Mark Oswald - Executive Director of Global IR Bruce McDonald - Chairman and CEO Jeff Stafeil - EVP and CFO.

Colin Langan - UBS Adam Jonas - Morgan Stanley John Murphy - BofA Merrill Lynch Brian Johnson - Barclays Capital Joe Spak - RBC Capital Joe Vruwink - Baird.

Welcome, and thank you all for standing by. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point. Now I'll turn the meeting over to Mark Oswald. Sir, you may now begin..

Thank you, Ivy. Good morning, and thank you for joining us as we review Adient's results for the second quarter of fiscal 2017. The press release and presentation slides for our call today have been posted to the Investor Section of our Web site at Adient.com.

This morning, I'm joined by Bruce McDonald, our Chairman and Chief Executive Officer; and Jeff Stafeil, our Executive Vice President and Chief Financial Officer. On today's call, Bruce will provide a few opening remarks followed by Jeff, who will review the financial results in greater detail.

At the conclusion of Jeff's comments, we will open the call to your questions. Before I turn the call over to Bruce and Jeff, there are a few items I would like to cover. First, today's conference call will include forward-looking statements.

These statements are based on the environment as we see it today, and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for a complete Safe Harbor Statement.

In addition to the financial results presented on a GAAP basis, we will also be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. This concludes my comments.

I'll now turn the call over to Bruce McDonald.

Bruce?.

Okay. Thanks, Mark, and good morning to everybody on the call. We appreciate your taking time with us to talk about our second quarter numbers here. Although this is only our second quarter of reporting our numbers as an independent company, we're well on the way to delivering on our midterm commitments, which are really simple.

It's 200 basis points of margin expansion, and that's without the benefit of a growing equity income base, accelerating our free cash flow, de-leveraging our balance sheet, and returning the seating business here, adding to its historic growth trajectory.

If we start at slide four, some of the accomplishments in the quarter I'd like to talk about, it should demonstrate that we're not only focused here on near-term financial results, but also setting in place the things that we need to do to position the business for long-term success.

So starting off with our financials, which obviously Jeff will cover in a lot more detail, and I'll just take a few of the real highlights here. So if you look at our adjusted EBIT for the quarter, at $334 million, up 12% versus the second quarter of last year.

And if you look at the margin progression, a 100 basis points year-over-year, including [New Year] [ph], 7.9%. I just couldn't be happier with the progress that our team is making on reducing our SG&A, driving our margin expansion initiatives, and getting us to the levels that we need to get to here on a go-forward basis.

Regarding EPS, more good conversion here, and EPS up 16.3%, at $2.50 in the quarter; so getting great progress there. If you look at the accomplishments on the balance sheet I think they're equally impressive.

We had strong operating performance in the quarter, good cash generation which drove our net debt and net leverage down to $2.6 billion and 1.64 times respectively at the end of the quarter. And Jeff's going to talk about where we see the full-year leverage coming in, but on the last call we said we'd thought we'd end the year at around 1.6 times.

You can see we're pretty close to that now, so we'll be upping or reducing our leverage target here for the balance of the year, and that's good. On slide four, you also can see that we talk about the fact that we're going to increase our full-year guidance. And again, Jeff will cover that in his part of the presentation.

We also continue to make strong progress on some of the initiatives that we have in what we call our five-year marker, which really talks about where we want to be in five year's time. And really excited to share a little bit more in terms of the announcement that we had earlier in the quarter with Boeing.

Well, we're collaborating with Boeing to explore opportunities in the aircraft seating business, this is an area where we really think and we can take some of the world-class capability that we have in the automotive seat space, combined with our knowledge and expertise in delivering lower volumes that we have in our RECARO business, and applying those techniques to the complex high-margin business class seats.

Last, or in early April -- on the fifth, and sixth, seventh of April we actually took a demonstrator seat out [indiscernible] to the Hamburg Aircraft Interiors Expo, and we showed that product as an experiential prototype product.

We showed that to about 70% or customers representing about 70% of the world's airline markets, absolutely terrific feedback from some of our customers.

We'll be incorporating that feedback into a production seat here that we'll have finished off by the end of September, and that's when we'll be looking to go out into the market with the ready-to-sell product.

