, volume is also a slight positive in the first half of the year. I will provide some additional color on our expectations for second half of 2008 in a moment.

Slide 25 provides our free cash flow performance in the second quarter and year to date and as compared to a year ago. Free cash flow in the second quarter was positive $53 million, slightly lower than our performance last year. The year-over-year decrease in second quarter free cash flow was impacted by net restructuring cash outlays, lower dividends from certain affiliates and higher interest payments principally associated with the completion of the bond transactions in the quarter. These items were partially offset by the improvement in our net loss, improved trade working capital and a change in receivables sold in our Europe securitization facility. For the first half of 2008, free cash flow was a use of $147 million, slightly lower than last year by about $18 million. Factors impacting free cash flow year-over-year were net restructuring cash outflows, which included both higher cash payments restructuring and lower escrow receipts, lower dividends from nonconsolidated affiliates and the net impact of OPEB and pension expense which includes higher non-cash curtailment gains as compared to cash contributions. Favorable factors included a reduction in our net loss, again improved trade working capital and a non-recurrence of the 2007 reduction receivables sold under our Europe securitization facility.

As you know, on June 18th, we completed two bond transactions that both reduced and extended our 2010 notes. We used approximately $150 million of cash and issued 2,016 notes of $206 million at par to reduce the 2010 notes by $344 million. This transaction provides us the flexibility as the options we can use to address the remaining 2010 maturity. Slide 27 summarizes our cash balances at the end of the second quarter. Cash balances totaled $1.5 billion, a decrease of about $107 million from the first quarter. The change reflects positive free cash flow of $53 million in the quarter, offset by about $150 million used to reduce and extend the 2010 notes as just reviewed. We continue to exhibit strong liquidity in both cash as well as availability under our credit facilities.

Slide 28 provides a summary of our full-year outlook for 2008. We are adjusting our full-year outlook for product sales to be about $10 billion. This is $100 million lower than our last guidance, primarily reflecting our revised expectations for North America production. Despite the reduction in our full-year sales guidance, we are affirming our full-year EBIT-R and free cash flow guidance. We still expect full-year EBIT-R to improve year-over-year to break even with a range of plus or minus $25 million. We expect our performance in the first half of the year, continued restructuring savings in the second half of the year, and our customer and geographic distribution will help to offset lower volumes in North America. We also project our full-year cash flow at a use of $300 million plus or minus $50 million. We are very pleased with our positive free cash flow in the second quarter and our focus on continuing to drive operational and cash flow improvements through the rest of the year.

The next slide provides our production estimates for the second half of 2008 for our key customers. Our projections for Ford Europe and Ford North America production are in line with Ford's estimates outlined during its second quarter call last week. Ford Europe is expected to be down slightly year-over-year, while Ford North America is expected to decline about 26%. We do expect Hyundai Kia volumes to remain strong in the second half of the year, albeit not as strong as the first half. PSA, GM and Chrysler production for our key platforms are expected to increase, largely reflecting a launch of new business on select PSA vehicle lines and the Chrysler Dodge Ram. We project the most significant declines for Nissan North America truck production. First half Nissan truck production was down 21% and we are projecting a further decline in the second half of over 70%. We've already announced the closure and consolidation of our Durant, Mississippi in response to this expectation. In addition to production projections, the impact of our restructuring actions will further reduce our second half sales. And in total we project our second half sales to be about $650 million, lower than a year ago.

Slide 30 highlights the first and second half year-over-year changes in our product sales and the key drivers of these changes. The top of the slide highlights the change in sales for the first half of 2008 as compared to 2007. As we discussed, the impact of divestitures and plant closures were largely offset by favorable currency and regional performance. The bottom of the slide provides the same information for the second half of 2008. Second half sales are projected to be lower on a year-over-year basis by about $650 million. In the second half, currency will continue to be positive yet the impact will not be as significant as the impact of the weaker U.S. dollar diminished during the last half of 2007 in comparison to 2008 levels. Divestitures and plant closures which reduced sales by over $600 million in the first half of the year will reduce sales by another $400 million in the second half. Excluding currency divestitures and plant closures, we project sales in North America will be lower in the second half of the year, reflecting our estimate of production for our key customers as outlined earlier. Sales in Europe and South America will be down slightly year-over-year in the second half, while sales in Asia will be up slightly, although the growth will not be as much as experienced in the first half of 2008.

