Visteon Corp (VC) 2011 Q2 法說會逐字稿

Good morning and welcome to the Visteon second quarter 2011 earnings call. All lines have been placed on listen-only mode to prevent background noise. As a reminder this conference call is being reported.

Before we begin this morning's conference call, I would like to remind you that this 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 forward-looking statements. Please refer to the slide entitled Forward-looking Information for further information.

Presentation materials for today's call were posted on the Company's website this morning. Please visit www.Visteon.com/Earnings to download the material if you have not done so already. I would now like to introduce your host for today's conference call, Mr. Michael Lewis, Vice President, Treasurer and Director of Investor Relations for Visteon Corporation. Mr. Lewis, you may begin.

Thank you Alison. Good morning and thank you all for joining us for the Visteon second quarter 2011 earnings call. As Alison has stated, our review materials for today's discussion were filed this morning with the Securities and Exchange Commission, and posted on website Visteon.com through the Investor Relations link. Today's presenters are Don Stebbins, Chairman and CEO, and Bill Quigley, Executive Vice President and Chief Financial Officer. Following the formal presentation taking we will be happy to take your questions.

Now please turn to slide one and with that I will hand it over to Don.

Thank you Michael, and good morning. During today's presentation I will review Visteon's 2011 second quarter, and then I will turn the call over to Bill Quigley for the financial review.

In the second quarter, consolidated revenues totaled almost $2.2 billion, an increase of 15%, which outpaced the growth in global vehicle production. Net income was $26 million, or $0.50 per share, which included refinancing and restructuring charges of $43 million. Adjusted EBITDA was $201 million, up 21% from a year ago. We ended the quarter with strong liquidity,$861 million in cash and debt of $596 million, translating into a net cash position of $265 million. Our $220 million asset backed revolving credit facility also remains undrawn.

During the quarter we were awarded over $250 million in incremental new business across all of our product lines, and in all regions of the world. This continues our steady track record of new business success. For the full year 2011 we are increasing our product sales guidance, and moving our adjusted EBITDA guidance to the high end of our prior year range.

Slide 3 presents our consolidated product sales by product line, region and customer. At the bottom right of the slide is our market penetration by customer, which includes both consolidated and non consolidated revenues. In the second quarter, Visteon's consolidated product sales totaled $2.2 billion, adding in our second quarter unconsolidated joint venture sales of over $900 million, our market penetration increased to $3.1 billion for the quarter. Climate, our largest product line generated 48% of our total consolidated sales in the quarter, with interiors, electronics and lighting accounting for 30%, 16%, and 6% representatively. On a market penetration business, interiors was our largest product line accounting for 43% of our sales, largely due to YanFeng,our non consolidated JV in Asia. Climate represented 36% of market penetration, followed by Electronics at 16%, and Lighting at 5%. On a regional basis, Asia accounted for 41% of total consolidated product sales, up from 39% a year ago, while Europe represented 37%, North America 15%, and South America 7%. Including our non consolidated affiliates, Asia increases to 57%, while Europe, North America and South America represented 27%, 11%, and 5% respectively.

Hyundai/Kia and Ford accounted for about 32% and 28% of our second quarter sales respectively, with both Renault/Nissan and PSA generating 7%. As highlighted on the bottom right of the slide, on a market penetration basis, Ford and Hyundai/Kia each contributed 22% of our sales, followed by VW at 11%, and GM and Renault/Nissan, which each accounted for 7% of our revenues. Slide four provides our sales distribution on a year-to-date basis. Year-to-date Visteon's consolidated product sales totaled about $4.2 billion. Adding in our unconsolidated joint venture sales of over $1.8 billion, market penetration for the first half of the year increased to about $6 billion.

Slide five highlights Visteon sales growth in the second quarter. The left side of the slide shows both our sales on a consolidated basis and on a market penetration basis. Visteon's consolidated sales increased by 15% year-over-year, while our market penetration grew by 19%. Our second quarter sales outpaced industry vehicle production volumes, which declined 1% over the same period as highlighted on the right side of the slide. It should be noted the overall market decrease is explained by lower Japanese production, which was down 36% versus the second quarter of 2010. If Japan production is excluded from the total, the overall market increased by 4% year-over-year. After five consecutive quarters of increasing new business wins, when the second quarter of this year fell about $50 million short of another increased quarter.

