Visteon Corp (VC) 2012 Q2 法說會逐字稿

Good morning, and welcome to the Visteon second quarter 2012 earnings call.

All lines have been placed on a 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'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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

Please refer to the slide entitled Forward-Looking 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 already done so.

I would now like to introduce your host for today's conference call, Mr. Scott Deitz, representing investor relations for Visteon Corporation.

Thank you, Regina.

Good morning, everyone.

Thanks for joining us this morning.

We appreciate your time.

This morning, we'll take a look at Visteon's view of our second quarter performance, and we'll provide you with a recap of our results for the quarter in some detail.

We'll take a look at insights associated with our overall performance, and we'll provide some look ahead.

As Regina mentioned, the presentation deck associated with today's call is posted on the Visteon website within the IR section, and just a reminder that our website is www.visteon.com.

As you may know, our related 10-Q was also filed this morning.

We are joined as you'd expect by Don Stebbins, Chairman, CEO and President of Visteon, and Marty Welch, Executive VP and CFO.

Following Don and Marty's prepared remarks, we'll open the call to your questions.

Again, thank you for taking the time to join us, and with that, I'll turn it over to Don.

Thanks Scott, and thanks to everyone joining us this morning to review Visteon's second quarter 2012 results, which were in line with our expectations.

In the second quarter, our consolidated sales totaled $1.7 billion, and our adjusted EBITDA was $151 million, representing a margin of 8.9%.

Our work to reduce costs continued to be successful during the quarter, as SG&A came down 13%.

Our net income totaled $75 million for the quarter.

Included in our net income was $32 million of net good news related to a $63 million equity investment gain, partially offset by restructuring, asset impairments, and other non-recurring costs.

Adjusting for these items, our net income would have been $43 million, or $0.80 per share on a diluted basis.

We finished the quarter with $702 million in cash and $597 million of debt, translating into a net cash position of $105 million.

Our $175 million asset backed revolving credit facility remains undrawn.

We continue to focus on the profitable and efficient use of our assets.

We completed the sale of our headquarters campus in April, and since the close of the quarter, we have further streamlined our business portfolio with the completion of the sale of the lighting product group and the announced sale of our stake in R-TEK, a UK-based interiors joint venture.

Furthermore, consistent with our approach to maximize the near and long term interest of our shareholders, the Visteon board of directors authorized a $100 million share repurchase program that we are announcing today.

Creating value for our customers and our shareholders will continue to be a top priority as we further optimize our portfolio of products and as we target investments to fuel Visteon growth and achieve a full and fair stock market valuation.

Slide 3 provides a summary of automotive production volumes by region for the quarter compared with last year.

Global production volumes were up 11% compared with the second quarter of 2011 driven by a recovery in Honda and Toyota from the lows reached last year because of the Japanese tsunami.

However, Europe continues to be negatively impacted by debt concerns, macro-economic weakness and weak consumer confidence.

Visteon's key European customers Ford, PSA and Renault Nissan were down 15%, 26%, and 9% respectively compared with the second quarter of last year.

South America volumes decreased 9% largely due to a 31% decrease in Ford production.

Ford volumes were negatively impacted by the timing of some significant launches planned for the second half of 2012.

North American volumes grew 27%.

Ford volumes increased about 4%, while recovering Honda and Toyota volumes fueled most of the growth in this region.

Asia volumes grew 18%, again lifted by the recovering Honda and Toyota volumes.

Visteon's largest customer, Hyundai Kia, experienced flat volumes year over year.

At the bottom of the slide are the average exchange rates for the second quarter for the euro and the Korean won.

Currency negatively impacted our results in the quarter as the Euro and other major currencies continued to weaken against the US dollar.

Slide 4 shows the breakdown of our first six months of sales of $3.4 billion by product line and by customer.

If we include the sales from our non-consolidated joint ventures, our market penetration increases by $2.6 billion to a total of $6 billion.

Climate, our largest product line generated 60% of our total consolidated sales in the first six months.

Including our non-consolidated joint ventures, interiors was our largest product line, accounting for 47% of our sales, largely due to Yanfeng Visteon, our non-consolidated joint venture in China.