Slide 31 provides the same presentation for EBIT-R. Our full-year guidance for EBIT-R is break even plus or minus $25 million. And this represents an improvement over 2007 of approximately $50 million. EBIT-R in the first half of 2008 improved year-over-year by $160 million, yet we expect the second half to be lower in the prior year by $111 million. We expect our strong net cost performance in the first half of the year to continue through the second half of the year. The restructuring related savings and the overhead cost improvements are being actioned and will improve our year-over-year results. However, a number of restructuring related items improved our EBIT-R in the second half of last year, including a significant curtailment gain associated with Connersville of about $48 million. The non-recurrence of these items will result in a negative year-over-year comparison this year. In addition, volume and currency, which combined had a positive impact in the first half, will have a significant negative impact on the second half of the year driven largely by lower production volumes. As Don highlighted in his comments, the second half of 2008 will provide significant challenges, yet our first half performance was solid and provides us a foundation to deliver our second half and full-year commitments despite a much different environment than we expected at the start of this year. Thank you and now we will open the call for question. Derek?

Regina, if you could please remind the callers how to get in queue.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from Joe Amaturo of Buckingham Research.

Good morning, Joe.

Couple questions. You highlighted in the press release that you have at these three commercial agreements with now with the U.K. facilities. Could you given give us some color on that? Are they similar to the Swansea commercial agreement you had. And if you could, could you quantity the expected cost savings?

The agreements are very similar to the Swansea agreement which we discussed in the first quarter. You recall, in the first quarter you recall we said we received a $6 million benefit for Swansea specifically in the quarter. Now with the remaining commercial agreements in place, that benefit increased by about $25 million in the second quarter. So that was a catch-up obviously of first quarter results that was reflected in the second quarter.

So about $12 million a quarter going forward?

I think that -- if you think about Swansea, obviously with the disposition of Swansea, we won't have a reimbursement for that but going forward that would probably be about accurate.

Then given that the Dodge heavy duty is delayed and has all these start-up issues -- because of the volumes, obviously your capacity utilization for those facilities is probably lower than what you thought in January. How should we think about interior margins in the second half of the year? Should they get -- should they erode from where we saw them in the second quarter?

A couple things, Joe. One, I'm not sure the Ram has been delayed. I think it is a slightly slower ramp than probably we would have anticipated. So we will still be producing vehicles. In terms of the margin, that will have somewhat of a negative effect on the margin because of the capacity utilization. But again, like many programs we've had to deal with over time, we've got to find a way to deliver the profitability over time. But in the back half of this year it will impact us.

Okay. Then as it relates to Ford Europe production schedules, there is a modest decline expected. Are you seeing anything different there in the marketplace that would suggest that those production environments could actually be materially lower than what you're projecting currently, and what would be the risk to that forecast?

We have not seen anything that would indicate that there is a substantial decline coming. There are pockets in some of the western European countries, the U.K., Spain that are down on a sales basis but they are also -- that's more than offset, actually, by what we see in eastern Europe and Russia specifically and the vehicles that are being exported to those countries.

Then just a last question for Bill. The premium cost reduction, is that part of the $41 million year-over-year cost improvement?

Those types of cost improvements would be included in our net cost performance.

Okay. Thank you. Good quarter.

Thanks, Joe.

Thank you, Joe.

Your next question comes from Chris Ceraso of Credit Suisse.

Thanks. Good morning.

Good morning, Chris.

Hi, Chris.

A couple items here. I appreciate the year to-year profit walks. I find that really helpful. One thing that seems to be missing and maybe is buried in somewhere cost performance is any comment on materials. You mentioned it briefly in your remarks but can you give us a feel for what kind of impact, plus or minus, materials had in the first half, what you think it will be in the second half and then how we should think about it for'09?