So, again, our adjacent market strategy is very focused on taking what we do really well in automotive and finding areas where we can leverage that expertise.

And partnering up with Boeing really bring the parts of that industry that we don't know, we get the expertise from Boeing around FAA certification, access to their knowledge on some different materials in the supply base, and obviously their unparalleled access to the world's airline customers.

Turning over to slide five, and we debuted -- had a good showing here at the Shanghai Automotive Show, the week before last. Couple of things that we could talk about here in terms of our debuts, we introduced an Integrated Luxury Seat, and our Luxury by Design concept.

In addition, in our booth we introduced our RECARO product line; we sort of had a store-within-a-store type concept. And RECARO is a real unpolished hidden gem in our portfolio.

It sells racing car seats, but also has a really higher-end niche-type product line that we saw with sports enthusiasts in aftermarket, as well as some niche applications with some of customers where they want to have a sport-type performance on vehicle.

So I think we really haven't invested heavily in our past, and we see that as something that we can take advantage of here on a go-forward basis. The brand is unparalleled, and then we talk about here on the slide, it's very rewarding to see that our RECARO brand took the top four spots in the 2017 readers' choice poll.

So, it's a great hidden gem, and it's something that we'll be looking to grow on a go-forward basis as well. Looking at some of the actions that we announced in the quarter, took to enhance shareholder value, I'm really pleased to share a few of these.

First of all, our Board of Directors announced in March, and we paid here, on April 20th, our first quarterly dividend of $0.275 per ordinary share. Our Board of Directors also authorized a $250 million share repurchase plan. The intent of this program is really to offset option dilution.

We're sort of focused, I'd say, primarily on de-leveraging and de-risking our balance sheet here, but nonetheless we do want to take some of our free cash flow, and offset accretion -- or dilution that's associated with some of our equity compensation plans.

We'll be doing some buyback in the second half of the year, somewhere in the $50 million to $100 million range. And in terms of our debt reduction, de-risking our balance sheet, we paid off a $100 million of our $1.5 billion term loan A. Clearly these actions demonstrate the commitment that we have to increase our shareholder value over time.

Turning to slide six, just put again, like the last quarter, we put a slide together of some of the important launches in the quarter, and I think the sort of takeaway from this so as you can just see how many CUVs and SUVs that we're launching.

The shift in the market that we're seeing in North America and China, away from passenger cars to these types of vehicles, is pretty breathtaking. And for us in the seating industry, we like that because there's a lot more dollars of content.

The other thing that I can point out is many of these programs; I know this is showing a number of them, Europe and Asia here, and South America, a number of these start to include our next generation of global front and rear seat structures, particularly the VW Gen II program, which is a huge launch for us, a lot of the financial performance of our metals business has been tied up in introducing a couple of really big programs.

And as that business continues to improve, and in the quarter it did better than it had last year, we're starting to see the accretive margin impact of launching those next generation product into the market.

Lastly, just before I turn the call over to Jeff, I'll spend a few minutes here, on slide seven, just talking about the global operating environment. And I'd say from a production point of view things are pretty stable. We continue to see some near-term adjustments in the U.S. primarily in passenger car.

If you look, I think on the last call, I talked about the fact that we thought there was going to be about $100 million revenue that we were going to miss that was associated with passenger car downtime. That's continued to worsen.

And I'd say that's a number that's probably more like $250 million headwind for us this year as some of our customers take weeks out of their schedule or slowdown their line speed. China continued really strong performance in the quarter.

Our sales in the seating side of the business were up 18%, or nearly three times as much as -- and I think the production was 6% to 7% in the quarter.

So, our -- if you sort of probably back out our price-downs with probably volume-wise three times higher than the market, I know there's a lot of questions about China; I spent a lot of time obviously there. I was there last week, and meet with our partners on a, at least, once every other week.

I will tell you that the optimism in the market has improved, I'd say, generally speaking, our customers or partners talk about 5% to 7% type growth that they're looking at for this calendar year.

I think some of the comments that I hear from our elite partners here in North America, I think put a little bit of a negative bias on the market and that kind of overshadowing two main trends, one is the content growth that we're seeing especially in -- coming from either richer interiors or the CUV side, but also some pretty breathtaking market share gains by some of the Chinese own brands that are really helped in the production.

