Visteon Corp (VC) 2013 Q2 法說會逐字稿

Good morning, my name is Jennifer and I will be your conference operator today.

Welcome to Visteon's second-quarter 2013 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 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, risk and uncertainties that could cause our actual results to differ materially from those expressed in the statement.

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. Bob Krakowiak, Vice President, Treasurer and Investor Relations for Visteon Corporation.

Mr. Krakowiak, you may begin.

Thank you, Jennifer.

Good morning everyone.

With us today are Tim Leuliette, Visteon's President and Chief Executive Officer, and Jeff Stafeil, Visteon's Chief Financial Officer.

We appreciate your interest in our Company and taking the time to join us to review the second quarter of 2013.

We have scheduled the meeting for an hour and will open the lines for your questions after Tim and Jeff's remarks.

As mentioned a presentation deck associated with today's call is posted on Visteon.com within the investor section.

Also note that our Form 10-Q was filed earlier this morning with the news release.

Again, thank you for joining us and now I will turn it over to Tim.

Thank you, Bob, and good morning, everyone, and thank you for joining us this morning.

We have a lot to go through this morning so let's jump right to it.

Page 2 of the deck titled recent highlights.

We had a good quarter.

We have a lot to do here.

We have a long journey in front of us but we feel very comfortable with the steps that we are taking in the second quarter specifically focused on fundamentals.

Sales were up approximately $200 million to $1.9 billion and adjusted EBITDA of $187 million versus $147 million a year ago.

Adjusted net income of $71 million, earnings per share of $1.41.

Underlying that was the strength in our Climate and Electronic product groups; year-over-year adjusted EBITDA up 38% and 17% respectively and as I have said in our press release, we saw the Company from a sales, gross margin and EBITDA perspective up in all major regions of the world.

We have over $1 billion of liquidity as of June 30, and if you go back and look at what we have done over the last months, last 12 months, we have bought back $175 million worth of stock and $50 million worth of bonds have been repurchased so again, strong liquidity performance against a grain of also improving the balance sheet.

We have over a little over $1 billion as I said of cash which is up $306 million from a year ago and we also have $114 million on our ABL availability.

Debt of slightly under $800 million at $799 million; 1.2 times.

So again, we remain -- leverage is quite light and our balance sheet remains very strong.

As we looked at the market, as we looked at the performance and I think as we talked to you at the last earnings announcement in Q1, we said we wanted to get a gauge of where this market was going before we went back in and looked at adjusting guidance and after the second quarter, we said we would look at that and we are.

At this point, we are not going to revise sales upward.

We think that our sales forecast is pretty strong and again, there are some pluses and minuses with currency and weaknesses in Interiors -- strengthened -- offset by some of the other product groups but we are comfortable with our sales guidance but we are going to increase our EBITDA, adjusted EBITDA, guidance from $620 million to the $660 million range to the $660 million to $690 million.

And the free cash flow we are going to increase up to the $135 million to $170 million range and adjusted EPS to $4.83 to $6.11 versus the $4.04 to $5.52 that we had previously.

We believe that the performance in the first half of the year and what we see in the second half of the year gains us comfort to proceed with that kind of guidance increase and we are pleased with the performance of the team to achieve that.

Moving to the next page again, we talk about this every quarter.

I would like to again highlight where the vehicles are built and where we sell our products.

In the second quarter of 2013, half of the vehicles on earth were built in Asia, 24% in Europe, 20% in North America with 14% in the United States.

This again sort of sets the tone for where one should produce their products and where our customers are.

On a consolidated basis as you see that we are 43% Asia, 31% Europe, 20% North America, 6% South America, just a slight variance from where the vehicle platforms are built around the world.

On a non-consolidated basis when we include the YFV JV, you see that we remain very heavily focused as an Asian company.

Moving to the next page, page 4, I want to again look here at where we have accomplished, what we have accomplished, what we believe some of the items we have remaining to do and on the next few pages focus on that.

From an operational status perspective, I think as we look back over the first six months we see that sales are up 10%, gross margin is up 130 basis points and adjusted EBITDA is up 23%.

These reflect fundamentals; these reflect the team working on factory floor issues, engineering recovery issues, launch issues and addressing that order book that we have before us and will continue.

The net income is $134 million for the first half versus $88 million in the similar period last year but you must remember as you look at our Q2 in particular that last year we had a $63 million equity gain in that quarter so on a quarter-by-quarter basis on a pure performance basis, this quarter has been much stronger than a year ago.

On adjusted free cash flow, we have generated almost $100 million in the first half of 2013 versus using $25 million a year ago.

We are increasing the guidance because again as I said earlier, on the strong first-half financials and the projected performance we see in the second half.

This has given us comfort to increase that guidance.