Yes, Chris, this is Bill. You are correct. We include really all elements of our manufacturing costs as well as SG&A, for example, and EBIT-R in net cost performance. So that's going to include our assumptions and expectations for material costs. As Don indicated, our primary exposures are largely aluminum in the climate business and then resins in the interiors business. I think to date, we have been working well with the customers as well as the suppliers to kind of manage those costs, albeit resins have significantly increased. So, again, we include those types of costs in our net cost performance and we are going to continue to work with the customers as well as the suppliers for the remainder of the year. But obviously, we don't see in the near term at least resin prices significantly abating from current levels. So we are going to manage through it as we have been managing through it.

And you've got -- I'm looking at slide 31. You've got second half net cost performance about the same as what you did in the first half. Within that is there a worsening of the raw material situation or is it going to be about the same in the second half relative to the first half?

There is a slight worsening, Chris, reflected in that second half net cost performance.

Do you think it will be notably more difficult in 2009 because the timing of any contracts or anything like that?

No, we don't think so. In fact, some of the contracts that we've had on the aluminum front expired this year. And so we are feeling that change or that catch-up this year. Again, we have been able to offset a lot of that, as Bill mentioned, in the net cost performance line.

On slide 25, the cash flow reconciliation on the first half '08 versus first half of '07. Can you just tell us what's within that other changes bucket. I'm sorry if I missed that. It was $113 million negative in first half '08 but $55 million favorable in the first half of '07.

Chris, on the free cash flow slide, if you take a look. What we tried to do at the bottom is highlight at the bottom of the slide -- I didn't speak to it specifically -- but you'll note at the bottom, tried to highlight significant year-over-year free cash flow drivers, which are included in many of the line items at the above. So if you kind of think about it, as we talked about our net restructuring actions this year, we are on the 50/50% match under the escrow account, as well as the inflows and outflows of restructuring are not linked. I mean they are not always linked together with respect to the timing. So you note, in our free cash flow for the second quarter, we've got negatives of about $30 million related to net restructuring as a cash outflow. And then year-over-year for the first half, it's about a $95 million drag on free cash flow. So again, we have tried to highlight really the significant drivers that you probably try to model at the bottom of that slide on page 25. You also note from dividends, we talked about dividends at the fourth quarter of 2007, that we had some pull ahead in dividends into that quarter. So obviously dividends that we would have gotten in the second quarter of 2008 actually were experienced in the fourth quarter of '07. So, again, we are trying to highlight kind of the key drivers there.

That makes since. Last question, more of a curiosity. I noticed the -- clearly the performance in the interior business and your consolidated results is under a lot of pressure for materials. You're non-consolidated business consists of a lot of interior business. What's the profitability like in the non-consolidated interior business? Is it as bad as the consolidated stuff?

I think if you -- Chris, if you look and you will see in our 10-Qs we always publish -- one of the biggest contributors obviously from our equity income is our Yanfeng/Visteon joint venture. It does have a sizeable interiors position. And those margins and you can see the results in total in Yanfeng included in our 10-Qs, but as Don indicated, we continue to see an expansion with that joint venture in both its sales and its profitability. And if you think about it obviously that profitability would include a fairly significant composition of interiors business. It's a little different margin profile.

Your next question comes from John Murphy from Merrill Lynch.

Good morning. If you think about your guidance here and the fact that it's unchanged despite the fact that the macro environment is getting much tougher, I've got to assume that your restructuring efforts are bearing a lot more fruit, particularly in the second half than you were originally expecting. Is that a correct characterization? And secondly, do you believe that you can get a lot more than this $215 million in savings that you are targeting right now?

I think a couple points. One, certainly the restructuring activities are a little bit ahead of schedule and are providing benefit both in the first half and the second half. We continue -- the $420 million is the number that we use for the restructuring savings cumulative and so we expect to be beyond that number. What I'd also say is that there has been a significant improvement in the cost structure of the business in terms of SG&A as well as the efficiency of system of our operations. So it's not only the restructuring portion of the business, but also the improving the base operations that is contributing to our confidence in terms of holding guidance in a difficult situation here in North America.

Okay. Then when we think about capacity actions and changes that are going on not just at Detroit Three but some of your other customers, particularly Nissan, and the closure of Durant? What is your flexibility in the near term and how quickly can you respond to changes like that?