Climate represented 38% of our sales, including non-consolidated JVs followed by electronics at 15%.

From a customer perspective, Hyundai Kia accounted for 32% of our first half 2012 sales, and Ford accounted for 27%.

If we include our non-consolidated affiliates, Hyundai Kia and Ford contributed 26% and 17% of our sales respectively.

On slide 5, we compare regional sales to global production by region.

On the left hand side of the slide is a summary of global production by region.

For the first half of 2012, global production was approximately 41 million units.

The Asia/Pacific region accounted for 52% of the worldwide production, up from 49% in the first six months of 2011.

Europe has decreased to 24% from 28% last year due to continued softness in the region.

As you can see on the right hand side of the slide, our sales distribution is fairly well aligned with global vehicle production by region.

We continue to experience strong growth in Asia with the region accounting for 43% of our total consolidated sales in the first six months.

Europe represented 34%, North America 17% and South America 6%.

When including our non-consolidated affiliates, Asia accounted for 66% of our sales, while Europe, North America and South America represented 21%, 10% and 3% respectively.

Now to slide 6. As I previously mentioned, we remain focused on strengthening Visteon's portfolio in order to create value for our share holders and our customers.

In April, we sold our North American corporate headquarters for proceeds of approximately $80 million.

Yesterday we finalized the sale of our lighting business.

We also announced the sale of our R-TEK joint venture.

These actions align with our strategy of focusing on our strongest global businesses.

On slide 7, as I mentioned, we are quite pleased to have completed the sale of our lighting product line to the Varroc group.

The transaction included Visteon's wholly owned lighting businesses in the Czech Republic, Mexico and India, and generated proceeds of approximately $72 million.

Varroc is continuing its due diligence relative to our lighting joint venture in China, and we expect to complete the joint venture portion of the transaction later this year for additional proceeds of approximately $20 million.

As a result, Visteon will have no lighting operations after the sale of the joint venture interest.

Slide 8. As we discussed on our July 5 call, we announced the termination of our non-binding MOU with Yanfeng Visteon regarding the sale of a majority of Visteon's consolidated interior business to YFV.

The decision was due in large part to the uncertainty around European automotive production and the future of the eurozone economies.

We are reviewing our options for our interiors operations with the focus on maximizing value for both our shareholders and our customers.

Slide 9, and as I mentioned yesterday, we signed a definitive agreement to sell our non-consolidated R-TEK joint venture to our JV partner for total cash proceeds of $34 million.

We expect to complete this transaction by the end of August.

As you know, on July 4, we announced a tender offer to acquire 30% of Halla Climate Control, which is a publicly traded in Korea.

The offer was conditioned upon Visteon achieving 95% ownership of HCC, which would allow Visteon to use the existing Korean squeeze out laws for the last 5% of minority share holders.

On July 24, the tender offer expired without acceptance as we did not reach the 95% threshold.

We are assessing the situation and our options to determine our next steps.

Turning to slide 11, Visteon's Board of Directors has authorized a repurchase of up to $100 million worth of our common shares during the next two years.

This is an important step as we believe Visteon's value is not fully appreciated at the current levels.

Of course, any purchase of shares would take into consideration global macro-economic conditions and the assessment of current and future cash flow needs of the business.

I would now like to turn the call over to Marty for the financial review.

Thanks, Don.

Good morning, everyone.

Slide 13 provides a summary of our second quarter 2012 and year to date financial results compared with last year.

As we've highlighted on prior calls, our 2012 and 2011 results are impacted by a number of items that make year over year comparisons a challenge.

First, our 2012 financials are impacted by the de-consolidation of our Duckyang joint venture, which was effective on October 31, 2011.

Second, 2011 and 2012 gross margin SG&A and net income were also impacted by employee severance and other nonrecurring items.

For the rest of this presentation I will refer to adjusted sales, adjusted gross margin, adjusted SG&A and adjusted EBITDA, to exclude these items.

Reconciliations between our reported financials and our adjusted financials are provided on slides 32 and 33 of this presentation.

Slide 14 provides a summary of our 2012 second quarter financial results, which as Don noted, were in line with our expectations.

