Good morning and welcome to the Visteon second quarter 2008 earnings conference call. All lines have been placed on listen-only mode to prevent background noise. As a reminder, this conference call is being recorded. Before we begin this morning's conference call I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions but rather, are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the slide entitled 'forward-looking statements' for further information. Presentation materials for today's call were posted to the company's website this morning. Please visit www.visteon.com/earnings to download the material if you have not already done so. After the speaker's remarks there will be a question-and-answer period. (Operators Instructions). I would now like to introduce your host for today's conference call, Mr. Derek Fiebig, Director of Investor Relations for Visteon Corporation. Mr. Fiebig, you may begin.

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

Thanks, Derek and good morning everyone. During today's presentation I will provide a brief look at the global market and an overview of our second quarter and first half performance. As you'll see throughout today's presentation our geographically diverse sales base, our restructuring activities, and our focus on improving our cost structure are enabling us to show improvement in our financial results despite a very challenging market. Additionally our recently completed debt transactions were both excellently timed and now provide a debt structure with minimal maturities through June of 2013, and combined with our current cash balance of $1.5 billion provides us with sufficient cash and liquidity to run our business and implement our plan. As we look at the remainder of 2008, there are significant challenges ahead. However, based upon our first half performance and our outlook for the next six months, we are maintaining our full year EBIT-R and free cash flow guidance. Turning to slide 2, as you know global production levels vary greatly on a regional basis. In North America, the market is going through a significant volume downturn as well as a significant shift in product mix. Europe remains fairly stable with pockets of weakness in some Western European countries offset by growth in Eastern Europe, while Asia continues to grow. Commodity cost pressures are high and volatile and are not expected to abate in the near future. Our most significant exposures are in aluminum and resin. Aluminum market prices have been fairly stable this year, while resin costs have increased significantly and we continue to work with our customers and our suppliers to reduce the impact of these increases. Despite this difficult environment, our first half results significantly improved over last year. During the quarter we improved our margin substantially and excluding onetime items,…

Thanks, Don and good morning, ladies and gentlemen. Slide 14 provides a summary of our second quarter financial results. Product sales of $2.78 billion were essentially even to the prior year, yet as Don just reviewed, we continue to experience a shift in the composition of our sales across customer, product group and region. Our product group gross margin for the quarter was $230 million compared to $154 million a year ago, a $76 million improvement. EBIT-R was positive $78 million for the quarter as compared to $15 million a year ago, an improvement of $63 million. Cost improvements on our product groups, including restructuring savings, as well as other actions we are taking to address our cost profile, drove much of the improvement in EBIT-R. The second quarter also reflects a curtailment gain from employee post-retirement benefits related to the closure of the Bedford facility, which we've discussed in the past. Our net loss for the quarter was $42 million, and improved by $25 million compared to 2007 despite the $18 million of net on a reimbursed restructuring costs and an increase in income tax expense of $21 million. Free cash flow in the quarter was positive $53 million, compared with $66 million in the prior year. Turning to first half 2008 financial results on the following slide, for the first half of 2008 our product sales are $5.52 billion, were lower by $71 million from a year ago. However, on lower sales our product gross margin increased by $155 million to $424 million. And EBIT-R of $129 million, compared to a loss of $31 million in 2007 represented an improvement of $160 million. Despite an increase in tax expense of $55 million and $41 million of restructuring expenses that were not funded by the Escrow Account, our net…

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

(Operator Instructions). Our first question is from Joe Amaturo of Buckingham Research.

Good morning.

Good morning, Joe.

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

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

So about $12 million, the quarter going forward?

I think that the… talking about Swansea, obviously with the disposition of Swansea, we won't have a reimbursement for that. But going forward, that would probably be about accurate.

Okay. And then, given that the Dodge Ram heavy duties is delayed and there's all these start-up issues, because of the volumes, obviously capacity utilization for those facilities probably lower than what you thought in January. How should we think about interior margins in the second half of the year? Should they erode from where we saw them in the second quarter or--?

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

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

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

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

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

Okay, thank you and good quarter.

Thanks, Joe.

Thank you, Joe.