And our market share gain is really attributable to the Chinese-owned brand growth. That's where we're seeing the outperformance in most of the markets. Again, I feel continuous good about China and tell you I feel better about it now than I did a quarter ago.

To look at our growth initiatives, we're gaining momentum, and you know, last quarter we talked about truck seating, this time we are talking about aircraft seating, so again I assume good growth initiatives that we have margin expansion initiatives continue to track ahead of schedule with the 100 basis points improvement here.

For us, rising commodity costs are headwinds for us and again when Jeff goes through the details, you'll see that even in the quarter we did have a negative impact of commodities primarily steel naturally just the lag effect; it takes quarter too to sort of get some of our mechanisms and commercial negotiation button down.

So, nonetheless we will have a net headwind here in fiscal 2017. And then lastly, in our cash performance and the shareholder value actions on track and better than we thought and our confidence level in terms of being able to deliver our increased commitments for 2017 I feel real good about that.

So with that, I'm going to turn it over to Jeff to cover the financials in a little bit more detail..

Great, thanks, Bruce. Good morning everyone.

Turning to our financial performance hopefully had a chance through your second quarter results for the earlier this morning and as Bruce mentioned we've had a good quarter as we continue to build on positive momentum from Q1? I'll start my comments on page 9 of the slide deck and as you can see from the table we continue to executive on driving earnings growth and margin expansion during the quarter.

I've expected revenue was down but I'll cover that more on the next page but meanwhile our earnings were up again by double digit percentages in the quarter other pages formatted with a reported results in the last in our adjusted result in the right side while reported results show well over 200% increase give it and over a $9 per share of the EPS growth.

I will focus my commentary on the adjusted numbers. These adjusted numbers exclude various items that we view as either onetime in nature or otherwise skew important trend the underlying performance. Adjusted EBIT improved 12% or $36 million versus last year which represented 100 basis points of improvement.

Meanwhile equity income was up 17% year-over-year but if you adjust for FX. It was up 22% and finally adjusted net income was up 16% despite a slightly higher tax rate than expected. I'll cover taxes in more detail shortly but clearly our second quarter is build up to momentum of our strong Q1 results.

As I'll discuss later, the strong stronger earnings translated the stronger cash performance as Well. We repaid $100 million of our term loans during the quarter and still ended up with $729 million cash balance quarter end. Turning to slide 10, I was breakdown our revenue in more detail.

We reported consolidated sales of just over $4.2 billion a decrease of $86 million compared to the same period a year ago. More than half of the decrease was driven by Foreign Exchange while the balance of the decline was largely the result of volume including recent production cuts passenger car in North America.

In addition and as we struck in earlier calls our current sales volumes is also hampered by popular constraints prior to the decision to spin off the automotive business in 2015 However since spent announcement we continue to book attractive new business and our backlog is growing.

Does we expect to start seeing asset growth again on our top line starting in 2019. The lack of consolidated interiors revenue also impacted our year-on-year results. As mentioned previously, Adient obtained a few interior operations that didn't go to Yanfeng Automotive Interiors or YFAI.

The revenue from those operations wound down over the course of last years and is effectively $0 today compared to about $19 million in last year's Q2. Excluding the impact of currency and adjusting for the run-off in interiors business, you get sales that were essentially flat year-over-year.

With regard to Adient's unconsolidated revenue, growth remains strong as the top line has not been impacted by the same capital constraints that are affecting our consolidated business.

Unconsolidated seating revenue driven primarily through our strategic JV network in China grew approximately 18% year-on-year, excluding the impact of foreign exchange.

Broadly speaking this outcome outpaced the vehicle production growth in the region in excess of two times as Adient continue to capture the benefit of our position in the market plus an improving vehicle mix, mainly the switch from passengers cars to SUVs and CUVs as well as added content as Bruce discussed earlier.

Unconsolidated interiors recognized through our 30% ownership stake in YFAI, was about flat year-on-year. Adjusting for FX though, interiors was up about 3%. Excluding the low margin cockpit sales from both periods and adjusting for FX, interior sales were actually up 21% in Q2 '17 versus a year ago.