On the right side, we provide our 2012 year-to-date results.

Second quarter 2012 adjusted sales of $1.7 billion were $166 million lower than second quarter 2011.

The decrease primarily reflects unfavorable year over year currency and the non-recurrence of certain commercial agreements that benefited the second quarter last year.

Adjusted gross margin was $130 million or 7.7% of sales.

This is $58 million below 2011, driven primarily by unfavorable currency product mix and lower commercial agreement impacts than in 2011.

Adjusted SG&A was $87 million, $11 million better than 2011 and 20 basis points better on a percentage basis.

Adjusted EBITDA was $151 million for the quarter, about even with the first quarter.

And our free cash flow was a use of $61 million reflecting normal seasonal trade working capital usage.

Turning to slide 15, volume and mix resulted in a $6 million decrease to sales in the second quarter, as softness in Europe and South America more than offset growth in Asia and North America.

Volume and mix for the six months of 2012 benefited sales by $29 million versus 2011, largely due to higher Asia and North America production volumes and new business.

Currency had a large unfavorable impact on sales for both the second quarter and year to date, principally reflecting the strength in the US dollar versus most major currencies including the Euro.

Other changes impacting sales includes year over year customer pricing, the impact of designed actions and reduced commercial agreements, which had a sizable impact last year.

Our second quarter and year to date adjusted EBITDA were both down versus last year, primarily reflecting unfavorable product mix and currency.

The business equation on this slide represents our cost efficiencies net of price reductions to our customers.

Commercial agreements, which favorably impacted interiors gross margin by $24 million in the second quarter last year, were $10 million in the second quarter this year.

Excluding commercial agreements, the business equation is positive on a year to date basis.

We expect our business equation to become more positive in the second half this year as we implement additional material manufacturing and fixed cost efficiencies.

Slide 16 highlights our adjusted sales and adjusted EBITDA for the second quarter by product segment.

This is the first time we reported adjusted EBITDA by segment.

On pages 35 through 39 of the appendix, we've provided detailed adjusted EBITDA reconciliations.

Second quarter sales increased slightly for the climate group, primarily driven by Hyundai motor volumes in both North America and Europe, and new business in Asia offsetting currency.

However, second quarter sales were down significantly in both electronics and interiors product groups, reflecting lower European and South American volumes and the impact of the weakened euro.

Adjusted EBITDA decreased year over year for all three product groups.

Currency negatively impacted the groups, launch costs impacted climate, while lower volumes impacted both electronics and interiors.

The significant decline in the interior's adjusted EBITDA also includes the impact of the commercial agreements I mentioned earlier.

It should also be noted that reconciling the climate product group and the Halla legal entity financials can be difficult for three reasons.

Halla's legal entity financials include two facilities which are in our electronics and interiors product groups.

Second, Halla's financials are in KIFRS while Visteon's financials include US GAAP adjustments, and lastly the climate product group adjusted EBITDA reflects a portion of Visteon's stewardship costs which are not billed to Halla.

Slide 17 highlights our adjusted sales and adjusted EBITDA for the six months by product segment.

The explanations for the year over year changes are similar to the explanations for the second quarter.

Turning to slide 18, we remain focused on our overhead cost structure.

Adjusted SG&A expense totaled $87 million in the second quarter of 2012, $11 million better than 2011.

For the first six months of 2012, adjusted SG&A expense was $177 million, $13 million better than 2011.

Year to date, the decrease in SG&A costs reflects $5 million of currency impacts and $10 million of cost efficiencies, partially offset by $2 million in lease costs relating to the Grace Lake Corporate Center.

On a regional basis, North American administrative costs are down $7 million, reflecting lower IT and central staff costs.

In both periods, adjusted SG&A as a percent of adjusted sales improved on a year over year basis.

For the second quarter of 2012, equity and net income of Visteon's non-consolidated affiliates totaled $103 million.

This included a $63 million non-cash equity investment gain related to the consolidation of a previously non-consolidated joint venture by Yanfeng.

Slide 19 excludes this gain, which has also been excluded from our adjusted EBITDA.

Excluding this gain, second quarter equity and net income of non-consolidated affiliates totaled $40 million, down $3 million from 2011.