Our new business wins for the quarter of $259 million gave us a six-month total of $563 million, only $43 million less than the full year of 2010. Clearly our emergence from Chapter 11, our strong balance sheet, our technology and our global footprint are proving to be valuable in the competition to win new business. In late June we announced that we had taken the difficult discussion to close our electronics facility in Cadiz, Spain. While this plant had been an important facility for Visteon, the absence of new business programs to replace the current order book, require this extremely difficult and unfortunate decision. We are working diligently with the local unions and government authorities regarding specific closure arrangements, and are targeting resolution during the fourth quarter of this year. In the second quarter, we recorded a $21 million charge based upon the statutory minimum amount of severance and termination benefits. Ultimately this amount will be determined by the final closure agreements reached with the various constituencies.

I would now like to turn the call over to Bill.

Thanks, Don. Good morning ladies and gentlemen. Slide eight provides a summary of our 2011 second quarter financial results, and a comparison to the second quarter of 2010. Year-to-date results are included in the column to the right as well. During the course of my presentation I will refer in detail to a number of these items, I would like to take the time to highlight a few items on this summary now. Second quarter 2011 product sales of $2.18 billion, $289 million, or 15% higher in the second quarter a year ago. Sales were higher across all products and regions with our Climate business enjoying the largest increase, and on a regional basis, Asia Pacific providing the largest contribution.

On product gross margin and SG&A we have highlighted several items that impact our reported results. First was the impact on gross margin from the termination of OPEB plans in 2010, the second item is reorganization and other related employee costs, which impacted gross margin in 2010, and then SG&A in 2011. The product gross margin was $197 million for the quarter, $93 million higher than last year. In 2010 our reported results included a net charge of $72 million associated with OPEB and other items. Taking into account these items, 2011 gross margin in the quarter was higher by about $21 million. SG&A expenses in 2011 totalled $111 million, compared to $88 million in 2010, an increase of $23 million. And expenses related to our reorganization and employee severance costs in 2011 totaled $5 million.

Much of the remaining change is attributed to currency, amortization of intangibles, and increased non cash compensation expense. Second quarter 2011 net income was $26 million, including $43 million in charges for refinancing and net restructuring actions. In 2010 our financial results included a number of charges, $75 million for OPEB, $122 million related to post-petition interest expense, and reorganization costs of $39 million. Adjusted EBITDA which excludes the impact of OPEB, reorg, and other costs was $201 million for the quarter, $35 million higher than a year ago. Lastly free cash flow was a slight use in the current quarter as capital expenditures, working capital changes, and restructuring Chapter 11 related payments offset earnings performance.

Slide nine provides comparisons of our product sales for the second quarter year-to-date, as well as the distribution of sales by region. 2011 second quarter sales totaled $2.178 billion, an increase of $289 million over 2010, and on a year-to-date basis sales totalled $4.151 billion,a year-over-year increase of about $416 million. The bottom of the slide highlights the key drivers of the year-over-year changes in sales. As noted, volume and mix increased sales by $192 million in the second quarter, and $431million year-to-date, reflecting an improved OEM production environment, as well as strong position for the Ford and Hyundai/Kia.

Divestitures and closures lowered sales by $37 million in the second quarter, and on a year-to-date $125 million. 70% of the year-to-date increase impacted North America, as we completed the exit of a number of interiors and electronics facilities in the first and second quarter of 2010. The balance related to the December 2010 divestiture of a European interiors facility. Currency favorably impacted sales by $155 million in the second quarter, $173 million year-to-date. Principally reflecting the weakening dollar versus most major currencies, including the Euro and Korean Won. Finally to the right of this slide, we have highlighted the year-over-year sales increases by product lines, with all product lines experiencing increases, Climate provided the largest contribution both in the quarter and year-to-date.

Slide ten highlights our product gross margin performance. Second quarter 2011 product gross margin was $197 million, $93 million higher than last year, as previously noted, 2010 gross margin includes $75 million in net charges associated with the termination of OPEB plans, partially offset by $3 million of customer restructuring reimbursements, adjusting for these items product gross margin improved by $21 million. On a year-to-date basis, product gross margin was $346 million, $175 million lower than a year ago, adjusting for the impact of OPEB terminations, and reorganization and other costs, product gross margin improved by $1 million.