As a reminder about 50% of our unconsolidated interior sales are generated outside China, so the result when adjusting for the low margin cockpit sales are quite impressive. More importantly and you will see in a moment, it's helped improve the earnings performance of the business as well. Let's move to Slide 11.

Adjusted EBIT expanded to $334 million, an increase of $36 million or 12.1% versus the same period last year. By segments, our seating adjusted EBIT increased 11% year-over-year to 312 million.

Meanwhile our adjusted EBIT for interiors driven by the better mix, specifically the lower cockpit sales what I mentioned a moment ago, increased approximately 29% to $22 million. The corresponding margin to the 334 million of adjusted EBIT was 7.9%, up 100 basis points versus Q2 last year.

The primary drivers contributing to the year-over-year improvement include SG&A initiatives which contributed approximately 34 million of improvement year-over-year excluding engineering. A higher level of equity income which was up about 17% year-over-year, but if you adjusted FX, equity income was up about 22% compared to the same period last year.

And finally, improved operational performance contributed about $9 million. However, we did, as Bruce mentioned earlier, have approximately $24 million of offsets to these items. Similar to our first quarter results, commodity prices namely steel and chemicals continue to escalate.

While we largely have index agreements with our customers, offset price increases or decreases there is a typically a lag of a couple of quarters until the price adjust. At this time, we see this inflationary pressures as been headwind to 2017, but these are captured in the updated guidance range we will cover in a moment.

Regarding our goal to increase our margins by 200 basis point excluding equity income, we remain solidly on track. Adjusted EBIT excluding equity income expanded by 22 million to 238 million in Q2 despite a lower sales. The corresponding margin of 5.65% was up 60 basis points year-over-year.

The improvement achieved in the most recent quarter build on progress achieved in Q4 of 2016 in the first quarter of fiscal 2017. The primary drivers of the performance in Q2 include SG&A improvements which are tracking on plans to 150 basis points of gross margin improvement we targeted.

It's also noteworthy to point out the improvements recognized to date have been achieved with lower sales. Operational performance just providing a nice tailwind and partially offsetting these benefits and as discussed earlier, we are experiencing higher commodity and material cost in FX and headwind as well.

The results posted today combined with the performance achieved over the past two quarters, demonstrate we are on track to deliver our short-term margin improvements.

Meanwhile, the metals business is operating according to plan and is expected to drive further margin expansion in fiscal '19 after they complete some of the restructuring project and execute on the significant new launch inventory in the system.

In the appendix section of the charts published today, we continue to include our historical results, which will serve as a reminder of the starting point, as well as a roadmap you can measure us against, as we progress towards our commitment.

As a reminder, the starting point we are using for the 200 basis points at margin improvement is Adient's June 2016 LTM our last twelve months results. Now let's move to slide 12, let take a few minutes to talk about our tax rate. As shown in the release, Adient's effective tax rate adjusted for special items was 14% for the quarter.

And during our tax rate, it is worth nothing that our equity income is shown net of tax in the financials and when you remove the equity income, the tax rate on a consolidated income was just under 20%.

Our effective tax rate in the second quarter and for the first half of 2017 it's higher compared to our initial expectations, due to the geographic composition of our earnings. Specifically, much of our improvement and performance has come to the United States and it does tax at a rate much higher than a average rate.

We have several tax planning initiatives underway to reduce the rate but the timing and implantation of the initiatives much be sequenced appropriately in order to maximize the full benefit.

As a result, we will now realize a full year benefit in the initiatives in fiscal '17, however, if these actions have been finalized and fully implemented at the beginning of the year. Our pro forma 2017 effective tax rate would be about three to five points lower. Based on the current plan, we'd expect to be at this run rate as we exit 2017.

For modeling purposes in 2017 plan on our ways between 14% and 15%, with the expectation that will be back to our original estimate of 10% to 12% in fiscal 2018. It's important to know that the overall tax rate will be impacted by several factors moving forward including our geographic mix in profit and any changes in global tax laws and regulations.

Let me now shift to our cash and capital structure on Slide 13. On the left side of the page, we break down our cash flow. Adjusted free cash flow defined as operating cash flow, left CapEx plus cash received in Johnson Controls with a positive $148 million for the quarter.