The decrease primarily reflects increased product development and SG&A costs at Yanfeng Visteon to support new program lunches planned for the second half of 2012 and 2013.

Slide 20 shows the buildup of adjusted EBITDA by product group for the first six months of 2012.

In the middle of the page, we've highlighted adjusted EBITDA excluding equity income, non-controlling interest and discontinued operations.

Climate adjusted EBITDA for the first six months was $169 million, or 8.1% of sales.

Electronics was $39 million or 6.3% of sales, while interior's adjusted EBITDA was $14 million or 1.8% of sales.

Total Visteon adjusted EBITDA margins for the first half of 2012 were 8.8% including our equity income and non-controlling interest.

Using the midpoint of our full year guidance implies total company adjusted EBITDA margins of 9% for the full year and 9.1% for the second half of the year.

The second half increase is primarily driven by improvements in climate and interior margins.

The climate improvement is related to expected design savings, other material price reductions and manufacturing cost efficiencies.

Interiors largely reflects commercial recoveries and lower engineering costs.

On the next slide, free cash flow is a use of $61 million for the second quarter and a use of $95 million for the first six months of 2012.

Our year to date cash from operating activities of $7 million includes $60 million of restructuring and transaction related payments that are primarily related to the closure of our Cadiz, Spain electronics facility as well as seasonal trade working capital outflows of $59 million.

Capital expenditures were $102 million for the first six months of 2012.

More than 60% of our capital spending was related to our climate product line and support of customer program launches and capacity expansion.

Cash balances were $702 million as of June 30, 2012.

Our debt balance at the end of the quarter was $597 million resulting in a net cash position of $105 million.

I want to touch briefly on our latest 2012 volume and currency assumptions.

Using a euro assumption of $1.20 for the second half of 2012, however it should be noted that we have a number of hedges in place and our effective rate is about $1.30.

Slide 22 provides IHS full year volume projections and for the most part, our volume forecast is in line with IHS.

Full year global volumes are forecasted to increase by 5% in 2012 reflecting higher year over year volumes in North America, Asia and South America, partially offset by lower volumes in Europe.

Visteon's key European customers Ford, PSA and Renault Nissan are forecasted to decrease by 11%, 13% and 11% respectively.

In South America, Ford is expected to decrease by 7%.

In North America and Asia, Ford and Hyundai Kia volumes are expected to increase year over year, but at a slower rate than other customers in the regions.

We are updating our 2012 guidance to reflect three key changes since we initially provided our guidance in January.

First, lower auto production volumes in Europe and South America.

Second, continued weakening of the euro against most major currencies.

And reduced equity income related to our non-consolidated joint ventures.

Equity income will be impacted by slower growth in China, which is negatively impacted Yanfeng profitability and the sale of the R-TEK joint venture, which will not be in our numbers for the final four months of 2012.

Slide 24 provides our prior and current guidance.

We are projecting full year product sales of $6.6 billion to $6.8 billion, down slightly versus our prior guidance reflecting unfavorable currency and lower volumes.

Full year adjusted EBITDA is projected at $580 million to $620 million, $40 million lower than our prior guidance.

The adjusted EBITDA decrease includes the impacts listed on the previous slide.

Full year free cash flow is projected at a use of $20 million to a positive $20 million given $100 million of restructuring and transaction related payments.

We've also updated our full year depreciation and amortization interest payments and cash taxes to reflect our latest expectations.

And with that, I will turn it back over to Don.

Thanks, Marty.

Slide 25 summarizes our commitment to our shareholders.

These points guide our actions as we work to improve our performance, and by extension, our valuation.

During the second quarter, we experienced some headwinds related to lower volumes in Europe and South America, as well as unfavorable currency.

However, our performance was as we expected.

We expect these headwinds will continue and to intensify for the remainder of the year, and as a result will impact our full year financial results.

Our teams are focused on driving continuing operating improvement to mitigate the near term issues resulting from the lower volumes and the unfavorable currency impacts.

At the same time, we are committed to taking actions that optimize Visteon's business portfolio and create long-term value for our customers and our shareholders.