It depends really on what products that we are producing for whatever the OE and where the OE is and those types of things. Clearly you saw I think a fairly quick reaction with Durant in terms of consolidating that into other facilities. It will take about a year in terms of the transition, but we made the decision and are moving on that today. Mexico is a big part of our footprint going forward, so that will help us in terms of speed of any actions that need to be taken. And again, as you look around the world where our footprint is clearly in places like the U.S. and western Europe, that's a more timely effort, it takes more time than some of the other areas that we are located in.

Okay. Then lastly I wondered if you could give us an update on the aggregate backlog. You talked about $265 million in new wins in the first half. I was wondering if you could give us an update on the backlog in aggregate?

We have not updated the backlog. We do that once a year. Clearly there are a number of significant changes that are taking place both from a currency perspective as well as some of the new volume numbers that have come out. So that will come out later on in the year.

But the 265 we should assume is purely incremental?

265 is purely incremental, absolutely.

The next question comes from Patrick Archambault from Goldman Sachs.

Good morning. First just on the cash front, I don't know if you mentioned it, can you just give us the U.S. cash balance at the end of the quarter?

Cash in the U.S. was almost $1 billion.

Great. Also, if you have it handy, can you give us the amount of available liquidity on your credit facilities as well?

Patrick, the credit facilities that's between the USABL and the Europe securitization facilities, about $280 million as of the end of the quarter.

Both taken together in terms of available liquidity?

In total, correct. We also have unused lines across the globe with respect to some of our affiliates. But we're really focused on those two facilities and that's about $280 million.

Okay. And I guess in terms of -- wanted to just -- going back to your cash flow slide. I believe it was slide 25. I might have missed this, but did you give the amount of sold accounts receivable that was actually in the cash flow numbers this year versus same quarter last year?

If you take a look, if you look up, into the slide 25, you will see the change in receivables sold. So for example in the second quarter of '07, we actually brought the facility down by $24 million and then year-to-date we brought it down to $65 million. Current balance is about $98 million or so, $99 million.

Okay. Great. And on slide on the walk you present in slide 18, I had a question just on the currency impact on the gross margin. I mean, it looks like if I'm comparing this correctly, from a revenue point of view currency was $163 million favorable but $43 million favorable on a gross margin basis, which is probably like close to a 30% margin. Wanted to just -- was there any sort of unusual transactional related things that might have made that translation a lot higher than your standard operating margin?

Yes, I think Patrick that column, if you will, or that variance includes both translation and transactional exchange and a lot of that obviously is flowing through as we talked about our product segment results through our electronics group which has a very sizeable European platform. So quite frankly, we were picking up some fairly good mix there, if you will. There are currency pairings. Concurrently in the first half of the year we had not really -- kind of let the currency flowed a bit and we have now placed additional hedges to basically lock in that gain. So if you look at the second half, we are not going to get as much currency benefit on the margin line flowing through the bottom because we have effectively now locked that gain that we had life-to-date or year-to-date.

What kind of margin -- number one, is it possible to sort of strip out what might have been transactional and what might have been translation for that piece? And then secondly, what do you think we should model going forward just as a margin on FX on the back half.

I think on the back half we lay it out. On the EBIT-R walk for the second half. I would use that for your modeling purposes. And above that you'll see the currency impact on sales and then there is a currency impact on EBIT-R. I would use that for your modeling purposes. I don't have the split between transactional and translation with me. It's something we can follow up with you on.

I will follow up with Derek on that I guess. Lastly, just following up on some of the questions on raw materials. I know you haven't really broken it out specific headwinds for us. But I don't know, could you give us just a little more color on how you expect the cadence of those headwinds to roll out and maybe it might be helpful to break out resins from some of the ferrous and non-ferrous metal pressures that you also expect.