Cash receipts in Johnson Controls, totaling $315 million with the spin-off primarily represents working capital reinforcement. To explain let me step back to provide a little color on this topic. At beginning of the year, we are in a flat to lower sales outlook for fiscal 2017.

Our waste plan of $250 million of free cash flow guidance assumed neutral essentially a zero change in working capital requirements. However, as you could see from the table on Slide 13, Adient incurred significant networking capital headwind of $236 million year-to-date.

These headwinds were driven by spin related activity associated with our payables and receivables due to system cut over and another timing differences resulting from Jonson Control September 30 fiscal year-end and Adient spin day, October 31.

Pre-determined mechanisms were established to address this headwind essentially returning Adient back to a neutral trade cap working capital position. In the end, we received approximately $315 million for Johnson Controls; cover the working capital headwind and a minor amount of capital expenditures.

However, its $30 million to $40 million that would have been otherwise paid in fiscal 2016 under normal course. In fact, our working capital outflow shown on Slide 13 would have been greater, it's not for positive actions, the team has been able to take to improve our overall working capital position as far as Adient.

Capital expenditures for the quarter were $95 million, compared to $78 million last year. The higher level of spending supports our initiatives and focus on growing the business, and certain stand-up costs associated with our spin.

Finally, dividends from our equity affiliates were weighted are weighted more towards the back half of the year as dividends are approved and distributed in the calendar of 2016 earnings. On the right hand side of the page we detail our cash and leverage position. At March 31, 2017, we ended the quarter with $729 million in cash and cash equivalents.

This was definitely a great result as the Company's strong cash generation and cash balance has enabled us to de-lever or deliver on our commitments to initiate a quarterly dividend, which as Bruce mentioned was announced in March and paid in April and de-risk the balance sheet with prepayment of debt, speaking of debt, gross debt and net debt totaled $3.352 billion and $2.623 billion respectively at March 31, 2017.

As I mentioned in the beginning of my comments, the company prepaid $100 million of the $1.5 billion term loan during the quarter. The prepayment essentially covers the 2017 and 2018 scheduled loan amortization.

As a result of our strong operating performance, cash balance and debt pay down, Adient's net leverage ratio at March 31 was 1.64 times down about 16% from the 1.95 times at September 30, 2016.

We expect a strong operating performance and cash generation to continue as we progress through the year, in fact we now expect our not leverage ratio to be approximately 1.5 times at the end of fiscal 2017.

In addition to the dividend announcement and the debt repayment which occurred during the quarter, the Adient board of directors also approved a $250 million share repurchase program that runs through 2019.

Our primary purpose of the program is to offset dilution as Bruce mentioned from equity based compensation plans, however, the authority has also sized potential use of program for modest and opportunistic repurchases.

The dividend early debt repayment and share repurchase program clearly demonstrates our commitment to enhancing shareholder value over time. Before moving to the Q&A portion of the call, just a few comments related to the remainder of the year and our guidance on Slide 14.

Starting with revenue, as I mentioned on first quarter call, the company's top line has been challenged primarily as a result of the negative impact from foreign exchange and near term production adjustments in passenger cars and primarily in North America, at this time we see our revenue for the full year 2017 in the range of 16.15 billion to 16.25 billion.

Although we have been very successful of winning new business, the increased bookings will not have a positive impact on our consolidated revenues until 2019 fiscal year.

Despite the soft revenue guidance we continue to executive on earnings growth and margin expansion given our strong first half performance and our outlook for the remainder of the year. We are increasing our expectations for adjusted EBIT to between 1.24 and 1.26 billion representing an approximate $75 million increase from the prior guidance.

Depreciation and amortization will likely end the year at about $375 million slightly lower than our prior guide interest expense expectations are now estimated at about $140 million due to our strong cash performance.

Taxes as discussed earlier are running higher versus our original plan given the geographic composition of earnings mainly the higher proportion of US earnings.

For modeling purposes plan on a rate of 14% to 15% this year with the expectation that we will be back to our original estimate of between 10% to 12% in fiscal 2018 based on the current tax laws.

For the bottom line the range for adjusted net income has tighten to between 875 million and 900 million as the portion of the improved operating performance will be offset by higher than expected taxes.