We would now be happy to take any questions you have.

So let's go to the Q&A and I will turn it over to you.

(Operator Instructions)

John Murphy, Bank of America.

Good morning, guys.

A couple of questions around Europe.

First, this R-TEK Interiors JV sale sounds interesting.

Are there other items or other facilities or other business in this Interiors business in Europe that you might be able to sell off piecemeal, or do you think the solution to the European Interiors business is more of a wholesale sale of the remainder of the business?

John, this is Don.

We are looking at all of those options for the Interiors Business.

There are a number of joint ventures around the world that we have.

This happens to be obviously in the UK.

And we had a willing partner to transact something quite quickly.

We are looking at those options.

If we can bring those to fruition and they make sense for us, we will certainly do that.

Okay.

And second question on Europe more broadly -- as you look at the potential for downside in Europe, because it's very difficult to call right now, and I'm curious as to what levers do you think you have to pull in response to some weakness in European volume in the near term?

Certainly, there is probably four or five different levers you have.

One is working with your customers.

Two, working with the supply base.

Three, utilizing local labor relationships.

Four, as we've mentioned before, we took a pretty conservative approach in terms of our hiring as volumes came back up in terms of the temporary employees.

So that provides us a significant amount of flexibility as we slide down.

And then, five would be layoffs, permanent layoffs.

So we had -- in France, we already have a social program in place for one of our facilities there, so we are executing against that right now.

That's helpful.

And then lastly, as we think about the share repurchase of $100 million just got authorized -- is that a recognition that maybe some of the more strategic actions you should be taking should be more inwardly focused and investing in the business and rationalizing the business internally, as opposed to big-bang strategic actions that would include external parties?

No, I think it's really providing us a totally balanced approach for the use of our capital.

And certainly it does take into account what you mentioned, that some of the larger transactions may be difficult to pull off in the timing that we may had originally scheduled for.

But it's also a reflection of where the stock price is today, and it's important for us -- or we felt it was important for us -- to make that statement that where the stock is trading we don't feel is appropriate.

And maybe, actually, just lastly -- in light of that and what's happened with Halla, is there any consideration of taking another bite at the apple and going back with another bid?

Or is it this point do you think that's kind of stuck in the mud and it's something you will revisit far in the future?

I think we need to fully understand the NPS decision.

Once we do that, then we can evaluate the options and we will decide at that point in time.

Thank you very much.

Brian Johnson, Barclays.

Good morning.

Just real quick housekeeping question, and then continue with the corporate strategy.

Housekeeping -- it looks like you have taken Yanfeng and spread the equity income across the segments.

Is that correct?

As well as other equity income in those results?

Yes, it is.

It's just the Yanfeng has Yanfeng Visteon Electronics, which spreads over to that segment.

That's really the only spread.

So it's basically winding up in those two segments?

Continuing -- a question a lot of us have asked since the NPS decision -- is there a Plan B that goes in the other direction?

You'd identified a beginning amount of operational saves from moving to a consolidated legal structure.

Could you get those by taking your climate Business, putting it over Halla for an increased stake in Halla, and then having a joint business (inaudible) on the floor, but you capture the operational savings and have perhaps some more cohesive business?

I guess I would answer it in a couple of ways.

One is, when we decided to make the tender for Halla, we had examined a number of different alternatives and paths prior to launching it.

So we chose the path that we felt was the right one for us and for HCC.

Other than that, I would say that it's not really appropriate to try to speculate on what we are going to do in the future regarding HCC.

Okay.

Would it be fair to say that the current configuration -- there are alternatives other than just sitting with the current configuration?

Absolutely.

Absolutely there are.

Yes.

And just finally -- are you signaling here, with $100 million of dispositions and $100 million of share buybacks, that any cash gotten through sort of house cleaning, garage sales, if you will, goes back to shareholders?

And what does that imply, if so, beyond that, for some of the other cash on the balance sheet or even if you don't do Halla, some of the borrowing capacity you might have in terms of stepping up the share repurchases?

We are not tying the two together, in terms of asset sales to the share buyback.

Again, I think as we look at the share repurchase, I think you do have to take it into a context of what's going on in Europe with the eurozone economies and the European production.