We expect a strong Q4 supported primarily by that order book we discussed in the past and the launches that occur towards the end of every year and the expansion of our business base.

However, Q3 will be impacted by the traditional cyclicality that we always see and again, I think it is good to remember that the first half of the year from a vehicle production perspective is always stronger than the second half of the year.

The full-year guidance reflects in our mind some softening of the worldwide vehicle production versus the first half.

Year-over-year China was up 12% in the first half and we are projecting only being up 8% in the second half.

If you look specifically at the largest customers in China we have which are Shanghai GM, Shanghai Volkswagen, Hyundai/Kia, they were up a significant 29% in the first half of the year versus prior year.

We don't expect that kind of pace to continue.

We expect that to fall back about 5% to 10% from that pace in the second half of the year but still very strong and representing good growth for the future.

In Europe, European volumes we also expect to soften.

Again there is always a softer second half than there is a first half in the industry but we also see some inventory balancing that will occur in the second half and most of that will be in Q3 as some of the OEMs probably built a little ahead of the market.

We are seeing Europe remain weak but we don't see it deteriorating further and in certain areas we are seeing some strengths but bottom line is, our margin increase, our revenue increase, and our EBITDA contribution in Europe is generated not because of volumes increasing at this stage but because of content and because of some innovative products that we are launching with our customers.

As we look to the next page, page 5, strategy actions that we outlined September 19 of last year are being implemented.

I think it is important to note the Climate consolidation is complete and while that may be old news in particular, remember that this is the first quarter where that total footprint has been seen.

In the first quarter, that transaction of combining our Climate operations into Halla Visteon as a combined company was in process.

We closed at the end of January as you recall.

So this second quarter is really the first time the industry and the investment communities had a chance to look at the strength of that particular business and we are quite pleased with what we are seeing.

On the Electronic side, we have defined the strategic plan to find around cockpit electronics.

We have communicated that plan.

It is being implemented and we continue to work towards integrating the YFVE element of that business.

I'm sure we will be talking about that more in the future.

On the Interiors side, that divestiture remains a priority.

As we work to also improve operations, I think through this process we have been pleased with how the management team has had this duality of addressing operational issues and getting performance to the bottom line at the same time preparing working through our game plan to divest the business.

YFV transparency was a goal and again, we are going to spend some time on this call, Jeff will take you through a little bit more granularity on the 309 filing, but that has been part of our game plan to increase transparency there and we I think accomplished that and we will continue to expand upon that process.

And obviously also, we have been working on the fixed cost and SG&A reduction plan that we identified back on January 15.

As you recall there was a template there of our fixed cost and SG&A goals for 2013, 2014 and beyond and I would say to all of you that we are working towards that plan and achieving the tasks that we have identified.

Moving to the next page, this reflects the fact that we still have a long way to go.

There is a lot to be done as we continue to transform this Company.

On and earnings basis, we have a lot of launches going on.

We have of lot of -- we are expanding facilities in North America.

We are expanding facilities in Asia.

Successfully launching that order book is the key to long-term growth.

If you look at the second quarter, the second quarter was driven by one thing, fundamentals -- improving earnings, getting business, launching that business successfully, and delivering innovative products to the customer.

That is what we do and as we look forward beyond just this quarter, we continue to expand and we continue to see this Company growing at above industry growth rates because of the stream of innovative products.

And I will hit on a few in a moment.

To deliver on that is key.

We'll continue to focus on operating margins.

We are pleased with 120 basis points improvement year-over-year.

We see further opportunity obviously and will be working towards that.

And I want to emphasize the rightsizing of the fixed cost and SG&A expense again in line with what we said in the past.

On the balance sheet side again, there we want to delever the corporate parent, place debt in regions where the cash is generated.

I think over time we will continue to see a migration there and we will be working towards and communicating that to you.

And we will continue our share repurchase program.

We continue to also address our unfunded pension overhang.

Jeff will spend some time here a little later on where we have moved on the pension versus a year ago and versus end of year.

It has all been positive movement because of actions we have taken as well as what interest rates are occurring in the marketplace.

And again, we will utilize the HVCC balance sheet for accretive Climate industry consolidation opportunities.

We see HVCC as a consolidator in this industry and we will leverage the power that company has and the strong balance sheet it has to continue to create value.

Structurally divesting Interiors remains one of the key priorities here that we are working on and we are going to continue to address legacy issues that need to be addressed and need to be cleaned up.

As you know, we announced in last part of last year in November $100 million of restructuring guidance for this year.

That is on pace but some of that will slip into early 2014 just because of the very nature of the process primarily in Europe and the timeline that we face.

But that commitment, that investment and the improvement that is a result of that is still in our base plan and still being executed.

And also we are not happy with our tax rate, our effective tax rate around the world.

There are elements there that are going to be addressed both structurally in our footprint as well as tax planning to address that.