The bottom half of this slide outlines the key drivers of the second quarter year-over-year change in product gross margins excluding the impact of OPEB and reorganization, and other costs which are excluded from adjusted EBITDA. The drivers of the $21 million improvement are highlighted on the graph at the bottom of this slide. At the very bottom of this slide, the year-to-date impacts are provided as well.

As we did during our first quarter earnings call, we highlighted the impact of customer commercial agreements and the impact of higher depreciation and amortization related to fresh start accounting at the left-hand side of the waterfall chart. If you recall in the first quarter commercial agreements had a negative year-over-year impact of $15 million, in the second quarter commercial agreements provided a $6 million year-over-year year improvement, partially offsetting the higher impact of D&A. On a combined basis, these two factors lowered margin by $16 million in the second quarter and $40 million year-to-date. The right half of the waterfall details changes in gross margin, in total excluding the impact of increased D&A and customer agreements. The second quarter gross margin improved by $37 million year-over-year, volume and currency were both favorable impacts, increasing margin by $40 million and $18 million respectively.

Net cost performance lowered growth margin by $21 million in a quarter. Customer pricing and commodity inflation net of recoveries more than offset the impact of material cost efficiencies achieved in the quarter. On a sequential basis, operating efficiencies and cost recovery actions provided more of an offset to pricing and commodities impacts, and we are expecting efficiencies to continue to increase in the second half of the year. In this quarter, we have completed a transition of our segment reporting to a product line basis for financial reporting purposes.

Slide 11 is meant to illustrate the changes in this reporting structure. As shown in the left-hand side of the slide, under the previous product group structure, we reported financial results for three segments, Climate, Electronics and Interiors, and while most of the Company's facilities exclusively manufacture a single product line, we have a number of larger facilities that manufacture multiple products. Under the product group structure, these facilities were previously assigned to a single segment based on the predominant product manufactured. The financial results from multiple product line facilities that were previously assigned exclusively to either the Climate or Electronics product group, will now be separated and reported on a product line basis, and we report financial results for four segments, Climate, Electronics, Interiors, and Lighting. We have included an Appendix to this presentation that recaps historical sales and gross margin from product group to product line for your convenience.

On the next several slides we will briefly summarize the financial result for each of our product lines. Slide 12 provides a financial summary for Climate. The selected financial metrics are provided on the top left of the slide. Sales distributions by region and customer are outlined at the bottom left, and sales and gross margin comparisons are highlighted on the right of the slide. Sales in the second quarter were $1.058 billion, and gross margin was $94 million, or 8.9% of sales. Both sales and margin improved versus first quarter results. Over half of Climate sales are in Asia Pacific and Hyundai/Kia and Ford were the largest customers, representing 46% and 26% respectively of total second quarter sales.

As noted to the right on a year-over-year basis, sales increased by $125 million in the second quarter and $240 million year-to-date. Both volume and currency were favorable factors. Gross margin excluding the impact of OPEB terminations and reorganization items decreased by $20 million in the second quarter, and $34 million year-to-date when compared to last year. The key drivers of the change are all under the bottom right of the slide. The entire decrease can be explained by the first two drivers, the impact of the non-recurrence of benefits associated with 2010 customer agreements, and increased D&A resulting from the adoption of fresh start accounting. The other key performance drivers were volume and mix, currency, and net cost performance on a combined basis were slightly positive for both the quarter and year-to-date. Slide 13 summarizing the financial performance of electrics.

Slide 13 summarizes the financial performance of Electronics, sales in the second quarter totaled $351 million and gross margin was $38 million, or about 10.8% of sales, basically in line with first quarter results. Almost half of Electronic sales were in Europe, and almost half of its sales are Ford related. On a year-over-year basis, sales increased by $41 million in the second quarter, and $72 million year-to-date. Favorable volume and currency were partially offset by the impact of the closure of a US manufacturing facility in the first quarter of 2010. Gross margin, excluding the impact of OPEB terminations and reorganization costs increased year-over-year by $11 million in the second quarter and $16 million year-to-date. The non-recurrence of benefits associated with 2010 customer agreements, and increased D&A negatively impacted margin. The other key performance drivers were volume and mix, net of divestitures and closures, currency and net cost performance improved gross margin by $16 million in the second quarter, and by $23 million year-to-date.

