Robert R. Krakowiak - Vice President and Treasurer Timothy D. Leuliette - Chief Executive Officer, President and Director Jeffrey M. Stafeil - Chief Financial Officer and Executive Vice President.

Colin Langan - UBS Investment Bank, Research Division Steven Hempel - Barclays Capital, Research Division Itay Michaeli - Citigroup Inc, Research Division.

Good morning, and welcome to Visteon Second Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we begin this morning's conference call, I would like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the slide entitled Forward-Looking Information for further information.

Presentation materials for today's call were posted on Visteon'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, Visteon's Vice President, Treasurer and Investor Relations 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 Executive Vice President and Chief Financial Officer. We appreciate your interest in our company and taking the time to join us for our review of the second quarter of 2014.

We have scheduled the meeting for an hour, and will open the lines for your questions after Tim and Jeff's remarks. As previously mentioned, a presentation deck associated with today's call is posted on visteon.com within the Investors 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..

One, they're growing because they are technology-focused and they're industry-leading technologies, so they're technology-driven growth. But they're also growing because they're positioned properly regionally. We have a strong Asian presence, the combination of technology-driven growth with an Asian presence helps fuel, we think, value creation.

And we've kept a strong balance sheet with a net cash position. And again, we're focused always on shareholder value of every action we take. The 2 businesses, as you see, one #2, one #3, both with growth above -- in the short term and long term above the vehicle build and GDP, and good strong EBITDA margin improvements.

And we can share some of that with you, obviously, of what our performance was in Q2 and how we see that going forward. Let's move on now to Page 11, and I want to focus a bit on the Electronics transaction as it's now completed and what our vision is there.

Right now, we're the #3 provider in the world of cockpit electronics, it's an area of significant growth, #2 in driver information. We're now better-balanced, Asian, America and European, than we were before. Broad customer profile from entry-level vehicles to the high end of the German luxury brands. We are a full-service provider in the cockpit.

We're not just in infotainment, we're not just in driver information, we're not just in heads-up display or the interface of those systems with the rest of vehicle, but in all of those activities. Our R&D footprint is global and low cost, and we have market-leading scale because of the size of our business and our engineering resources.

We now have, as a $3 billion company, the power to play ahead in this business very effectively. Moving on to Page 12, you can see again pre the JCI acquisition and post the JCI acquisition of where we stand on this space. Conti #1, Denso and we tied roughly for a 10% share, then Harman and Alpine, Panasonic, Delphi, Bosch, et cetera.

We have the critical mass in the space to compete, and that's what it allowed us to do. Moving on to Page 13, you can see some of the pie charts here with respect to product, region and customer. As you can see, on Page 13, we're very dominant in this instrument cluster and display area, but obviously we play very strongly in the remainder.

A balanced regional footprint. Again, Asia growing faster than the rest of the world. And you can see Ford is a large customer, but the Nissan/Renault, BMW, Honda, PSA, a very global portfolio of businesses, all with different growth curves because of vehicle launches, et cetera, over the next few years.

But again, we anticipate again a very balanced customer profile as we expand this business. I'd like to move on to Page 14. This is kind of the array of products now that we have within our Electronics group. OpenAir, which is our software for infotainment. LightScape for our cluster driver information.

We do infotainment head units, head-up displays, rear-seat, body control modules, in-vehicle wireless charging, et cetera. You can read the chart. It's a broad portfolio of capabilities to step in with a customer and address all their needs in the space. We have the capability, very strong.

But the question is always, "What did you see inside JCI that made you want to buy that business? What were the technologies that got your attention?" And I'd like to address that on Page 15. These are just 3 examples of the technologies that we were excited about as we looked at JCI.

The first one, Visteon Fusion, used to be called JCI Fusion, it's a Fusion product line. And the takeaways from these are not so much what the technology does, we're talking about new microprocessors that JCI and their engineering people worked on for years with the semiconductor industry that are now just coming in beta form to us for testing.

But this product will change the way you interface with the vehicle, the vehicle interfaces with you and the vehicle interfaces with the cloud, in a way similar to what the iPhone did for phones. This is a significant change and a significant technological leap forward that we're very excited about.

It has consumed a lot of my last 30 days with customers in getting this launched, in getting this into their hands to look at. This is a gateway to the cloud. It will allow for the customer to have graphics on a glass cockpit that rival any tablet, any iPhone, any smartphone in your hands today.

This will change significantly the graphics and the interface between infotainment, driver information and HUD, and being allowed to move whatever is appropriate to your line of sight and to no longer have this demarcation between the center stack and the instrument cluster and defined information.