And again, these are all items that remain on our to do list, remain active that we are supporting and this will again continue to create a company that has very attractive growth rates and good returns and we are pleased with where we are on that path.

Typically as I move to the next page, typically we spend time in deep dive on one particular product group or an area of technology.

We don't have time for that today because of some of the more expansion financial discussions but I do want to hit on a few elements on the technology side.

First of all, we really are driven by two technology areas, Climate and Electronics.

The Climate area is being driven by revolutionary change in the vehicle.

When we look at environmental regulations, when we look at the impact of going from 5 liter inefficient engines to 1.4 liter very fuel-efficient engines, we are not generating the heat, we are not generating some of the thermals that we use to heat the passenger.

So technologies are changing to continue to keep that passenger warm in Bemidji, Minnesota even though the engine now is one-third the size it used to be.

Or when you are pulling up in Miami or in the Middle East and you want the air-conditioning to be running but you have start-stop and you no longer have an engine running at the light, how do you keep cool?

All of those technologies -- the new battery technology launched -- the cooling technology on the BMW I3 -- and the climate change requirements we are doing on refrigerants all impact our technology base in Climate making that a hotbed of innovative thought, innovative products and growth.

When we get to the Electronics area, the Electronics area is not automotive electronics per se but we are morphing into that mobile device that we have talked about in prior meetings.

The relationship we have not only with customers, OEM customers, but the kind of work we do with the retail customer -- and I just happened to sit through a review of some properties that were going out for customer review here next week where we are looking at innovative ways to have that human machine interface attack this whole issue of focus and information flow into the driver.

As we do that, as we look at all those innovative technologies we just don't interface with talking to customers directly but we are involved in key technology events.

These technology events are sometimes with consortiums, they are sometimes with customers, they are sometimes with retail customers but they are part of our footprint and you will see Visteon continue to take an aggressive stand with reaching out beyond just the OEMs themselves to tailor our products to what the consumer wants.

There is a long list here, they are around the world.

I won't go through that in detail other into say that the EB vehicle which is our platform of sort of -- and test bed of some innovative products is now going around the world.

It is in India now.

We have had basically 50 customer engagements, 14 major technical reviews with that vehicle and it is receiving significant, significant positive response as we work towards this next generation vehicle.

So fundamentally as we go through here, the quarter was strong, fundamentals were strong.

We still have a lot to do.

But let me turn it over to Jeff now to take you through a lot of the financial information I'm sure you are waiting to hear.

Jeff?

Thanks, Tim.

I have a fair amount to cover today as Tim mentioned and I will try to move through these slides fairly quickly.

Starting on slide 9, we will talk about detail on our YFV investment, our 50% non-consolidated joint venture in China.

The SEC under rule 309 requires separate financial statements to be filed for significant subsidiaries that meet certain conditions.

YFV now meets these conditions and as such Visteon filed separate historical financial statements this past June on a Form 10-Ka.

These statements are required on an annual basis going forward.

As we recently filed these statements we thought we would take a few minutes to walk through the YFV financials and how they tie into Visteon's profits.

Turning to slide 10, we show a very simplified structure for YFV.

We own 50% of the parent company as well as several direct stakes shown in the red lines in the diagram in various subsidiary entities.

YFV is made up of essentially five businesses; Interiors, these are shown at the bottom of the page and generally speaking, we wholly 50% economic interest in this group.

Electronics, we own 40% directly and have 70% of the economic interest.

This business is integral to our global Electronics business outside of YFV.

The Seating business, we have 25% of the economic interest of this business.

And finally, Safety and Exterior businesses.

YFV does not consolidate these two operations and Visteon has a 25% economic interest in each.

Moving to slide 11, we show consolidated YFV financials for 2011 and 2012 in RMB and US dollars.

These numbers include all of YFV and not just our 50% economic interest.

Under IFRS, YFV generated RMB39.8 billion in revenue and RMB1.6 billion in profits in 2012.

On slide 12, we provide a walk between IFRS financials and the amounts we recognize in US GAAP.

The primary difference between IFRS and US GAAP was a 2012 non-cash gain of $126 million recognized only in US GAAP.

Please note that we excluded this non-cash gain in all of our adjusted EBITDA and adjusted net income calculations.

Moving to slide 13, we show how the $369 million from the previous page reconciles to our equity income line.

The major bridge items include our direct ownership interest in YFV subsidiaries plus equity investments in other entities outside of YFV such as our 50% holding of Duckyang.

Moving to slide 14, the final one in this section, we provide a buildup of YFV 2012 EBITDA.

YFV generated RMB2.6 billion in EBITDA during 2012 or $419 million in EBITDA in US dollars.

Visteon's 50% share of YFV's total EBITDA translates into $210 million.

It is important to note two things.

First, the figures on this page represent results for consolidated YFV only.