Slide 14 summarizes the financial performance for Interiors. Sales in the second quarter were $677 million, and gross margin was $63 million, or 9.3% of sales. Second quarter sales and margins did benefit from customer agreements which were minimal in the first quarter of this year. On a regional basis, interior sales are fairly balanced between Europe and Asia Pacific, and the four largest customers are Hyundai/Kia, Renault/Nissan, PSA, and Ford. On a year-over-year basis sales increased by $96 million in the second quarter, $98 million year-to-date. Volume and currency were both favorable factors. Divestitures and closures were partially offset reflecting the impact of the divestitures in North America in the first half of 2010, and the divestiture of a European plant at the end of 2010. Gross margin excluding the impact of OPEB and reorg costs increased year-over-year by $28 million in the second quarter, and $20 million year-to-date. In the second quarter benefits from commercial agreements with customers totalled $24 million, $9 million higher than the same period in 2010. Other key performance drivers, volume and mix, currency, and net cost performance were also positive in the second quarter.

Slide 15 provides a summary of Lighting financial performance, sales in the second quarter were $136 million, gross margin was $2 million. Nearly two-thirds of lighting sales were in Europe, with the remainder largely in North America. The largest customer was Ford, then General Motors, PSA, and Volkswagen all accounting for at least 10% of total sales. Sales increased year-over-year by $22 million in the second quarter, and on a year-to-date basis $18 million. Gross margin excluding the impact of OPEB and reorg costs increased year-over-year by $2 million in the second quarter, and were slightly lower on a year-to-date basis. Favorable factors include a lower D&A and higher volume, yet were offset by cost performance in both the first and second quarters of this year, reflecting manufacturing inefficiencies, launch costs, and net commodity impacts.

Slide 15 provides a summary of SG&A expense for the second quarter and first half of 2011 and 2010. SG&A expense totaled $111 million in the second quarter of 2011, $23 million higher than the second quarter of 2010. Year-to-date SG&A was $213 million, $12 million higher than the first half of 2010. Like gross margin, SG&A was impacted by the termination of OPEB, reorg and other employee costs, and as highlighted here the impact of these items increased second quarter 2011 SG&A by about $5 million. First half 2011 costs increase by about $11 million, compared with $14 million of expense in the first half of 2010. Excluding these items, SG&A increased year-over-year by about $18 million in the second quarter, and $15 million for the first half of the year. The drivers of the change in SG&A are outlined at the bottom left of the slide, and the increase in largely explained by currency, intangibles and amortization related to fresh start accounting, an increase in expense related to employee equity awards. As a percent of sales, including OPEB and reorg costs, SG&A improved from 5% in 2010 to 4.9% in 2011.

In the second quarter of 2011, net income of Visteon's non-consolidated affiliates totalled $43 million, an increase of $8 million, or about 23% higher than a year ago. Higher production volumes and favorable customer positions with SAIC, SVW and SVM drove significant growth in YanFeng Visteon and its affiliates. Year-over-year while the China market grew by 7% in the second quarter of 2011. YanFeng Visteon sales grew on a US GAAP basis by about 24%. The bottom right-hand side of the slide we provide a summary of YFV's financial results are on a US GAAP basis, and on a US GAAP basis YFV's net sales rose $739 million in the second quarter of 2011, representing a $144 million compared to a year earlier. Net income of $63 million in the current quarter, increased 29% compared to 2010. As noted at the bottom of the slide and in previous discussions, Visteon derives equity income from two sources of YFV's operations, the first being a 50% share interest at the parent level of YFV, and the second from direct share ownership in certain Electronics and Interiors subsidiaries that underlie YFV. Of the $40 million in total equity income from YFV in the current quarter, $31 million was derived from Visteon's 50% ownership share at the parent level of YFV, and an additional $9 million was derived from Visteon's direct ownership share and certain YFV affiliates.