Capital expenditures are tracking slightly higher versus planned as certain of the expenditures that were expected to occur increase led into fiscal 2017. This impact was accounted for with the final JCI true-ups discussed earlier. Finally with regard to free cash flow, we now expect to generate proximately $400 million in free cash flow in the year.

The primary drivers of the improvements include our solid operating performance, including working capital management and slightly higher equity dividend. Additionally, we expect to benefit by approximately $50 million related to the timing of certain restructuring and becoming add in costs that we expected to drive next year.

In closing, we pleased with our strong second order and first half results. Our accomplishment today provided from foundation for us to achieve our 2017 and beyond. With that, let's move to the question-and-answer portion of the call. Operator, we have our first question..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Mr. Colin Langan from UBS. Sir, your line is now open..

Great, thank for taking my questions, and congrats on a good quarter.

Can you provide a little color on the airline opportunity, I mean in terms of how fast do you think you could get a developed prototype to market, and any color on how much investment will be needed, and what kind of margin pressure that would have, and if any of that investment has already been started..

Thanks, Colin, for your congratulatory comment. Yes, and sure, I'm happy to. I think probably the best way to think about it is, first of all, there is no margin pressure.

If you recall, our roadmap for the 200 basis points of improvement, we had a downward sort of block in that waterfall associated with the investments that we needed to make to grow the business. And so it's covered within that, we're spending money.

I would tell you that the cost of developing a seat that we can go in, I'll say, a ready-to-sell type seat, and design, it's comparable to a reasonably complex auto seat. So it's not exceptionally high.

In terms of the timing, we hope to have -- well, we've basically put together in within a six-month timeframe was, we call it an experiential prototype, so something that someone could go and sit in and look in, didn't have all the completed fit and furnishing, I would say, around it, but enough to sort of demonstrate, say, some of the things that we're doing there out of the box compared to the traditional industry.

And we wanted to take that to Hamburg, which is sort of the primary -- it's the one and only aircraft interior show that everybody goes to. So we wanted to go there, have something that we could sit down and show our customers, and get some input as we sort of finalize our production intent design.

We hope to have or we expect to have a seat design finalized, and a beta-type prototype that's certifiable by the end of our fiscal year. In terms of a revenue type cycle, this is a market that on the lines [shipment] [ph] side is probably like a three-year type window.

But there's also an important part of the market that's retrofit that could be, say, two-and-a-half type years. So it's not abnormal to automotive, the timing, the costs, the processes very similar to what we're used to in automotive..

Got it, all right. Thank you. And then you've targeted 150 basis points of SG&A opportunity. You've got a lot of that passed. I mean, how much is left, and is that something we should be thinking about as we look into the second half, and the guidance implies fairly flat.

I mean, what is the opportunity that you still see left on it?.

Yes, Colin, great question. We still have lots of opportunity I think. And there's lots of things we're going to continue to push on from an SG&A perspective. We really said that was a two-year journey. So a lot is probably weighted towards 2017, but there's going to be more as we move forward, we believe..

Maybe like two-thirds of this, and maybe one-third -- in the future..

That's about right, yes. And then the thing, and Bruce mentioned this or alluded to it is, at the same time what we're starting to experience is we're still cutting some of that SG&A we don't need, we'll say from an efficiency perspective. There is an element of investment we're making for the future growth.

That the red bar or the down bar that Bruce mentioned relating to some activities to support the new order book or the larger order book, the airline or some of the adjacent market businesses. Not terribly material yet, but those things will build a little bit.

But we should still continue to see margin improvement with the view of that a lot of that 200 basis points we talked about or the really next big step of it going to be on the metal turnaround, which would start to really show in the numbers in 2019..

All right, thank you very much for taking my question..

Yes, thank you..

Thank you. Our next question comes from the line of Mr. Adam Jonas [Morgan Stanley]. Sir, your line is now open..

Thanks, everyone. So, just a question about free cash flow, so you explaining in detail and very effectively the move to the $400 million this year. Question is, looking forward to 2018, previously you talked about doubling the $250 million to $500 million.

Is there any follow-through from this year to next year, even if you can't be specific, because we don't want to talk about 2018 yet, but just in general, is there some follow-through to make that -- also lift that bias a bit?.