Visteon's direct stakes in Yanfeng affiliates are not considered on the page but contribute approximately $45 million of additional EBITDA.

Second, the EBITDA amounts are positively impacted by YFV's equity from non-consolidated affiliates and reflect a deduction for YFV's noncontrolling interest from other partners.

I will now move to an overview of our second quarter 2013 financial results.

Moving to slide 16, we present our key financial results for the second quarter of 2013 compared to the second quarter of 2012.

We had another very good quarter as Tim mentioned, as we meaningfully improved versus prior year on all our key metrics.

As we have explained on prior calls, our financial results are impacted by a number of items that make year-over-year comparisons difficult.

The adjusted financial information presented on this slide excludes these items and represents how we manage the business internally.

As non-GAAP financial measures, this adjusted financial information is reconciled to US GAAP financials in the attached appendix pages on 30 through 32.

I will discuss these metrics in more detail on the following pages.

Turning to slide 17, we compare 2013 second-quarter sales and adjusted EBITDA to last year.

Sales were $1.9 billion or $199 million better than the second quarter of 2012.

The increase was driven by higher year-over-year volumes in all regions particularly Asia and North America.

Meanwhile our adjusted EBITDA was $187 million, up $40 million versus the second quarter of 2012 and primarily reflected higher volumes and higher equity income partially offset by a $12 million increase in noncontrolling interest.

Our business equation which was slightly positive on a year-over-year basis, included an $11 million year-over-year benefit related to certain design recoveries that were recognized in our Interiors product line.

Turning to slide 18, we show our second-quarter sales and adjusted EBITDA for our three product's group segments, Climate, Electronics and Interiors.

It should be noted that adjusted EBITDA figures on this page include the benefit of equity and affiliates and a deduct for noncontrolling interests.

In the second quarter, sales improved year-over-year for Climates and Electronics.

However, Interior sales decreased due to lower volumes for certain key Visteon vehicles in Europe.

Adjusted EBITDA for all product groups improved versus last year.

We will cover the details more on the following pages.

Turning now to slide number 19, we show our first half-year sales and adjusted EBITDA by product group.

Note that the product group adjusted EBITDA on this page excludes equity income and noncontrolling interest which are both shown separately at the bottom of the slide.

We have sub totaled results for our Climate and Electronics businesses and would like to call your attention to those lines.

You will note that sales and adjusted EBITDA for our combined Climate and Electronic businesses are up 17% and 30% respectively versus last year.

Both of these product groups experienced strong year-over-year growth driven by higher volumes and solid performance.

Results for our Interiors product group continue to be impacted by lower European volumes.

Sales and adjusted EBITDA for this business were down 13% and 22% respectively versus 2012.

Our equity income improved year-over-year mainly due to the strength in China that benefited our YFV investment.

Offsetting this gain was a $9 million increase in NCI, noncontrolling interest, primarily related to our 70% ownership in HVCC.

Moving to slide 20, we provide an overview of Climate sales and adjusted EBITDA for the second quarter versus the prior year.

Climate sales were $1.2 billion, up $182 million or 17% compared with 2012.

The increase reflects higher Hyundai volumes in Asia, Europe and North America as well as the launch of new Hyundai business in Asia and Ford business in North America and Europe.

Currency also positively impacted sales by $11 million primarily driven by a stronger Korean won and Chinese RMB.

Adjusted EBITDA for the second quarter of 2013 was $119 million, up $33 million or 38% compared with the second quarter of 2012.

Increased volumes were the biggest driver and were partially offset by increased product development cost and $11 million more in noncontrolling interest.

Currency also positively impacted adjusted EBITDA by $8 million.

Climate's adjusted EBITDA margin was 10.9% in the second quarter, up 210 basis points versus the second quarter of 2012.

It is important to note that the adjusted EBITDA, margins on this slide and the next two slides exclude the impact of equity income and noncontrolling interest.

Moving to slide 21, taking a look at our Electronics sales and performance, you can see that sales were up in the second quarter or were $354 million and adjusted EBITDA was $35 million.

Electronic sales for the quarter increased $50 million versus 2012.

The increase primarily reflects $72 million increase in our cockpit electronics business partially offset by lower vehicle electronic sales which decreased by $14 million year-over-year to $29 million in the quarter.

Adjusted EBITDA for the quarter increased $5 million versus 2012 primarily reflecting higher cockpit electronic volumes partially offset by $5 million in lower profits related to lower volumes in our vehicle electronics productline and increased investment in product development costs.

Second quarter 2013 adjusted EBITDA margin excluding equity income and noncontrolling interest was 8.5% or about in line with last year.

Adjusted EBITDA margins on cockpit electronics were up year-over-year but were offset by the balance out of our vehicle electronics business.