Your next question comes from Chris Ceraso of Credit Suisse.

Thanks. Good morning.

Good morning, Chris.

Hi Chris.

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

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

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

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

Do you think it will be notably more difficult in '09 because of the timing of any contracts or anything like that?

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

Okay. On slide 25, the cash flow reconciliation, on the first half 2008 versus the first half of '07, can you just tell us what's within that other changes bucket? I'm sorry if I missed that. It was $113 million negative in first half '08 but $55 million favorable in the first half of '07.

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

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

Chris, if you're looking, you'll see in our 10-Q that we always publish. One of the biggest contributor is obviously from our equity income is our Yanfeng, distant joint vent. It does have a sizable interiors position. In those margins, and you can see the results in total of Yanfeng included in our 10-Qs. But again as Don indicated, we continue to see an expansion with that joint venture and bolted sales and its profitability. And if you think about it, obviously our profitability would include a fairly significant composition of interiors business, so little different margin profile.

Okay. Great. Thanks a lot guys.

Your next question comes from John Murphy of Merrill Lynch.

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

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

Okay. And then when we think about capacity actions and changes that are going on, not just at Detroit 3 but also some of your other customers, particularly Nissan, and the closure of Durant, I mean what is your flexibility in the near term and how quickly can you respond to changes like that?

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

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

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

But the 265, we should assume is purely incremental?

265 is purely incremental, absolutely.

Great. Thank you very much.

Your next question comes from Patrick Archibault of Goldman Sachs.

Hi, Good morning.

Hi Patrick

Good morning, Patrick.

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

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

Okay, great. And also, if you have it handy, can you give us the amount of available liquidity on your credit facilities as well?

Patrick, the credit facilities that's between the U.S., ABL and the Europe securization facility is about $280 million as of the end of the quarter.

Okay, both taken together in terms of available liquidity?

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

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

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

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

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

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

I think on the back half we kind of lay it out. On the EBIT-R watch for the second half, I would use that for your modeling purposes and above that you will see that the currency impact on sales and then there's a currency impact on EBIT-R. I would use that for modeling purposes. I don't have the split between transactional and translation with me, its something we can call off of you on post our call.

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

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

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

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

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

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

Okay. Well that's all I had. Thanks a lot, and congratulations on the quarter.

Thank you.

Thank you.

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

Hey, good morning.

Hi Jeff.

Good morning Jeff

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

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

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

Sorry, I didn't understand the question.

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

Down in Mexico, that's right.

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

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

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

Yes, it is, Jeff.

Okay. And last question is just kind of housekeeping, the dividend, I assume it's for Yanfeng, it is page 25 I'm referring to.

Right.

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

We talked about the last quarter of '07 that we did have a distribution, early distribution, if you will, for Yanfeng. To your point, that dividend normally would have occurred in the second quarter. Obviously, it didn't occur because we pulled it ahead in 2007 because of some tax efficiencies that made it sensible to do that. We obviously will continue to look with our partner at the investment required in Yanfeng. We don't really disclose when and/or if we would get a dividend and what period. So, again, that JV continues to grow, and it is always obviously looking at additional investment opportunities with respect to the cash and whether you make a dividend or not.

Overtime, what is the expected dividend payout ratio there?

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

Okay. Thank you.

Your next question comes from Mark Warnsman of Calyon.

Good morning.

Hi, Mark.

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

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

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

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

Okay. Thank you.

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

Your last question will be from Kirk Ludtke of CRT Capital.

Good morning, guys.

Hi Kirk

Good morning

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

Never too early to think about a new business.

But is it something that's being resourced or is it too early to be actually seeing some awards?

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

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

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

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

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

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

It certainly makes sense to me.

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

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

To go into production or to ramp up?

Go into production.

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

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

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

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

Okay. I might have missed it but are you still providing '09 guidance?

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

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

We sold it. It was sold at the middle of the first quarter.

It was $133 million in sales a year ago.

Okay.

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

Okay. Sorry about that.

Okay. No problem

Great slides. Best in class.

Okay.

Alright, well. Thanks for joining us on the call. I will be around the rest of the day to answer your questions. Bye now.

Thank you.

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