This will now allow to merge into an appropriate priority, an appropriate access for the driver.

It also, because of the design of the system, which is now allowing up to 16 CPUs on common silicon, to allow us to run various domains, separate domains and different cores of the microprocessor so that you can run QNX for one system, Linux for another, Android for a third, and do it in separate cores so that you can change the infotainment deck without affecting anything else in the system.

If we try to connect these all with software, we would have 25 to 40 million lines of code. This is a much simpler system for the customer and the OEM to be able to update significant parts of the system without affecting others.

It will allow us to download new clusters, new infotainment packages to the customer, it will allow the OEM to download warranty repairs, to download software upgrades, not just for the infotainment package, not just for the cluster, but as a gateway to all the other ECUs in the vehicle if that OEM so desires.

This is a significant leap forward, and obviously when we're out there with OEMs, we haven't seen anything competitive with this and we are very high on this. This technology alone can pay for the acquisition of JCI. Let's move to the next one, advanced infotainment system. This is affordable interoperability.

This allows a low cost, very affordable system to be put in, this happens to be in the Mazda 3, which is met with great reviews -- the great reviews.

To be able to have all of the systems and capability of a high-end system, but by grabbing apps off the phone and making it simple and low-cost, making the interface something that people are comfortable with because it's what they do on their iPhone or their smartphone.

This system, which was launched in the Mazda 3 to, as I said, great reviews, is now able to be expanded to other OEMs. It's a turnkey, complete system that allows for streaming services such as Pandora and others, and really allowing the interface of the vehicle to become that mobile device that we've talked about.

The technology is done, engineering is complete, it's been launched with Mazda, it can be launched with others. So let's move up to the third item here on the page. Digital Light Processing, DLP, for windshield heads-up display. The term here I want you to think about is augmented reality.

What does that mean? Today, with heads-up display, you look out, you see a few numbers that they float out about 2 meters in front of you visually, and it gives you a modicum of information. But now think about Monday night football and think about the 10-yard line -- the 10 yards that the team has to achieve to get its first out.

There's a line on the field as you see it, it's not really painted on that field, but it's painted on you mind, it's painted on your screen because it's augmented reality. We've been able to digitize information and lay it on your reality. This heads-up display will be able to go out 150 meters and grab information with respect to your destination.

For example, we will overlay on the road the path you need to take for your nav system. We will highlight the building that you plugged in the address, we'll highlight the Starbucks, the gas station, or the ATM location if that's what you want. It will be overlaid on the reality as Monday night football overlays that line on the field.

This will change the heads-up display and make it an integral part of the vehicle interface. And this technology whether it's part of Fusion or on a standalone basis has had tremendous reaction from customers. These are just 3 reasons why we like to buy JCI.

Moving on to Page 16, remembering that the vehicle is the fourth screen, the computer, the mobile phone, the computer, now the automobile. These technologies and turning this vehicle, as we said, into the largest mobile device a customer will ever buy, is changing and growing the segment.

The impact is going to be later in the decade and early in the next as the technologies become available, but this is a future of significant growth. Moving on to Page 17, our role here looking at connected opportunities is an area that we'll spend more time with you as the investment community on where we're headed on connected services.

If you look at the page, there's -- I'll just pick one item, the digital wallet. One of the cores of that Fusion microprocessor that we will have would allow you to book your charge card. And you can automatically pay for your tolls, your fees, pull into your Starbucks and pay for Starbucks.

Do what you need from the vehicle with just the pressing of a button on the steering wheel, because you have a dedicated standalone banking element embedded in that connected service. So a lot of areas here of opportunity that will expand our footprint beyond what we have shown you to date. We'll talk more about that as the 2015 rolls along.

The future of the next 5 years, Page 18, a lot of technologies coming to this space. They will flow in to the automobile, including curved screens, flexible displays, the connected head-up display.

As I talked to you about, the DLP that I mentioned here a couple of pages later, will change forever the interface of the heads-up display in the vehicle, vehicle to vehicle and the wireless gateway, whether it be 4G or WiFi.

Again, the fusion product will allow downloads, warranty activities as the vehicle sits in your driveway or sits in the garage at home. Significant activity here fueling the growth. Moving on to Page 19, again, why we did this and summarizing up the commitment to Electronics.

If we go back to where we were in 2012, '13 with $1.5 billion of Electronics, we now have $3.8 billion of revenue in this business in 2017, with the majority and excitement of growth post that period to take this number even higher. #3 in the world, a very diversified player, very capable in this space.