Furthermore, cockpit electronic margins were negatively impacted by a temporary contract manufacturing relationship which will create operating efficiencies for Visteon starting in the third quarter.

Excluding the impact of this contract manufacturing relationship, adjusted EBITDA margins for cockpit electronics would have increased by 100 basis points versus the second quarter of last year.

As we have previously discussed, the balance out of the vehicle electronic sales has negatively impacted our electronics business in the past.

We are expecting approximately $50 million of vehicle electronic sales in the second half of 2013 and project vehicle electronic sales in 2014 to be approximately $70 million.

Although we will continue to see a modest impact on our results going forward as the business balances out, the impact will be considerably smaller going forward than it has been in the past.

Turning to slide 22, Interior sales in the second quarter were $334 million and adjusted EBITDA was $47 million.

Excluding equity income and NCI, adjusted EBITDA increased from $4 million last year to $11 million.

Sales decreased versus the second quarter of 2012 primarily due to lower production volumes in Europe and South America partially offset by slightly higher volumes in Asia.

In total, volume reduced Interiors sales year-over-year by $17 million.

Despite lower volumes, adjusted EBITDA increased by $8 million versus the second quarter of 2012 largely driven by positive business equation which primarily reflects an $11 million year-over-year increase in engineering related design recoveries that we received from our customers during the quarter.

It should also be noted that equity and affiliates related to the Interiors product group totaled $37 million in the second quarter of 2013, up $2 million from prior year.

The increase reflects higher profits from Yanfeng affiliates partially offset by the elimination of profits related to our R-TEK joint venture which we sold in August 2012.

As we have already mentioned, we view our Interiors business as non-core and have targeted to divest the business.

With that said, we continue to operate and implement improvement actions in the business while supporting and investing in its growth.

Much of the $100 million restructuring plan we discussed last year related to improvements in this business and we continue to work closely with our management team of the business and customer base to improve the operations as we also seek divestment opportunities.

Moving to slide 23, this provides a breakdown of the key components of our 2013 actual tax provision and cash tax payments.

The table also provides a buildup of our full-year 2013 estimated tax expense and cash payments.

In the first half of the year, our income tax provision was $21 million reflecting -- operating taxes in profitable countries; the accrual of withholding taxes related to current earnings from consolidated and non-consolidated affiliates; and a $54 million non-cash tax benefit related to a decrease in reserves for uncertain tax provisions -- positions related to audit developments in the first quarter.

For the full year, we expect our tax provision to range from $55 million to $90 million.

As we mentioned during last quarter's earnings call, our tax expense will be uneven throughout the year due to the impact that ongoing tax proceedings outside the US can have on our judgments regarding uncertain tax positions in a given quarter.

Cash tax payments in the first half of 2013 were $79 million excluding a Halla Korea audit appeal deposit of approximately $20 million made during the first quarter.

For the full year, we have updated our guidance for cash tax payments to be between $150 million and $180 million primarily driven by higher earnings in taxable jurisdictions.

Moving to slide 24, we discuss our US pension funding status.

Tim had mentioned this earlier.

This slide summarizes movements in our liability in the last year primarily due to the lump sum buyout executed in Q4 last year plus movements in our discount rates.

It also shows how our pension assets have performed during this time.

Overall the results have trended favorably.

Our net unfunded liability decreased $189 million in the last 12 months and $99 million year to date.

It should be noted that our liability is highly sensitive to movements in the discount rates.

If the discount rate were to increase by 150 basis points, we would be 102% funded; however if it decreased 150 basis points, we would only be 71% funded.

If the rate moved up to the 20-year average of 6.33%, we would be in a surplus position at 104%.

Turning to slide 25, we'll take a look at our cash flow and our capital structure.

Despite a negative $44 million of trade working capital flows in the second quarter, we managed to generate slightly positive adjusted free cash flow.

Year to date adjusted free cash flow is $97 million but this has benefited from some positive working capital movements related to the calendar dates for quarter end payments.

Note that working capital has provided $53 million year to date despite over $300 million growth in our sales.

Based on our quarter end dates for the third and fourth quarters, we expect this working capital benefit to reverse but we anticipate that we will never the less achieve our full-year free cash flow and adjusted free cash flow targets outlined later in this document.

Cash balances were slightly over $1 billion as of June 30, up $163 million since year-end 2012.

The improvement is primarily attributable to positive free cash flow and proceeds from debt raised at Halla partially offset by $125 million of cash used to repurchase Visteon stock earlier this year.

Total debt at the end of the quarter was $799 million.

Finally turning to slide 26 and taking a look at our 2013 full-year guidance.

As Tim previously mentioned, we are increasing our guidance for adjusted EBITDA, free cash flow, adjusted free cash flow and adjusted EPS.

We are maintaining our sales guidance.