Additionally, you also have to consider what's happening in Asia.

I think we feel a little bit better in China, with the news out of China coming about their stimulus coming in the second half.

I think you have to take all of those into account, along with asset sale proceeds, as you evaluate share repurchases.

Okay.

Thanks.

Colin Langan, UBS.

Thank you.

Can you give some color on -- I know Halla reported that they had some issues with, in India with some FX issues that affected their business.

I was wondering, does that translate directly to you because they also indicated the second half would get better?

So does that mean climate gets a little bit better in the second half as well?

Is that why minority interest is down quite a bit, because of Halla?

Certainly the rupee has impacted both the Halla facilities as well as Visteon.

There is no question about that.

In terms of the back half of the year -- again, as we outlined here, the performance for the first half of the year is certainly near our expectations, and as we look forward, we do expect Climate to improve.

The Climate Business went through a number of launches in the second quarter, and are tapering off as we move forward into the third quarter.

We certainly do expect a better performance out of the Climate business as we go forward in the back half of the year.

And that's Halla as well as Visteon.

And any color -- on slide three you showed that South America was down 30%.

Which business, which segment would that hit the most?

That seems like a pretty big -- at least Ford in South America, you're calling out as a big customer there.

Which segment would that be the worst headwind on?

And [that may be] an opportunity for that to improve in the second half?

Probably Electronics.

It's really all three -- Electronics, Interiors and Climate.

Again, this really had to do with Ford's production levels in the first half and primarily the second quarter.

We think that Ford comes back fairly strongly in the back half of the year as they launch their new products.

Okay.

And in terms of the R-TEK -- that was already going through equity income.

Any color on how much it was last year in terms of a contributor?

Let me check on that.

It's about $5 million to $7 million a year, something like that.

In equity income, or was that fully consolidated?

It's in equity income.

Yes, it's not consolidated.

And you talked a little bit about the Halla tender -- any sense on when the timing, and why you think maybe the original offer didn't go through?

What we have is --

Again, what we know is what NPS stated, which was they felt that it was more valuable long term, et cetera, et cetera.

Then there are a lot of rumors, and we just have to filter through that and get the accurate answer, and then we can make our decision as to what the next steps are.

Okay.

Thank you very much.

(Operator Instructions)

Kirk Ludtke, CRT Capital Group.

Good morning.

With respect to Interiors, could you give us a timeline as to when you will be rolling out Plan B?

I think the way I would phrase it, Kirk, is that we are working with a sense of urgency on the Interiors business.

Certainly the R-TEK transaction gives you some flavor of that.

I think there will be more difficult pieces on some, and whether or not it's a transaction in total, or multiple transactions, or joint ventures, or whatever all those options are, we are just going to have to walk down that path as quickly as we can.

I'm sure your competitors are experiencing a lot of the same issues, right?

The lack of substantial profitability in the Interiors business is well-known.

And all of our competitors feel it.

Do you get the sense that -- you had a transaction in the works for a long time, and probably weren't focused on a Plan B. I suspect competitors have been working on Plan Bs.

Do you get the sense that there is an agreement among industry players that something has to be done?

Or are we starting from a blank sheet of paper and we really don't know what your customers think and what your competitors think about JVs and finding a more viable business model?

Yes, I would pass on trying to comment about what my competitors think.

I guess I'm not really asking for anything specific.

Just do you get the sense that there is an agreement?

Do your customers, are they willing to work with industry players to get this business model into a more viable place?

I would say that the conversations that we had with our customers regarding the Yanfeng-Visteon transaction was very positive, and that they were very, very enthused by the combination.

And so I think that, yes, they do.

Certainly the customers recognize the importance of suppliers that can bring them innovative product and be financially stable at the same time.

I certainly also know that our competitors would like to find solutions to the situation as well.

And so I think, overall, as you look at the industry, I think that makes good sense and that means that things will happen.

I noticed you didn't -- if I'm reading this correctly -- didn't increase the cash restructuring cost for this year in your guidance.

Is that because you haven't gotten there yet?

You just haven't quantified what they might be?

Or whatever you decide to do, it's next year's business?