So again, now that the Electronics transaction is done, now you get to see a bit of why we are interested in this business and what role it will play. Before I turn over to Jeff, a summation here of this, and that's basically that our view is that we have 2 businesses here driven by technology-driven growth, Asian-centric.

But the key to all of that is you have to execute. You've got to be able to deliver to the bottom line. And with respect to delivering to the bottom line and what we did this quarter and what our plans are for the next year or so, let me turn it over to Jeff.

Jeff?.

Great. Thanks, Tim. Thanks, everyone. Turning to Page 21 of the slide deck. And before we get into our financial results for the second quarter of 2014 and our revised guidance, I want to highlight some key items that will impact the numbers. We definitely had a lot of activity in the quarter.

As Tim mentioned, beginning in the second quarter, we have reclassified the majority of our Interiors business as discontinued operations in the financial statements. Our income statement has been adjusted to exclude Interior-specific income and expense, and Interior net profit has been reflected on one line item as discontinued operations.

Second quarter 2014 results have been recast to conform to this presentation as that results for prior periods. This treatment reduces Visteon's second quarter and year-to-date sales by $258 million and $522 million, respectively.

In addition, certain Interior legacy operations still subject to divestiture or wind-down are reflected as the Other product group in our segment reporting. We've also adjusted our full year 2014 guidance for a number of items.

In addition to the discontinued operation treatment for the majority of Interiors, we have updated our guidance to reflect the acquisition of JCI Electronics beginning on July 1, the acquisition of Cooper-Standard's Thermal & Emissions division during the third quarter, and for the pension annuitization agreement Tim referenced in his presentation.

I will provide more details in our updated guidance later in my presentation after I review our second quarter and year-to-date 2014 financials. Turning to Slide 22, I provide a brief update on our transactions to dispense -- dispose of our Interior operations. As we previously announced, the sale would encompass 3 transactions.

We have completed the sale of our interest in Duckyang and have announced an agreement to sell the majority of the remaining business to an affiliate of Cerberus. We are still working to finalize an agreement to sell the last remaining piece of this business, and are targeting an announcement by year end.

Overall, the transactions are in line with our previous guidance of an approximately neutral value impact. Regarding the Cerberus transaction, we are anticipating a closing before year end. We will recognize a charge of $173 million in Q2 upon announcement, and anticipate an additional charge of roughly the same amount in the second half of 2014.

The vast majority of this anticipated charge is noncash in nature. Turning to Slide 23, we addressed the financial impact for the Interior operation being sold to an affiliate of Cerberus. The adjusted EBITDA of this business was $18 million in 2013 and is $27 million through the second quarter.

2014 adjusted EBITDA includes approximately $7 million of noncash items and approximately $12 million of cash-related commercial agreements. We anticipate the business will have approximately breakeven EBITDA in the back half of the year.

The free cash flow for Visteon would be $18 million and $50 million higher, in the first half of 2014 and for the full year of 2013, respectively, if this business was excluded. Further, we anticipate this business will have negative -- would have a negative $65 million cash flow impact for the full year of 2014.

At the January 2014, Deutsche Bank conference, we gave adjusted EPS guidance of $2.65 and stated that our Interior operation, in total, had a 45% negative impact. Our prior EPS guidance, excluding Interiors, would have been $3.10 per share. We have now increased our guidance, excluding discontinued operations to $3.30 per share.

This reflects improved performance and the acquisition of JCI, partially offset by the elimination of the noncash pension gain discussed earlier and a higher average Visteon share count driven by a delay in launching our accelerated buyback program from the first quarter to the second quarter.

Moving to Slide 24, we present our key financial results for second quarter 2014 compared to the second quarter of 2013. The top half of the slide highlights results for our continuing operations, excluding our Interiors business that has been classified or reclassified to discontinued operations.

On the bottom half of the slide, we provide key financials, including discontinued operations. 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 U.S. GAAP financials in the attached appendix on Pages 38 through 40.

Additionally, year-over-year comparisons are impacted by the consolidation of our Yanfeng Visteon Electronics operation. The consolidation of YFVE explains a portion of the year-over-year growth in sales, adjusted gross margin, adjusted SG&A and adjusted EBITDA.

Adjusted EBITDA, excluding discontinued operations with $175 million in the quarter, were $26 million better than last year. The year-over-year increase reflects improved Climate and Electronics performance, despite unfavorable currency impacts and the consolidation of YFVE.

Adjusted EBITDA, including discontinued operations was $193 million in the quarter, which as Tim mentioned was a record for Visteon. Adjusted free cash flow was an outflow of $18 million, $20 million lower than last year.