If you think about ferrous, we have very limited exposure to steel. And quite frankly that exposure largely was eliminated with the sale of Swansea. As we go forward I think again we include those type of pressures, if you will, or changes in commodities in our net cost performance. And again to date, we are not calling it out specifically, which I think would suggest to you that we continue to manage that. We haven't called it out for the second half. And again, I think Don's comments with respect to the work with the suppliers and the customers, today we don't see that as a significant headwind to us that we would call out separately. We include our net cost performance, but obviously commodity prices continue to change on a daily basis and we work very closely with the customers and the supply base to try to manage that.

I guess when you say you are able to manage it, would that be largely from customer recoveries meaning the net headwind at the end of the day tends to be very small or is it just that you're finding other ways in terms of ongoing restructuring to manage that down?

It is a combination of everything. It really does come through if you look at the interiors break-out in terms of their net cost performance in terms of being the smallest of the other product groups that clearly reflect some of the resin impact that we have. So managing it, again, as Bill mentioned, has to do with recoveries from the customer working with our suppliers, consolidation of trucking routes, whatever it might may be in terms of fuel costs or resin pricing. It is working through the chain. The way we look at it is it is part of doing business and we have got to offset it.

I guess it has been said by other suppliers that some of these customer talks are easier to have outside of North America. And clearly you have a lot of revenue outside of North America. Is that something you would tend to agree with that would be playing to the advantage of having a lower headwind, I guess?

I'd say it is very specific to customer/supplier relationships. I couldn't comment on how other suppliers have dealt with it or what they feel.

Okay. That's all I had. Thanks a lot. Congratulations on the quarter.

Thank you.

Thank you.

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

Good morning. Could you talk a little bit about the Nissan truck volumes, which you expect to be off dramatically. And then, the second half, I think Don you mentioned that you are taking out some capacity. I'm trying to figure out when have you a business that has operated at such low levels of profitability what kind of contribution margins are you looking at?

Sorry, Jeff. This is Bill. With respect to the contribution margins, obviously if you look at the interiors profile even with the comments Don just made pursuant to the last question, it has got a markedly different profile than for example climate. So again, that contribution margin is going to be lower. There is a significant piece that's material. So if you think about Nissan, we are a significant cockpit supplier, so a significant portion of that is going to be material which we can basically stop buying, obviously, given demand. So I would suggest probably a 15% type of variable, 15 to 20 -- probably 15% variable margin. And then obviously the actions that were taken like a Durant action and being able to flex the largely non-union workforce are other actions we are doing to mitigate that contribution mark.

Okay. As that platform merges with the Nissan truck down the line does that help that business or is that not a factor?

Sorry, I didn't understand the question.

Isn't the plan to merge the Ram with the Nissan?

Down in Mexico, that's right.

Does that result in incremental content for you at some point that would help profitability there?

Sourcing has not been determined yet. I mean, certainly we would see ourselves as being in the prime position to get that business. But the sourcing has not been determined yet.

Okay. And then you've got your business growing with Chrysler as you look at the pie chart migration. With some of the -- is that updated for all of the platform reductions? I guess they are taking out a number of vehicle models. Is that adjusted for -- adjusted for those actions?

Yes, it is, Jeff.

And last question and this is just kind of a housekeeping thing. On the dividend, I'm assuming it is for Yanfeng. But its' page 25 I'm referring to.

Right.

What's the dividend that's expected in the second half? Is there any sort of timing issues that you're anticipating?

We talked about the last quarter of 2007 that we did have a distribution, early distribution, if you will, for Yanfeng. To your point that dividend normally would have occurred in the second quarter. Obviously it didn't occur because we pulled it ahead to 2007 because of some tax efficiencies that made it sensible to do that. We will obviously continue to look with our partner at the investment required in Yanfeng. We don't really disclose when and/or if we would get a dividend and in what period. So again, that JV continues to grow. And it is always obviously looking at additional investment opportunities with respect to the cash and whether you make a dividend or not.

Over time what is the expected dividend payout ratio there?

Over time I think in past, it's been largely to distribute a fair majority of the earnings of the affiliate in the current year. So it is always kind of a second quarter lag from the year. I think with the growth of that joint venture and the growth that we expect in the near term, the next couple of years, that's not a policy that we are strictly going to adhere to with our partner. We continue to invest in the business and grow that business.

Thank you.