Slide 18 provides adjusted EBITDA comparisons for the second quarter. As noted in my previous comments adjusted EBITDA excludes the impact of OPEB, restructuring and reorganization related item. Adjusted EBITDA in the second quarter of 2011 was $201 million, compared to $166 million in the second quarter a year ago. The key year-over-year drivers of the change in adjusted EBITDA for the quarter are summarized in the top right of the slide, and reflect the comments I made earlier in the presentation. Adjusted EBITDA as a percent of product sales was 9.2%, 40 basis points higher than a year ago, and on a sequential basis, adjusted EBITDA as a percent of product sales improved from 7.3% in the fourth quarter of 2010, to 8.1% in the first quarter of 2011, and now to 9.2% in the latest quarter. The second quarter adjusted EBITDA did benefit from customer commercial agreements, which totaled about $24 million for the quarter, largely in our Interiors business. We do expect the impact of these commercial agreements will be reduced in the second half of 2011.

Cash and debt metrics are highlighted on slide 19. Free cash flow in the second quarter of 2011 was a use of $1 million. Year-to-date cash flow was a use of $106 million. Cash from operating activities in the second quarter was $70 million. Adjusted EBITDA was partially offset by seasonal trade working capital outflows, cash taxes, and payment of Chapter 11 related items. Year-to-date cash from operating activities was $20 million, reflecting adjusted EBITDA performance, trade work from capital use and cash taxes, and Chapter 11 payments, as well as employee performance incentives payments, which were made in the first quarter as highlighted in our first quarter call. Capital expenditures were $71 million in the second quarter of 2011, and of this amount $50 million was in Climate, mostly driven by Asia, and primarily in support of future customer program launches and capacity expansion. Year-to-date capital expenditures totaled about $126 million, about 65% of this was in Climate, and about half of it in the Asia Pacific region.

Cash balances including restricted cash at June 30 were $861 million, down $40 million from March 31. Primarily due to the settlement of reorganization related professional fees previously escrowed, and included in restrictive cash balances. As Don stated, we are increasing our full year product sales guidance and our full year adjusted EBITDA guidance to the high end of our prior range, which is highlighted on slide 20. We are reaffirming all other guidance items we have provided during the first quarter earnings call. We are currently projecting full year product sales in the range of $8 billion to $8.2 billion. Full year adjusted EBITDA is project at $660 million to $680 million, and full year free cash flow is a projected use of $175 million.

On the next slide we provide a walk from the product sales and adjusted EBITDA guidance we gave in the first quarter to our now current outlook. Slide 21 provides the key drivers of the change in Visteon's product sales and adjusted EBITDA guidance. The top half of the slide details the drivers of the $300 million increase in product sales guidance, the $7.8 billion to the midpoint of $8.1 billion. Bottom half of the slide details key changes impacting the midpoint of our adjusted EBITDA guidance of $670 million. Product sales and adjusted EBITDA are benefiting from favorable currency versus our prior expectations, most notably a strengthening Korean Won and Euro. As we have noted in the past, the strengthening of the Korean Won increases our sales, yet has a negative impact on Visteon's overall profitability. In addition we are forecasting increased pass through content sales, primarily Interiors, for the rest of the year, which we expect will have a nominal impact on adjusted EBITDA.

Next we have updated our guidance for the full year impact we expected from Japan. During our first quarter earnings call we estimated that the natural disaster in Japan would negatively impact our sales and adjusted EBITDA by about $70 million and $15 million respectively, now through the second quarter we expect the full year impact to be largely minimal. Lastly we expect margins will be impacted further by commodity cost increases, net of our recovery actions. We are working diligently to minimize this impact with both our suppliers, as well as our customers.

This concludes my presentation, and Don and I are happy to take any questions you may have.

(Operator Instructions). We will pause for a moment to compile the Q&A roster. Your first question comes from the line of Himanshu Patel, JPMorgan.

Hi. Good morning, guys.

Good morning.

A couple of questions, it looks like at the operating profit level, just excluding the restructuring charges, your incrementals sequentially from first to the second quarter they were about $0.16 on the dollar. Can you just help us think about that in the third quarter sequentially, given all of the seasonality on production particularly with Europe going down?

This is Bill. As we look through the first half versus second half and in my comment as well on guidance, sequentially we would look obviously from the net cost performance perspective to be slightly breakeven, if not positive in the second half. To your point, the third quarter always is a wild card with respect to production, vacation schedules, if you will, in Europe, so we would expect that while it will be diminished, if you will, our performance to date in the third quarter, there will be an uptick in the fourth quarter. So we do not expect to be net breakeven in the third quarter.