The negative free cash flow in the second quarter of 2014 is more than explained by lower working capital related to the calendar-driven payment delays, which benefited first quarter of 2014 but reversed in the second quarter. I will cover more of the metrics on the following pages. Turning to Slide 25.

We compared 2014 second quarter sales and adjusted EBITDA to last year's results. Q2 2014 sales were $1.782 billion or $172 million better than the second quarter of 2013. The increase was driven by the consolidation of YFVE and higher year-over-year sales in Climate, which benefited from net new business wins in Asia, North America and Europe.

Total sales, including sales related to our discontinued Interiors operations, were $2.039 billion in the second quarter. Adjusted EBITDA for the second quarter was $193 million, including discontinued operations or $175 million, excluding discontinued operations.

Adjusted EBITDA increased versus 2013 reflecting the consolidation of YFVE, and increased profitability in both the Climates and Electronics product groups.

A partial offset to increase product group profits were corporate costs, which increased $5 million year-over-year, reflecting unfavorable currency and a loss of a billing arrangement with our former Lighting business that ended in mid-2013.

Turning to Slide 26, we show our second quarter sales and adjusted EBITDA for our 2 main product groups, Climate and Electronics. We will cover the financials for each of these product groups in the following pages. On Page 27, we provide an overview of our 2014 year-to-date results versus the same period last year.

Sales increased 10%, driven by the consolidation of YFVE and higher year-over-year volumes and new business wins in Asia and Europe related to our Climate business. Adjusted EBITDA, including discontinued operations, was $363 million, an increase of $59 million versus last year.

On Page 28, we provide an overview of Climate sales and adjusted EBITDA for the second quarter and for the year-to-date 2014 versus the prior year. Climate sales in Q2 were $1.332 billion, up $85 million or 7% compared with 2013. For the first 6 months of the year, sales increased $125 million versus last year.

The year-over-year increase for both periods largely reflects Hyundai-Kia, net new business wins in Asia, North America and Europe, as well as higher Ford and Hyundai-Kia volumes in Asia.

Currency positively impacted both periods as well, largely related to a stronger Korean won and euro, which more than offset the negative impacts of a weaker Thai baht and Indian rupee. Customer agreements include a $12 million commercial claim recognized in the second quarter.

Adjusted EBITDA was $147 million and $264 million for the second quarter and year-to-date, respectively. For both periods, adjusted EBITDA increased versus 2013. The increase reflects higher volumes, net new business wins, the $12 million commercial claim and positive business equations in both periods.

Partially offsetting these impacts was unfavorable currency largely related to the negative impact that a strengthening Korean won has on our profits, as well as currency transaction losses on balance sheet amounts denominated in currencies other than functional currencies.

Climate adjusted EBITDA margin was 11% in the second quarter, 10 basis points higher than the same period last year. On a constant currency basis, Climate adjusted EBITDA margin would have been 12.0% or 110 basis points higher than second quarter 2013.

As mentioned last quarter, we have initiated a substantial effort to reduce our exposure to the Korean won by localizing more of our supply and production globally. These efforts will begin to have meaningful impact in 2015, but we will continue to remain significantly exposed to the Korean won for several years in the future.

Turning to Slide 29, our electronics sales for the second quarter of 2014 were $443 million and adjusted EBITDA was $50 million. On a year-to-date basis, sales were $882 million and adjusted EBITDA was $107 million.

Sales increased versus 2013 for both the quarter and on a year-to-date basis, largely driven by the consolidation of YFVE and net new business wins in Asia, South America and Europe. Adjusted EBITDA increased $20 million in the second quarter versus 2013 and $51 million on a year-to-date basis.

For both periods, the increase is primarily driven by the consolidation of YFVE. Net new business wins, positive business equation and favorable currency largely related to a stronger euro also benefited both periods.

Second quarter 2014 adjusted EBITDA margin was 11.3%, higher than any quarter of 2013, but slightly lower than the first quarter 2014 margin.

As we mentioned on our last earnings call, first quarter 2014 Electronics adjusted EBITDA included approximately $10 million of favorable impacts relating to the timing of commercial settlements and prototype recoveries. The timing of these items can be uneven throughout the year.

And in 2014, we recognized a disproportionate amount in the first quarter. On Slide 30, we take a look at our cash flow and our capital structure. Free cash flow was negative $44 million on the second quarter and 0 in the first half of 2014.

Adjusted free cash flow, which excludes restructuring and transaction related payments, was negative $18 million in the quarter and positive $46 million year-to-date. Adjusted free cash flow for the second quarter was $64 million lower than the first quarter of 2014.