Or how should we think about that?

I think if you look at the segment disclosures that we have, the returns aren't great, but they are positive.

And I think we are managing the business through a difficult period from a volume perspective.

I don't think we are looking at massive restructuring actions as one of our alternatives at this point.

Okay.

That's helpful.

So the solution, I guess, would be re-pricing contracts and winning more business.

Is that more where you are headed in terms of restructuring this?

Regarding Interiors?

Yes.

No.

I mean, I think we have to run the business.

We've got to serve our customers; we've got to keep our factories full.

There is no question about that.

We have to compete, and we are going to do so.

We've got a new management team in place to do that.

I'm excited about that.

I think that's going to be great, and we will do that.

Now again, if there is alternatives in terms of the strategic nature of the business -- like an R-TEK transaction; like a YFV transaction -- certainly we are going to run hard to do that.

But again, whether that's a month away or two years away, or whatever that time frame is, you still have to run the business and service the customers on as a profitable basis as you can.

Okay.

Just switching briefly to Yanfeng -- the equity income was down year-over-year, if I am reading this right, which, is there any -- so I guess, if nothing else, it's getting tougher to forecast Yanfeng.

I don't think it's tougher to forecast.

I think you have a couple of things in play there.

Certainly, volumes in China were lower than we had expected for the year, and I think most people had expected for the year.

And then, secondly, Yanfeng has had tremendous success over the last couple of years in terms of winning new business, and therefore the SG&A costs, so to speak, or the engineering costs, have ramped up.

Okay, that's helpful.

Do you -- and I might have missed this, but did you disclose how much equity income is in your full-year EBITDA guidance?

And do you mind giving us directionally what that is?

We have not disclosed that.

And we have not guided towards it.

Right.

I think that falls into the category -- because one entity is such a high percentage of that number, you get into the restrictions on what we can say about the Yanfeng entity.

That makes sense.

I appreciate it.

Thank you.

Matt Stover, Guggenheim.

Thanks for taking my call.

Many of my questions have been -- hey, Don, how are you?

A bunch of questions have been answered.

Two questions, though.

Maybe three.

On the R-TEK valuation, can you give us a sense of what the multiple on EBITDA was there?

About 4.5 times '11 EBITDA.

Okay.

Two -- as we look at the regional performance of the businesses in Europe and in South America, you had a very negative customer mix in terms of end market production.

I was wondering if you could go into each one of the businesses and talk about how North America performed on a year-over-year basis, and maybe shed a little light on Europe, just so we can get a sense, as we see the production schedules in the second half adjust, how we should think about the outlook for the businesses in these two markets that are going in two very different directions.

I guess where I would start is, just as a percentage of the corporate revenue, on slide 4 or 5 or whatever that page is, clearly Europe is going to have a bigger impact on us than North America.

And by product group, Climate and Electronics are in North America, where Interiors is not.

Then, in Europe, all three product lines are represented in Europe and fairly strong.

I would say that probably most concerning is, if you look at Ford, PSA, and Renault Nissan, in terms of what's expected second half of 2012 versus the first half of 2012, we are looking at production volumes down 16% or 17%, period over period.

So from our perspective, yes, we are into a situation where our key customers in Europe are going to have a tough go of it in the second half, which means, as I mentioned, we have some work to do in terms of mitigating that lower production level.

And it sort of leads me into the last question, and that is, as I think about what happened with Yanfeng and the MOU and the Interiors business, just sort of sitting there as an outside observer looking at this and thinking about a Chinese company acquiring a business with heavy exposure in Europe, I would imagine they wouldn't necessarily want their big first cut at the apple to be buying a business that needs to be restructured.

If you think about the long term strategic plan for that business, is it a fait accompli that you probably have to restructure that business before you can strategically position it?

I don't think so.

I agree with you, the assumption that YFV's decision was based upon what they saw coming down the pipe.

But the restructuring of the business gets much, and Interiors gets directly to what OE facilities you are serving, and what products are in those plants.

And so if you take a look at PSA and their schedule and what facilities they have announced -- what facility they have announced they want to close -- doesn't really impact Visteon in a negative way.