I am sorry. What do you mean exactly by net breakeven, at what level?

If you look at the level of our current production with respect to what we are expecting for the third quarter, the first half to the second half on our net cost performance line to the second half, we would expect to see an improvement there. In the third quarter, it is going to be diminished by lower volumes.

I understand. Okay. Thank You. Can you just so we can get all of the puts and takes on the walk correctly, were there any major commercial agreement pluses or minuses in the year ago quarters for Q3 and Q4?

In Q3 and Q4, as we move forward, and there will be agreements, impacts if you will in 2011. For the rest of the year we expect in the current year to have about $15 million. In the third and fourth quarter in total. So for the second half, a year ago, there was a benefit of about $12 million in the third quarter.

So net up $3 million, favorable?

Up $3 million, correct.

Okay. And then on YFV, you have got this at least on a US GAAP basis, 25% revenue growth, which is I guess you mentioned China market grew 7%. I am curious as you look at the backlog in that business, is that outperformance relative to the market by a factor of 3 or 4. Does that continue for the foreseeable future, or are we in an extraordinarily strong growth curve that starts moderating and moves more in tandem with the industry next year?

I have to go forward with respect to looking at 2012, with respect to YFV obviously being a subsidiary of a public company. I do believe that there has been extraordinary growth in YFV over the last several years, not only for the vehicles but also expansion of the business with the automotive build. I think it will ultimately even out. I think what you are seeing in the recent performance is some additional cockpit assembly revenue coming into the Interiors line, but I think overall you will see that start to temper down in the out years.

And then I guess lastly, a question for Bill or Don, there has been you guys have indicated a lot of comments at your Analysts Day, about cash use and why you may not want to buy the Halla stake immediately. I think you have alluded to acquisitions as a part of that. First of all, how active are those potential opportunities on the acquisition front, and number two, could any of these be big, or all of these sort of bolt-on niche acquisitions?

It is Don. What we have stated is that we thought there would be activity in the M&A environment over the next 2 to 3 years, and that we wanted to be in a position that we would take advantage of that, and that we would participate in that in a thoughtful and disciplined way. So from that perspective, I think we are adhering to that discipline, and as we look at opportunities to both acquire as well as divest.

Basically nothing M&A, but just you want to have the flexibility?

It is important to us to maintain the flexibility that we have.

I'm sorry, just one more, if I can sneak in housekeeping on slide 13 in the Electronics segment, I noticed, Bill, there was a $10 million currency benefit at the gross margin line on a $26 million currency related revenue uptick. That is quite a large drop through for what I thought of as FX translations. So were there some hedges games or something weird going on there?

There are some hedging gains in there, but it is fairly diminished, obviously given its exposure to Europe, you do get a pretty good flow-through with respect to currency impacts.

Great, thank you.

Your next question from the line of Kirk Ludtke with CRT Capital.

Good morning, everyone.

Good morning, Kirk.

I guess following up on the contribution margin theme. Given that so much of this is in Asia, should we apply an above average contribution margin to the backlog?

Kirk, this is Bill, I am sorry. Are you asking with respect to the new business wins?

Yes.

From a new business win perspective?

Yes.

I think the financial performance of the backlog will be stronger than the current programs as they come on. However, as we outlined in the Investor Day by product line, the capacity utilization in Asia is at a higher level than in other spots in the world. So there is going to be additional investment there to launch a lot of that programming.

Okay. With respect to the Spanish facility, are those products going to be transferred to other Visteon locations? Or do you exit those products all together, so that whatever it is, $150 million to $200 million of revenue, does that go away and over what period of time, and could you give us a sense of what the margins are?

I won't give you a sense of what the March begins are, but it is essentially both. A number of those programs have been transferred to other Visteon locations, where they will run out there. And then some have, are already running out as we speak, as we venture the summer period here, as you know, a number of the programs and OE programs transfer over at this time of the year. So that is really the impetus for the closure of the facility, is the significant loss of programs in this time period right now.

Okay. I will maybe asking in a different way. Is this a fall that is losing money such that it is an addition by subtraction type of thing?

No. The history of this facility is that it has not ban money loser. It used to, in the older days, had product in it that was very profitable for the Company. This is clearly just a situation where we do not have product to put in, as these programs wind themselves down.