The variance is more than explained by calendar-driven trade working capital payment delays, which benefited the first quarter but reversed in the second quarter. Cash balances, including cash held for sale, were $1.425 billion as of June 30, 2014. And Visteon closed the quarter in a net cash position of $465 million.

In the second quarter, Visteon refinanced its existing 6.75% bonds with a new $600 million, 7-year term loan B and also replaced its existing $130 million asset-based revolver with a $200 million, 5-year cash flow revolver that remains undrawn. The term loan interest rate is LIBOR plus 275 basis points, with a 75 basis point LIBOR floor.

As mentioned on our first quarter call, we also initiated a $500 million accelerated buyback during Q2. Turning to Slide 31, we provide our 2014 full year financial guidance. As Tim stated, we are updating our full year guidance to reflect better business performance and for the impact of the transaction-related items I discussed a few slides back.

Our updated guidance reflects higher adjusted EBITDA, adjusted free cash flow, adjusted earnings per share, than our prior guidance.

For the full year, we project the midpoint of sales of $7.6 billion; adjusted EBITDA of $715 million, including discontinued operations; and $690 million, excluding discontinued operations; adjusted free cash flow of $145 million; and adjusted EPS of $3.25 per share, excluding discontinued operations.

As Tim mentioned, we anticipate annual synergies from the JCI transaction of between $40 million and $70 million by 2017. To achieve these synergies, we need to invest in integration and restructuring efforts that are currently underway.

We have lowered our 2014 free cash flow guidance to reflect an approximate $40 million to $50 million investment into these activities and we anticipate that we will complete these investments in 2015 and spend an additional $25 million to $50 million -- and just correcting a comment, we have, excluding discontinued operations, our EPS guidance, midpoint, is $3.30.

Moving to Slide 32, we provide a reconciliation from our prior 2014 full year sales and adjusted EBITDA guidance to our updated guidance. Our updated full year sales guidance is now $7.6 billion compared to $7.8 billion previously.

The decrease reflects lost Interior sales of approximately $950 million, partially offset by approximately $700 million of incremental sales related to the JCI Electronics and Cooper-Standards Thermal business.

Our updated full year adjusted EBITDA guidance is now for $715 million, including discontinued operations, or $690 million, excluding discontinued operations.

The increase versus our prior guidance midpoint of $680 million, reflects $25 million on additional profits related to the transactions, partly offset by the removal of an amortization gain related to certain pension assets.

Additionally, the increase versus our prior guidance reflects $10 million of favorable performance that we expect to achieve by year end. On Slide 33, we provide our full year 2015 preliminary sales and adjusted EBITDA guidance.

As you recall, we provided 2017 guidance at the Deutsche Bank conference shortly after we announced the JCI Electronics acquisition. Specifically, we estimated 2017 sales and adjusted EBITDA to be approximately $10 billion and $1 billion, respectively. We are still on track to achieve these results.

For the full year 2015, we project sales to be between $8.5 billion and $8.7 billion, and adjusted EBITDA to be between $780 million and $820 million. Our 2015 guidance assumes we complete the sale of all Interior operations by the year-end 2014.

Moving to Slide 34, we provide a reconciliation from our 2014 full year sales and adjusted EBITDA guidance to our 2015 guidance. Our 2015 sales guidance is $8.6 billion or $1 billion higher than full year 2014 guidance.

The increase primarily reflects an additional half year of sales for JCI Electronics and Cooper-Standard's Thermal business, as well as the benefit of net new business wins and higher volumes during 2015.

Our midpoint 2015 full year adjusted EBITDA guidance is $800 million or $110 million higher than our updated 2014 full year guidance, excluding discontinued operations.

The increase reflects an additional half year of profits related to the acquisitions, as well as positive net new business wins and positive cost performance, partially offset by the loss of approximately $5 million of adjusted EBITDA related to other legacy Interior operations that were not included in discontinued operations, but we expect to sell by the end of the year.

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

Thank you, Tim and Jeff. Jennifer, please open the line for questions..

[Operator Instructions] And our first question comes from the line of Colin Langan with UBS..

Any color when we look at the '15 guidance, sales looked quite strong, but the EBITDA margin seems fairly flat year-over-year.

Any factors going on into '15 that are mitigating that upside, particularly given that there should be some synergies coming through for JCI?.

Yes. We definitely see the synergies starting to come through, Colin, but remember that JCI -- the historical business of JCI, had lower margins than our combined business. That will have a little bit of a drag. The synergies we talked about, we have pacing their way into our operations over a couple of years as well, too.