Yes, we'll give you more color as we get closer to 2018 or more specifics, I should say. But our 2017 numbers have a little over $300 million of restructuring and becoming Adient-type cost. And those should go down materially.

I did mention, there's a little bit of a timing element of about 50-ish of those, but net-net those should go down quite a bit as margin performance continues to come through those should both have positive impact on our free cash flow in 2018.

And then 2019 should even be better, so as we work thorough those you should see some meaningful step-ups in both years as we move forward..

Okay, great. And then my last question, if the market does not give you the appropriate value for your Chinese JVs, and I think you and your team have expressed a bit of frustration of that apparent lack of value implied in the stock price.

But if that were to continue, do you see strategic alternatives to potentially unlock the value for those businesses?.

I would say, no. I think our challenge is -- I mean we're only six months into it here. I think we were trying to enhance the granularity and our communication in the financial characteristics, the goals, and things like that backlog that we have those businesses. And so I'm certainly not ready to give up on that yet.

But I think more importantly is does the -- our Chinese operations are an integral part of our seating business. They're not sort of a hang-on. I mean, if you think about some of the customers, General Motors, they're developing global platform or developing their GEM program together with SAIC for global production.

And so us having a joint venture in China with their same partner, very beneficial for us to participate in the sourcing and development of that vehicle, and then have add-on benefits elsewhere. Volkswagen, when we talk about our Gen II frame, a huge chunk of the global volume is the Chinese market.

So our franchise without China would be severely eroded. And then one of our competitors would get out and we've been disadvantaged. And we have to do a much better job on that communication, but really can't think about that China is separatable. That's from a seating perspective.

Now, from interiors, it's a little bit of a different story because that is not integral in terms of our global seating operation. I continue to like the interiors business for a number of reasons. Well, first of all, it's just getting started, and we're only at the early stage and of seeing the benefit of the growth that we have in that business.

Secondly, is as we think around autonomous vehicles and our West Coast strategy, especially some of the new entrants, our key differentiator that we have is being able to go in and talk to our customers about complete interior solution.

I know you, Adam, and a lot of the other folks on the call had the opportunity to see our two demonstrator vehicles. But I mean, just showing what we can do around level 4 automation, and how the interior and the seats, I mean, the whole interior of the vehicle is going to change.

I mean I personally like having the optionality that we have with that business..

Okay, Bruce, appreciate that. Thanks..

Thanks, Adam..

Thank you. Your next question comes from the line of Mr. John Murphy. Sir, your line is now open..

Good morning guys. Just a first question on margin expansion and total basis points you guys are looking at. I think this question has been somewhat asked, but is there a reason to think that that would be an asymptotic limit as to what you could get to.

Or should we be thinking about that 200 basis points as your target near-term, up to 2019, and there could be some upside from that thereafter?.

Yes, I think we've kind of -- I don't know if there's a limit per say because there's some element of farther-away science becomes a little challenged.

I think, John, if you look that set of numbers, and we have an opportunity as revenue continues to grow, which we think it will grow after 2019 with improved order book, to get some benefit of increased scale, which I think is just an opportunity to go north of that number.

We've used the 200 as really more of the measure of what we can do at around, we'll say, close to that $17 billion of consolidated revenue, but as that number grows that we think that there's probably some additional opportunity.

And as other markets, like the airline comes in, and if that has success we could have, that's certainly a higher margin space. We could do better there..

Yes, I think, John, the other thing is when we set that target we said it was a four-year target; just to be clear, not three, but just wanted to clarify that, but in that timeframe we do not have [indiscernible] or metals business where it ultimately should be. We will not be -- we are rolling over all of our programs.

We still have an awful lot of launches coming in globally on some of these big Gen II IBK initiatives. So, metals is not a -- by 2020, is not where it needs to be, which is I would tell you double-digit EBIT margins, not EBITDA margin. So, yes, I think beyond 2020 we still have room to grow.

I do no think our -- we need to drive our SG&A lower, lower, and lower. But the metals improvement, I think the scale benefit that we can get by starting to grow our footprint again or the capacity utilization is to be a tailwind..