For the full-year, we now project adjusted EBITDA of $660 million to $690 million; adjusted free cash flow of $135 million to $170 million; and adjusted EPS of $4.83 to $6.11 per share.

Our revised guidance primarily reflects an improved outlook for our Climate and Electronics businesses.

We have not increased our sales guidance because despite positive volume impacts in Climate and Electronics, our sales have also been impacted by lower Interior volumes and the weakening of the Korean won.

I want to quickly remind everyone of the impact that movements in the Korean won have on our sales and adjusted EBITDA.

Visteon has significantly more cost exposure to the won than we do sales exposure.

As the Korean won has weakened against the dollar versus our original guidance, it has negatively impacted our sales but positively impacted our profits.

As we have already discussed, our 2013 adjusted EPS by quarter may vary significantly driven by the impact of certain tax proceedings outside the US.

The impact of these proceedings will result in an uneven tax expense throughout the year and could result in further revisions to our EPS guidance.

Now let me turn the presentation back over to Bob for Q&A.

Thank you, Tim and Jeff.

Jennifer, please open the line for questions.

(Operator Instructions).

Colin Langan, UBS.

Great, thanks for taking my question and congratulations on a very good quarter.

Any color on the Interior sale, how that is progressing.

Do you think that could be completed by the end of this year?

Thank you, Colin, for the comments.

As you know, we don't comment on M&A actions.

As I have said here in the past, when we do comment it will be because there is a transaction that has been completed not because we have an LOI, MOU or in discussions.

So I think it is best to say that the sale of Interiors remains a priority and when there is a transaction at the right price at the right time, we will communicate that to you.

That is just the way we are going to operate on that.

Okay but there is no timeline targeted to get it completed by?

It was clearly a priority for us this year to work through that and we are working through that.

As you saw in our list here of priorities to get on the M&A side, divesting Interiors is one of the key priorities so I will just leave it at that.

Okay.

And then you saw JCI is selling its Electronic business.

Can you explain how your Electronics is similar or different as we kind of look at what prices they get for that business and whether we should think about it as a read through for the value of your business?

Yes.

JCI Electronics business as you saw I think they have obviously announced a sale of one of their big components of that business which was in an area that is not an area where we compete in.

They do compete in some areas we do such as clusters and a little bit on the infotainment side but fundamentally I think we had a different footprint.

I think that our focus at this stage remains upon what I will call the expansion of the vehicle into the mobile device world.

I think their capability has got some areas that are consistent with that but like many of us if you look at that -- and I think we have shown back in the -- I guess it was February when we did the deep dive on Electronics, we showed in our space where we were and where JCI was on the like components.

And again, I think a smaller piece of their electronics business is in this what we call clusters and infotainment side and you can see where we stand and where they stand and that is in that area.

Okay, so the biggest overlap is in that clusters part.

There is some overlap in a part of their business; that is correct.

And in the past, you have mentioned that you needed better scale in Electronics but you are not interested in M&A.

How can you achieve that -- how would you achieve that going forward?

I think that, first of all, we have got a pretty good indigenous growth plan when you look at the order book.

Secondly, we have said that we would not leverage the Visteon balance sheet to achieve an M&A transaction, but there are other relationship partnerships, working relationships, that could occur to expand our reflective footprint.

I also ask you to look at, for example, what we are doing on HVCC where we are utilizing the balance sheet of a subsidiary.

So there are many paths one could use to expand that business if a proper opportunity presented itself, but I think the focus at this point is, number one on our list is to get the YFV component integrated in this in a more effective way.

And that we have mentioned is a priority.

We today basically, when you look at that, it is about one-third of the size of our current business but is really outside of our footprint.

We are looking at ways to sort of work closer with that.

I would prioritize that.

But again, a lot of opportunities in the electronics side.

Just one last question.

Any update on the restructuring, how far -- I guess it's $100 million in spend.

It looks like it came down a little bit.

But how far are you through the restructuring and how much is reflected in our current results, or is that really going to be something we see more in the second half?

Jeff, do you want to go into the specifics there?

Yes, Colin, there is I would say a number of actions that are in process.

You saw us take a charge in the fourth quarter of last year relating to a facility in France, and another one in the first quarter of this year relating to a different facility in France.

Those actions are underway.

A lot of the benefit will start to come to us a little bit later.

And some of those actions were done because of some product movements from the customer's standpoint, so the benefit is more of just mitigating against a future loss.

A lot of the corporate actions continue to go through, I would say a lot of the corporate SG&A and fixed cost reductions we have targeted.

We are still on plan to the presentation we put out at the Deutsche Bank conference back in January if you reference that document.

We are looking but a lot of the actions we have will pay more dividends in 2014 as it takes a while to set up some of these.

So I would say we are still on path.

Some of these things just move as far as the cash and the timing of the expense a little further out in the calendar as we pace them appropriately from a business and operating perspective.