So they certainly will not all hit next year. So I think both the 2 will have a little bit of a weighting factor on our margin, but it should continue to increase as we approach 2017..

Okay, and looking at Slide 5, I mean, it says $40 million to $70 million in JCI synergies.

That's above your prior estimates that you previously had said $40 million, is not right?.

We said minimum of $40 million in the past, Colin. So we've given you a range with, obviously, starting at $40 million. But we think we could probably do a little bit better than that..

And when does that starts phasing in through '17? And what were the -- any color on what those major items within the synergies are?.

The numbers here are to be accomplished by 2017. So they start phasing in next year. As we've said, we'll layer them in, and as Jeff said, phase in through the next couple of years. The activities are basically in 3 buckets as far as synergies go. One, there was embedded inside the performance of JCI, some corporate overhead charges from JCI.

Ours are probably going to be a little different than that. So there's an element there, and those are probably easier to achieve more quickly, obviously. And then the other ones are in the SG&A and engineering side where there is now, obviously, additional engineers in the system, additional SG&A people.

But we are going to make prioritization of programs between the 2. And to that degree, there will be some synergies to come out, some efficiencies that we can book. And then the last and the slower piece of this is probably a facility or 2.

I think, as we said in the past, that is manufacturing and purchasing, and those will take -- purchasing takes a little -- is a little quicker, manufacturing takes a little longer because there are some facility-related actions there.

So those 3 buckets of corporate SG&A, product group SG&A and engineering and manufacturing and purchasing, those 3 buckets are the focal area -- focus area of the savings potential. Each has its own timeline..

And when we think about -- and these are just cost synergies. So the revenue synergies probably are going to took over 3 years since you adopt to start winning the business today..

Yes. I mean -- yes. Right, today, as I was sitting out, as we have said we have been out in the road here around the world in the last 30 days, and primarily we're talking 2018 programs. I mean, it's just the lead time of the business. So they may have a tail of launch into 2017 some of them, but for the most part, these are 2018 calendar events.

And I think we've said in the past, the reason we still feel comfortable with our 2017 target of $10 billion and $1 billion is because, for the most part in our industry, we know what business we've won. The confidence level in the business revenue base by then is really good.

The technology revolution and the real impact of JCI will extend -- is really going to impact on a revenue basis 2018 and beyond. And that's just the nature of the lead time in the industry..

Okay. That makes sense. And then is there any tax impact? I mean, your tax rate, on a GAAP basis seems pretty high, particularly there's that discrepancy between your operating taxes and your GAAP taxes.

Does the Interiors divestiture and JCI deal help improve your tax situation at all?.

The Interiors divestiture should start to improve our effective tax. It won't approve -- improve our actual dollars paid. For the most part those operations weren't paying much tax at all, and were for losses that we couldn't take the income tax benefit for. So you'll see -- should start to see some improvement in rate there.

I think for JCI, eventually, we will start to get some positive elements there, too. Over time, as I've kind of said in the past, our goal is to make our effective tax rate much clearer. I think with all the noise in 2014, it's harder to see.

We'll give you a better view of what the tax situation looks like when we get to next year or when we get to the Deutsche Bank conference, and give a more detailed view of what 2015 looks like. We'll give you an update on what tax picture. But it should get better as we go year to year to year..

And your next question is from the line of Brian Johnson with Barclays..

It's actually Steven Hempel on for Brian Johnson. I just wanted to drill down on the integration of HVCC and Visteon's core Climate business. I believe that's been progressing now for roughly 6 quarters now. I guess how much more should we expect from a synergy perspective in terms of combining those businesses.

I believe you closed that business in January of last year.

And also, if you could just -- related to a housekeeping question, how much of a revenue headwind should we be expecting moving forward from the wind-down of the legacy Climate business that wasn't transferred to HVCC? I believe on our estimates, roughly a 300, 350 basis point headwind this quarter..

Well, let me answer some of these questions and the guys will dig into some of the others as I'm talking. First of all, we have, for the most part, taken advantage of the engineering SG&A and other people-related synergies of the combining of the businesses as of yet -- up until now.

But the remaining issue is sort of the manufacturing side, and it was related to the fact that compressors -- let's take compressors, for example. We had 8 different families of compressors between the 2 companies, and we're now launching a consolidated line. That launch is in later this year for the first phase of that.

So the manufacturing synergies, which are another -- and I will say probably in the neighborhood of 50 to 100 basis points remaining of synergy impact, will occur from both the purchasing -- consolidated purchasing, as well as the manufacturing consolidations, specifically in compressors and other areas.