Your next question comes from Mark Warnsman of Calyon.

Good morning.

Hi, Mark.

There were a number of bankruptcies in the interior space in the first half. Plastech and Progressive up in Canada. I'm curious as to what you see as the end game for the interiors sector within the North American industry and your role within it?

Okay. I think we are a significant player in the interiors business. Not only in North America but globally. I think that our global scope -- I mean we talked a little bit about Yanfeng/Visteon already provides us an advantage as a number of these platforms are globally based or look to be globally based. In terms of the bankruptcies of some of the suppliers, that has impacted us. We do see a slightly greater tier 2, tier 3 distress factor. However, it hasn't significantly impacted us financially any more, but we do see that going on. And we are managing the business appropriately in both in terms of dealing with our supply base and we expect to be a player in the interiors market in North America as well as around the world.

To the extent that the increase in resin costs is contributing to distress in the sector, are you seeing OEMs react to that as a means to maintain the stability of their supply.

Again, I think that is an individual customer/supplier discussion and it really depends upon the relationship and what's going on with each OE and each supplier. We certainly have relationships that are very helpful in terms of that discussion and we also have relationships that aren't. So it really is independent discussions with each customer.

Thank you.

I think we have time for one more question if we could take the final question, please.

Your last question will be from Kirk Luedtke at CRE Capital.

Good morning, guys.

Good morning.

Follow-up on one of the earlier questions. Is it too early to be thinking about you picking up share from some of these failed interiors competitors? I think Plastech failed quite a while ago.

Never too early to think about new business.

But is it something that's being resourced or is it not -- is it too early to be actually seeing some awards?

In terms of the Plastech business, Johnson controls essentially acquired that business. So how they are managing it and what they will do with it really would be a question probably directed to them.

Okay. And then I guess maybe this is a little bit longer term as well, but with Ford's announcement they will be bringing a number of passenger car models in from Europe, is that -- just looking at those models, would you think that that's going to be a positive or a negative for your business.

I think it's a substantial positive. We have substantial content on programs such as the Fiesta, the Focus, the Transit. Again, across all product groups. So I think as those platforms migrate to North America, that is a positive for Visteon.

Do you think they will be imported or do you think they will actually be manufactured over here?

I think Ford is making substantial changes to try to manufacturer those here.

It would make sense they would stay with the suppliers that are making the components over there, right?

It certainly makes sense to me.

I hear you. Okay. So do you have a sense for when that might start impacting your new business wins?

I think if you look at the Ford announcement on what they were doing. I think, really, what their announcement has been around is the Focus and the Fiesta, the time frame is kind of late 2010, 2011.

To go into production or to ramp up?

Go into production.

So you might start seeing some awards here in the next few quarters, do you think, as they firm those plans up?

I would think early '09 is probably -- late '08, early '09 is the time to source that business, yes.

You generated over, what, 40% of your first half sales in Europe. Could you give us a -- and it seems like some parts of Europe are doing very well and others are not and I was curious if you could maybe force rank you're European exposure by country?

No, I could not actually. The situation, what you're asking, is the sales line in some of those countries are down, not necessarily the production. So you might take an example of our plants in Spain, although Spain vehicle sales may be down 10, 11%, our plants in Spain are running full out that are serving Ford for export into other vehicle assembly operations.

Okay. I thought it might be a tough question.

-- by country discussion.

Are you -- I might have missed it, but will are you still providing '09 guidance?

No, what the comment was that at this point our goal remains the same. Clearly there have been a number of macrochanges since we gave that guidance, some of which are certainly to our benefit and some of which aren't. Our performance is substantially ahead of where we thought it was going to be. So that needs to be taken into account. And so as we go through the planning process for the '09 season, we will address the '09 guidance.

Okay. Then last question. Have you disclosed how big your North American aftermarket business is?

We sold it.

It was sold at the kind of middle of the first quarter.

It was $133 million in sales a year ago.

Okay.

If you look back at the first quarter presentation there is a slide actually on it.

Okay. Sorry about that. Okay. Great. Great slides. Best in class.

Great. Thanks for joining us on the call. I will be around the rest of the day to answer your questions.

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