I would add to that that in addition we have seen some pretty darn good revenue growth in the first half of the year which has also created some headwind there.

And I have been pleased with the fact that we still have the plan despite that.

Secondly, we have also done the spinoff if you will of the Climate business in the HVCC activity and as you go through that transaction, little things, it is interesting -- I was over there a few months back and now every water tower, every piece of stationery, every sign, every door, every bus for employees has got the Halla Visteon Climate Corporation.

So this whole infrastructural change in the cost of transferring and creating that new business get embedded in your SG&A and it has been done and completed.

Again we haven't kind of missed our task on it.

So a lot of good work going on in that and I do say that we are on path confirming what Jeff said.

Great.

Thanks for the color.

Brian Johnson, Barclays.

Good morning.

A couple of things.

You have got cash building up on the balance sheet.

Any thoughts on when to move on the share buybacks and any reason not to have done it in the past quarter?

Regarding what we are going to do in the future, you will be the second to know as we execute our plan.

But I would say first of all, we outlined a two-year business or a two-year plan stock buyback plan.

We were aggressive in the first quarter.

We intend to maintain that plan and look at opportunities.

If there are opportunities to expand that, we will.

I think again just like we were in the first quarter of sitting back and looking at the year and getting comfortable with the year, we now have got six months behind us, let's assess where we head the rest of the year and take a look at the marketplace.

A lot of dynamics; but again, we have I think been very clear that the businesses themselves generate sufficient cash to reinvest.

They are cash generating businesses and they invest themselves.

If we have excess cash over time, it will work its way back to the shareholder.

Secondly, Halla has had a nice run-up in stock.

You have always talked about its 51% makes more sense than 70%.

Any thoughts on potential timing of monetizing some of that Halla position?

I think today is the first time that the investment community has had a real good shot at looking at Halla Visteon as a combined entity.

I ask you to look at page 20 in our deck which is the Climate footprint and the Climate financials, and as you see we have got some pretty good momentum there.

So the question is timing is let us execute there a bit.

We have no gun to our head.

There is tremendous growth there, there is a tremendous order book there, there is margin improvement there.

So let us get a few quarters of that under our belt and let the market respond to that and then we will come back and answer that question.

I don't feel at this point in time that that stock has achieved a value for which it is attractive for us to start monetizing.

Okay.

And then a final question around Interiors.

Can you quantify the recovery that helped in this quarter?

And then just secondly, there wasn't a lot of growth in this which I think was good because it is the least profitable business.

Is that by design?

Is their business a trading off here that might make it more digestible to a buyer?

And as it trades off, can you reduce the cost base proportionately?

That is about $7 million or $8 million, Jeff, of one time?

$11 million year-over-year.

Yes, $11 million year-over-year difference, the one-time event.

And that is (multiple speakers) business equation?

Just to be clear on that, it is engineering recoveries which are just episodic.

In this business we tend to -- we bill out our engineering time but before we can recognize it in revenue, certain milestones need to be met.

So it does not -- it is not necessarily a one-time event, it just comes in episodically (multiple speakers) programs.

But it is also nice to see the customers actually pay.

Also a good thing but I would say this.

The order book for Interiors has not dried up.

There are certain pieces of business that roll off because of the very nature of where we are taking the company but we are sustaining that business, we are interfacing with the customers, we are investing in the business.

We are not bleeding it for cash.

We are creating a sustainable business that we feel will be better properly placed in the hands of a interior consolidator.

This is a business for which you need a good global footprint.

As you know, we don't have an Interiors presence in North America so there are people that are in this business that we believe are more appropriate stewards of these assets.

But the way to optimize the value of that business to those people is not to bleed it and to not go out and be aggressive where we can where appropriate and achieving new business.

So you will see -- I think we have discussed in the past in our cash flows that we are investing in the business, we are putting engineering money there.

We are also putting capital in place for new programs.

So that business will continue to be optimized but optimized does not mean to be milked.

It does mean to be put in a position such that it is attractive and can transition to a new owner as seamlessly as possible.

And a final question on Electronics, we heard Delphi noting a bit of softness in high-end electronic systems.

Harmon noted its major growth was in midmarket and (inaudible) the branded audio was down a bit.

What A, what are you seeing in terms of mix within midrange versus upper electronics infotainment uptake?

And B, kind of where is Visteon's business positioned in that sort of scalable midrange versus higher-end systems?

It is a good question.

We compete primarily in that space in the low to midrange.

That is our sweet spot and what we are seeing is that we can effectively add content in the low and midrange and continue to move up.

So part of the pressure that is being felt in the upper end is because of platforms we have, the Eagle platform being one of the Electronic platforms we have, of achieving some of the customers' needs.

As you look especially globally, the world is not all upscale C and D sized cars.