So you still have remaining some synergistic activities within the longer lead items. Also, we -- as result of the companies coming together, we're seeing some growth leverage that we didn't -- that was not available to either one of them in the past.

And so, again, we've talked about a 7% CAGR of growth net, net, net after productivity impacted by exchange, et cetera. We're still very comfortable of that as a threshold of growth for that business going forward in the foreseeable future..

Yes. Let me address the last part of your question, relating to some of the legacy Climate business that didn't go with the initial deal. That business, as you mentioned, did decline a bit year-over-year in 2013 to 2014 from a sales standpoint. You see that in our guidance, you see that in our numbers.

There is -- I would say, roughly, you still have about $100 million of that business, maybe a little bit more. Some of that business will continue to eke away. It doesn't have a lot of margin today. Some of that business will remain a very long time.

So I would say, that's certainly a slower growth part of our Climate portfolio, but it's certainly also built into all of the numbers. It has a bit of a margin drag compared to -- if you looked at just the HVCC financials. But at this point, it's fairly neutral. It's going to probably get a little bit better, starting now probably going forward..

Okay.

And then could you provide any additional color or clarity around the strategic direction you want to take with this 70% stake in HVCC, whether that would be monetizing some of the stake, take it down to 51% or acquiring a larger position for tax purposes?.

I think what we've said in the past is that, long term, we see that a 70% ownership is probably an inappropriate holding. But we also are cognizant of the contribution that HVCC makes to us with its current performance and what its growth may pertain.

So I think, at this point, we won't speculate probably about where we're going to head on that other than to reinforce the statement I think we've made numerous times in the past, which is, basically, we are here to optimize shareholder value. And we will look at, continuously, at what is the best utilization of the capital structure we have today..

Okay. And then just one last one on the '15 guidance here, including JCI Electronics. Does that include the backlog from JCI's Electronics business? And -- because it looks like you're only expecting roughly a 3% CAGR for JCI Electronics through 2017. And for the combined Electronics business, overall, you're looking for around 8% CAGR.

I believe you discussed in the past cockpit electronics industry CAGR of around 12%.

Is there some headwinds within JCI Electronics business that we should be aware of moving forward?.

As I stated, and this is, I guess, a good question is to be clear, is that JCI, when the company was delegated to be non-core, it was put up for sale. It impacts its ability to attract new business. And that was occurring over the last few years of JCI. We saw the same phenomena here at Visteon when we were challenged during the bankruptcy period.

Long term, as I said, the immediate reaction once the business was closed and we've met with customers, is the order book is now starting to, again, approach the figures of where we were at Visteon. It will take some time for those businesses to be launched. So you go through a period of purgatory, which JCI is going through now.

The decisions on businesses being launched in '15 and '16, were decisions made with customers in '12 and '13. The other core issue is that there is some segments in that business that are non-core to us, that we will not be prioritizing, it's a small piece, but that affects us by a couple of basis points.

Also, over time, we see this industry still growing at 10% and 12% CAGR. We do see, however, year-to-year, you’re going to get dynamics depending upon vehicle launches. '15 is a year of decent growth, '16 is a better growth year for Visteon Electronics because of the order book. So you get some cyclicality just because of vehicle launches.

So JCI will be less than Visteon over the short term, but we don't see any dichotomy as we start hitting 2018 and beyond just with customer reaction..

Okay. And then it looks like JCI's contributing roughly $23 million based on our calculation for 2014 EBITDA, which implies about 3.5% margin.

Is that related, largely related to purchase accounting adjustments? And then, if so, how much of that impact will it have on 2015 EBITDA margin?.

Yes. The -- It will start to blend away, such that we won't really be able to segregate what portion of our EBITDA relates to the old JCI Electronics business.

It will start to morph -- one of the synergies we're going to have as we pursue all the synergies, but as we pursue in particular the admin synergies, the -- we're going to be combining our functions in this operation. And the quicker we combine them, the quicker we'll have benefits on the margin.

Initially, it's a little bit difficult because even a lot of the services that were previously part of JCI corporate we're paying in a TSA, our services agreement, to them for several months as we transitioned those operations onto our own platforms and our own systems and our own capabilities and our own people.

So all those things -- for instance, we talked about there's $12 million of corporate cost we paid or they paid to the JCI corporate, those costs take some integration and some time for us to sort of completely work off of.

All those things will continually bring a better margin story for our combined Electronics business, probably over the course of the next 12 months as we work through those..

And our final question comes from the line of Itay Michaeli from Citi..