Yes, this is Bill. I am not sure what are you looking at is a large facility. Obviously about 400 employees, and a product line that we are obviously not necessarily high positioned in. So what is occurring here is that order book has been going down over time. There is not follow on business to go into that facility and given the size and magnitude of that business or that facility, any business that by have is much better suited for smaller facilities, and we look to run out the business over time.

Okay. Great. Thank you. I just had a follow-up too. The earlier Himanshu's question about the commercial agreements, was the idea there ha the second half bridge you will have a drag from commercial agreements of $12 million?

If you look at first to second, there will be a drag sequentially.

Doing the sequential bridge, and how about the year-over-year bridge?

Year-over-year will still be a drag. So from a year ago we had about $45 million or $46 million in commercial benefits, largely around what I call accommodation agreements, pursuant to the bankruptcy, and then a full year here looking at about $40 million, $39 million to $40 million.

For the full year?

For the full year.

And had you about $9 million in the first half?

In our first half results we had about $25 million.

Okay. I will have to revisit that. Great. Thank you.

Your next question from the line of Jason Alper with BTIG.

Good afternoon. Congratulations on a great quarter.

Thank you, Jason.

A question regarding your guidance. It looks like you revised your revenue guidance up for the year by about $300 million, but your EBITDA guidance is only up by $10 million. Is there anything we should read into that? Obviously that is a lot lower that the prevailing margins for the rest of your business?

If I may, this is Bill. I think if you take a look at our first half performance it is around $40 million, round numbers, first half performance with respect to, probably had about 8 points. If we look for our seasonality, our first to second halves, first half has always been a stronger half for us, second half somewhat diminished, and I think if you take a look at that, $4.2 billion and assume our midpoint at $8.1 billion, we are looking at about a $300 million reduction sequentially, first half to second half. There is going to be a contribution margin impact on that. I think also as you look to Kirk's question on commercial agreements, first half to second half there is a net drag. So first half we had about $25 million in commercial agreements and second half about $15 million, or $14 million is expected, so that will drive about 30 bips or 40 bips on first half to second half. And the other piece, is as we look to our SG&A and R&D functions in capabilities, we are looking at a fairly stable environment first to second half, so as we see obviously a drop down on sales versus second half, there will be somewhat of a margin from an adjusted EBITDA percentage, somewhat of a squeeze there as well.

Okay. Some of the revenue bump you saw this quarter was $250 million of incremental new business, is that right?

Yes, that is new business wins in the quarter.

Is that $250 million, is that a net number or a gross number?

It is a new business win. It is gross basis. It would not include any business losses.

Okay. Is there a net number that you can provide, and also if you can comment on whether that level of wins is transferable in the quarters ahead, or is it a one quarter type of event?

Well, in terms of the new business wins, we had a little over $300 million in the first quarter. So this is a little bit shy of that. I will say that as I mentioned in my comments, the fact that we have emerged, that we have got a strong balance sheet, we have a technology portfolio that fits where the customer is going as well, and then we also have our global footprint. The amount of quotes that we are seeing and participating in is much, much higher than it has been in the past few years. So I would expect that we continue to win new business in this level. Now, again, certainly, I caveat all of that with the awards come when the awards come. We don't control that. Its a sourcing decision by the OEs, and I don't know exactly how those fall in terms of per quarter as we look out. But we are very, very pleased with how we have done this quarter.

Okay. And the new business wins, how does that compare when you look out with regards to business that might be rolling off? How does that match up?

This is Bill. If you look at our revenue stream, if you think about contracts in general, about 5 years you have got to be replacing, it would be a rewin, if you will. If there are replacement programs, let's say about $1 billion or so, as you move forward. So from that perspective, that is kind of that rewin, because you have got programs that roll off. So from a rewin perspective, that is kind of the bogey you have got out there. Jason?These are new business wins. So this is business that we currently do not have in the portfolio. The portfolio is currently a program that we don't have, or we are not an incumbent on.

So these are not rewins, these are new business, right. What I was trying to get at, is are there any significant losses that you can anticipate coming forward that you can disclose or talk about?

Not that we have today. So I guess where are you driving to is you are trying to drive toward the backlog which we have always stated we do once a year, and so we will stick to that statement.

Fair enough. Thank you very much.