It is mostly an A and B world.

It is a world of very cost-effective lower-priced product and that has been our historical footprint.

If you look at the Volkswagen business that we have discussed in the past and the Renault Nissan business we have discussed in the past, large vehicle platforms, right focus in that area.

The Ford platforms again not in the upper end but in the low to mid range globally and that has been a good vehicle growth for us and we don't see that changing.

As a matter of fact, that is really one of the engines of growth for us in our future.

And if you just had to flag a publicly disclosed platform clients could look at to say okay, I get it, that is a leading-edge midrange system, certainly know that (inaudible) in Las Vegas but something that is in the market now and selling well?

Well, I think most of the Ford products globally.

The Renault Nissan B platforms, the Volkswagen A and B platform product, I think are probably an area to look at as far as a vehicle for us that we can discuss I guess.

Okay, thanks.

Thank you.

(Operator Instructions).

Kirk Ludtke, CRT Capital.

Good morning, everyone.

A couple of follow-ups.

With respect to -- you mentioned that you would like to get the tax rate down and one strategy for doing that might be to move some debt into areas where you have taxable income.

The 6.75 are callable next year.

Can you talk a little bit about how you might reposition the debt?

And I guess more specifically, what your target leverage is for the business on a consolidated basis?

Kirk, I will answer that in a few different ways.

But I would say one of the focus points for us is looking at our earnings line and looking at tax and I don't recall the exact page number in the appendix of our February 28 conference call, but we gave a page in the back that showed our taxable income and profitable locations -- or our PBT and profitable locations around the world.

And our effective rate there was in the low 20% range.

But then we summarized the amount of losses we made in areas around the world obviously where we weren't enjoying any tax benefit and the US is one of those.

We don't have much operations in the US as you know.

Having our debt here is something we have looked at.

It certainly doesn't give us a tax benefit as it would in some other jurisdictions around the world.

But that whole equation of how we look at it is much more I would say -- there is many more things in the equation than just our debt location as we look at -- as we talk about our service organizations and central service environment, where those are located and making sure we have those things as much as we can matching up against profitable locations that they are serving so we can enjoy a tax deduction for those type of expenses.

And as we looked through I would say all of those things we are seeing opportunity.

It is going to take a little time and energy to manifest itself but I would say our target leverage is probably peer group average.

I don't think we want to get away from ourselves there.

I would probably say we are a bit underlevered today.

We have certainly opportunities to increase our cash balances going forward.

But trying to put that in locations around the world, then I would say there is a lot of opportunities for putting it in different regions where we can enjoy the tax benefit.

I think, Kirk, your comment though that this is becoming a more financially attractive debt to address is true and we are obviously cognizant and aware of that.

I'm sure.

You mentioned that you wouldn't lever up to buy something.

But I guess is it conceivable that you would lever up to pay a special dividend?

Special dividends have not been a focus of the business and a priority given especially some of the tax nature of some of our shareholders.

I think the first issue here is migrating debt from the parent to the subsidiaries to subsidiaries where appropriate.

As I said I think in the past a number of times that probably at the Visteon Corp.

perspective, that long-term should probably be not an entity where you carry a lot of debt.

But in the interim period, the next couple of years as we transition through this, probably replacement of that debt into the more efficient areas and more tax efficient areas is clearly a priority.

But again, I will come back and look at the migration of the debt away from the parent to subsidiaries where appropriate will be explored.

I think the issue is that is a more efficient use and a more appropriate use of that capital.

Great.

That is very helpful.

Great disclosure.

Thank you for it.

Appreciate it.

Thank you, Kirk.

Thank you.

We have no further questions at this time.

Very good, Jennifer.

With that, I would like to first of all thank everyone for your questions and your participation in today's call.

And I would like to turn it over to Tim for his final comments.

Thanks, Bob.

Thanks to all of you for your interest in Visteon and your support of the Company.

We know we have a path here that we still have a lot to execute on.

I go back to that September 19 presentation back in Boston at the Citi conference and the update we did at the Deutsche conference in January as far as setting guideposts and setting targets and setting objectives not only tactically but strategically where we want to hit.

We have further work to do and we have further execution to achieve but I do sit back and say I have been very pleased with the team this quarter as far as just looking at the fundamental side of this.

And again, I'm sure we will see some of you next week at the J.P. Morgan conference so we can go into greater depth on some of these questions.

But we feel comfortable with where the direction of the Company is.

We are generating value and we like the order book.

I would say that the order book has got some good momentum this year.

We will discuss that obviously later.

But I feel that we are positioning Visteon for growth and for margin improvement and the story will continue to unfold quarter after quarter.

So again, thank you for your support and we look forward to seeing you next week.

Thank you.

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

Thank you for your participation.

You may now disconnect at this time.

Good day.