Just to continue on the Electronics conversation, the revenue synergies beyond 2017.

What's still the best way for us to model that if JCI is growing at 3%? Do you think that -- maybe you can get that up to 5%, 6%, 7% as we think about the opportunity to accelerate that growth beyond 2017? I know it's just early, but I just want to try and get a sense of what you think that target should be?.

It is a little early. And again, we're actively in the marketplace now. I would say that in 2018, you'll start to see, over 1 year or 2, the growth of what we call, at that point, JCI Electronics, and try to track it, approaching that of Visteon historically. It becomes difficult to track independently because you start to morph.

Some of these agreements, some of these contracts have significant value to them. If we look at the Fusion contracts, those contracts are, by themselves, $100 million to $150 million, sometimes $200 million a year. So they have significant impact once achieved. And so winning 1 of those or 2 of those has a significant impact on the numbers.

But we see that there's no reason why the new Visteon Electronics, which includes the JCI elements, cannot approach the prior-Visteon growth curve within a couple of years post the 2017 time frame..

That's very helpful, Tim. And then just on the margins for 2017. It seems like with the synergies for JCI, and the very strong performance in the last few quarters for Electronics, I mean, maybe you're tracking a little bit ahead of 10%.

Is that true? Maybe is there an upward bias of that 10% margin in 2017 and you're using a couple of things like additional R&D and other investments that you have to make to achieve the growth beyond 2017..

Well, I think a couple of points. One, and as Jeff highlighted, obviously, Visteon Electronics came in strong at above the 10% EBITDA level. But we're going to hit a great JCI, which will take that number down, so we got to recoup that back to the 10% level.

I think from our perspective, 2017 is -- with $1 billion target, and there's probably upside to that number over time, is that we're comfortable with $1 billion and the implied 10% or so that, that represents, at least from a planning number today. I'm sure as we get closer, we'll be able to enhance that number more.

But I think as you look at us marching through the next couple of years of that, on an EBITDA CAGR basis, it's quite a strong growth curve for any company in our sector, any company in our industry. And we're comfortable with that. And as I said, our job here is always to meet or exceed those numbers the best we can as we go forward..

That's helpful. And then just 2 quick last follow-ups on cash flow. Any kind of guidance or direction to think about the big buckets to 2015? And then also any change at all to the 2017 free cash flow of around maybe $250 million, if I recall correctly..

Yes. I guess the last part of your question, on 2017, we haven't changed our outlook on that. We'll obviously do as many things as we can take to continue to find ways to outperform that number. But that number hasn't changed. As it relate to next year cash flow guidance, we'll come with a much better view on that when we get to the end of the year.

I don't think there's going to be massive surprises. I gave you a little bit of a view of some of the tail over, probably integration expense we'll have on the JCI acquisition, a little bit of restructuring to achieve some of the synergies.

Overall, we should have less noise than we did this year, certainly, excluding -- we gave you some guidance, too, on what the Interiors business, how that impacts not only our first half of the year but a bit of how it impacts our entire year of 2014. Obviously, we expect that to not be in the numbers.

All those things will be some tailwind a bit on some of those cash flow numbers..

Thank you..

And that was our last question. And I would like to turn the conference back to Mr. Krakowiak..

Thank you, Jennifer. I would like to thank everyone for their participation in today's call. If you have any additional questions, please feel free to contact me at your convenience. Now I'd like to turn it over to Tim for his final comments.

Tim?.

Thank you, Bob. For those of you who have been following us for a few years, you know that we've established 2014 as the ending of the cleanup, paint up and fix up era of Visteon. And that we would transition in the pure focus of 2 strong high-growth businesses, well financed with a good Asian footprint to grow and expand upon.

I think you can see that in these numbers. This was a quarter from a standpoint of a press release and a presentation that was more complicated, with a lot more details associated, with a lot of the goes ins and goes outs of the Interiors' discontinued operations, et cetera.

But all of these are the positive elements of achieving the goal of getting this company to focus on this 2 strong businesses. I've been very pleased with the performance of the team this quarter. We see the rest of the year as being bright despite the challenges, macroeconomic around the world, et cetera.

Our growth is not predicated on more vehicle builds as much as it's predicated on the content of the vehicle builds that are there. So we're comfortable with our future, and we very much appreciate your support through the years. And we look forward to talking to many of you.

I know that there are some calls lined up and we'll be hitting some conferences here in next month or 2. We look forward to seeing you there. So thank you so much for your support. And again, we'll talk to you next quarter. Thank you..

Thank you..

Thank you. This does conclude today's conference call and you may now disconnect..