(Operator Instructions). Your next question is from the line of Colin Langan with UBS.

Good morning.

Hey, Colin.

I have a question, you were talking the commercial agreements, how long do these payments to wind down business continue? I actually thought they ended last year.

Two sources. You have got two sources of these. A year ago obviously being in Chapter 11, and in particular in North America, we were exiting a number of businesses and plants, so on and forth. We had accommodation agreements, so those agreements were obviously with customers for which we were largely exiting a number of plants in North America. That was under the Chapter 11 process. Concurrently, we are always going to have some commercial agreement settlements with customers, so a portion of that this year is that. But the other piece is that, Colin, and we have talked a bit about this, is that in Europe, not under a US debtor umbrella, if you will, there have been some fairly significant restructuring of the business relationship within our Interiors product group, and that business relationship with the customers they serve. So there has been some ongoing business arrangements that are benefiting 2011. There was some benefit actually in 2010, and probably will continue to benefit in 2012 moving forward.

When you mean restructuring the relationships, does that you mean you change the pricing terms of the contract? Are these permanent or one-time type payments?

No, these are more, they are chunky in terms of quarters, but they are going to be from our perspective certainly ongoing in terms of that product. And represent reimbursement of expenses as well as pricing, et cetera. It runs the gamut of the commercial relationship.

Okay. I haven't had time to go through the changes but which segments actually have, what has been with the new product lineup, which have gotten bigger and which have gotten smaller from the recent alignment? Obviously Electronics, Lighting obviously carving out shrinks that, but--?

Right. Colin, it is Bill again. We have provided a lot of information with this transition but we think it is a very important transition, not only for the Company but for the market with respect to our positions in various product lines. Lighting was carved out of Electronics, right, so by that point that would diminish the Electronics business, concurrently there are also carve outsout of the Electronics business that went to Climate. So Climate got larger. Lighting came out. Electronics got smaller, and Interiors is largely the same. You can see that in the Appendix once you have the opportunity to do that. We bridged the product group to product line for you.

Okay. So with that carve out, Halla is now a smaller percent of your Climate revenue, because there is now more consolidated or non-Halla in that division?

Correct.

I am not sure if I missed this, but the large swing in Interiors, the 9.3% gross margin. Obviously it looks like the commercial agreement helped, but that is well above your 2014 margin guidance for that segment, so how should we think of Interiors going forward? Is this 9% or 8% or 9% sustainable in the near term?

I think if you take a look, to your point, $677 million in sales, $63 million in gross margin drives a 9.3% gross margin performance in the quarter, in my comments and in this discussion, there was a benefit of about $25 million in the quarter on that $24 million. So even if you exclude that on a year-to-date basis, it is running higher at about 5% or so, of gross margin from where it has been. Again this is a business we have continued to spend a lot of time and effort on with respect to it's run right. and to Don's comment, with respect to moving forward. It is going to get choppy, it is going to be chunk, because we are in a process with the customers over time to better improve that business.

The $24 million on slide 14 shows commercial agreements with $9 million. The $24 million is a different number?

$24 million is the absolute. The $9 million is a variance to the prior year.

Okay. Last thing, looking at your EBITDA guidance, the first half, it looks like it is up around $30 million or $35 million year-over-year. Your guidance would imply its up only $20 million in the second half. What are the major items that would slow the rate of improvement into the second half?

I think I tried to highlight some of that with respect to first to second with respect to the top line. Obviously the benefits of commercial agreements will be at a headwind, if you will first to second. Still overall positive, and I think the third thing, with respect to lower sales volumes, we look to see probably a stable environment from an engineering perspective as well as SG&A first to second, which is obviously going to be a pressure on margin percentages and absolutes in the second half.

And commodities, is there any change?

You see we have provided an update with respect to, from a prior outlook. That's right. We have got the net $10 million. If you think about it, it is kind of a gross $40 million of which we are expecting customer recoveries of about $30 million, so we are expecting a minus $10 million.

Year-to-date how much has commodities been a head wind?

Commodities a headwind of about $15 million year-to-date.

Fine. Thanks for taking my questions.

Thanks.

There are no further questions at this time. Mr. Lewis, you may proceed with any further comment or closing remarks.

We would like to thank everybody for joining us in today's call, and Alice we can go ahead and close the line down now. Thank you.

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