And so it really starts to play out as to what products, what the product cycle looks like if you have to restructure.

Certainly, again, there is some volume issues, and we are staffed with temporary workers at different facilities; and so depending on what the volumes are, you may have to eat through your temporary workers at that point and have a small social plan, which is essentially what we are doing at one of our French facilities today.

I don't think there is a massive restructuring of the business that looms in front of us in Interiors.

I agree with that.

I think the facilities in Interiors more than any of our segments are really very much customer-specific, and to understand them, you have to really take a look at precisely which customers and which customer facilities they serve.

Okay.

I appreciate that; thanks.

(Operator Instructions)

Ryan Brinkman, JPMorgan.

Thanks for taking my question.

With the canceled sale of your consolidated Interiors division to YFV, it seems there is a lot of focus, and there has been a lot of questions on this call, what to do with the business as a stand-alone entity.

You obviously made the R-TEK announcement along these lines.

Is there any read across to your other consolidated operations, like consolidated Climate, for example?

With the non-consummation of the Halla tender, does that cause you to potentially think about consolidated Climate in a different way?

And might you seek to monetize portions of that like you did Interiors today?

No.

Okay.

And what about the Electronics division?

How should investors think about the potential sale of that?

Could that also come in portions, like R-TEK today?

I don't think the transaction with YFV and the inability to consummate it has any impact on the thought of running two businesses, Climate and Electronics.

And could you talk about your plans or potential for tax optimization, potentially independent of anything to do with Halla?

So we have, as we talked about in previous calls, many strategies around making sure that we appropriately build cost to entities around the world for services that we provide, and to make sure that we recoup those costs, and other strategies to take maximum advantage of tax deductions in places where we pay taxes.

And I think we continue with those.

I don't think there is anything new to report there.

I think we have a very aggressive program and we continue to refine it each year.

Okay.

That's helpful.

Thank you.

Joe von Meister, Bennett.

Thanks for taking my question.

I have a couple.

First off, a housekeeping question -- what was the cash balance at Yanfeng at the end of the quarter?

I think at the end of year it was around $1 billion.

At the end of the first quarter, it was about $1 billion, and at the end of the second quarter, it was about $1.1 billion.

I should note that the dividend payments out of the various Yanfeng entities occur in the third quarter.

So they haven't occurred yet, but they will occur in the third quarter.

Great.

And on the Ford call, it sounded like there was a plan to reduce its footprint in Europe.

Can you talk about how you expect that to affect your business?

I guess we have not definitively received information from Ford as to what they are going to do with their platforms.

We have platform volumes.

And so, as we talked about Ford being down 16% or so, first half to second half, that incorporates their view on their production levels and their planning.

So from that perspective, we don't have any more information to update you on.

And in terms of Plan B, would you consider a spin-off of Halla as a potential Plan B?

I think many of us thought that maybe Halla would be spun off; instead, you tried to take it or maybe you could talk about your thought process on that particular course of action rather than spinning it off.

Why does it create more value to buy out the share of Halla you didn't own, versus spinning it off to shareholders?

I think it's important, as we have said, the objective of the Climate business is to challenge for the number one position in the world.

We're number two today, and over the last three to five years, we have expanded the gap between positions three, four, and five from where we are today.

It's really important from our perspective, in terms of driving the value of the Company to operate that as one business.

We certainly can operate as we do today, and we are moving every day towards more and more integration of the two businesses.

But the ownership leakage that the 30% creates is not cost-effective when you are trying to run a global business and competing against the likes of a Denso and a Valeo, et cetera.

So from that perspective, that drove the decision to try to take the 30% of Halla and make it wholly-owned.

Great; thanks, guys.

[Esther Lee], Samsung Asset Management.

Sorry.

Joe just asked the question I would like to ask.

So thank you for taking my call.

Thank you.

I will turn the conference back to Mr. Deitz for any closing remarks.

Thank you, and thanks to everyone on the line.

We appreciate your participation, and I'm sure we will be talking with many of you one-on-one during the next few days.

Have a great day and enjoy the weekend when it gets here.

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

Thank you for your participation, you may now disconnect at this time.

Good day.