Okay. And then just a second question. I mean, you highlighted, there's a bit of a headwind in the quarter. Just wondering if you can remind us as to what level of raw material sharing you have with the automakers either through indexing or pass-throughs, and sort of the timing of that higher raws, and how you pass that along to the customers..

The majority of it, John, is pass-through agreements, but there's also we end up getting most of it back. You could probably say almost all of it back through a combination of those indexed agreements, and just general negotiation with customer through commercial deals. So net-net, for the most part we're able to offset all of it.

But your point on the lag is an important one for us. It varies by customer; some have index arrangements that might last or might be a quarter delay, other ones might be a full year. It's probably safe to say on average about two quarters..

Okay, that's incredibly helpful. And then just one last one on the tax rate, the 10% to 12% up to 14% or 15%, is there a cash component? I know it's a small nit, but is there a cash component to that or is that mostly just….

Yes, and so the cash -- and that's built into the guidance number that I gave you, John. So the cash and the -- you can say they both moved sort of up to about that level. We do expect finding the opportunities I mentioned with some of the structuring changes.

Just from a clarity point there, some of the structural changes we've made and are in the progress of making, we don't start to get the tax benefit until they're doing. So this year, there's only going to be a partial benefit.

The reason we say we'll have a better rate in 2018 is we'll get the full-year impact of the structuring changes we've put forward, which should both a rate and a cash benefit as we move forward..

Great, very helpful, thank you..

Thanks, John..

Thank you. Your next question comes from the line of Mr. Joseph Spak [RBC Capital]. Your line is now open, sir..

This is actually Jacob Hughes [ph] on for Joe. Just want to get a little additional color on China. I think [indiscernible] obviously is the difference so far, but they called out some slower sales and some higher inventories over there.

Just given your presence there, could you just elaborate on what you're seeing?.

Yes, I think if you just look at the most recent quarter, and again obviously there is not perfect information there.

But I think if you look at anecdotal evidence, the production say was up six -- I mean I have seen numbers anywhere from five-ish to seven, but let us call it 6%, and I had seen range in terms of retail being up in sort of a 0.5% to 3%. So there's definitely some build in terms of dealer inventory.

When -- I would say if you look at the quarter that we're going into here, people do expect that that will kind of unwind a little bit here. So, if you sort of ask me, what's my view in terms of this next quarter's production? Our customers do expect to take some of that out, but nonetheless pretty robust demands..

Okay, got it. And then on the top line revision, I guess it about 600 million at the midpoint.

Is that -- I know you think 250 or about 150 differences on car side, is the remainder just FX?.

No, I think last we said, we were sort of -- our guidance was shifting down. And so I wouldn't kind of -- I wouldn't tie our old guidance to this guidance with the 150 or more, the whole 250 million or 300 million of inventory collection would be in the number..

And there is about 300 million give or take of FX in that decline..

Got it. All right, thank you..

Thanks..

Thank you. Our next question comes from the line Mr. Brian Johnson. Sir, your line is now open..

Yes, good morning. I want to talk a little bit more about the midterm in China.

Less so the debate over production versus retail, but want some more color around the margins on both seating and interiors in China, where you expect those to go? And in particular, I understand the content drivers are both, but how do you see the competitive environment in each, especially the environment looking at GM slides where the OEMs are seeking to offset retail price pressures with supplier cost reduction.

Seats and interiors are a big parts of the cost of car..

Sure..

So what are you seeing there? How do you protect margins in that, and then droving the final twist of noise out the China about JV partners becoming more assertive in the relationships with their western partners?.

Well, I would say that there is an element of increased pricing expectation from our customers. We have been able to respond to that given our cost base and volume growth, so it hasn't been issue. Well, we have always talked about what -- in China our business -- our margins are amongst our highest.

They are higher than our aspirations you could say for the rest of the world, because we do have some benefit of the fact that we have localized things that market imports. So we have a localization benefit.

But -- so we have talked Brain about -- we don't see our seating margins growing in China, but we are pretty comfortable that we can maintain them. And if you look at our last five years, we have just done some analysis I think we shared at recent conference. Our margin has actually up picked a little bit here over the last five years in aggregate.

Our interiors, we expect to have margin increases because we are still incurring some startup cost particularly on the IT side, standardizing our -- there are two companies' prior system.

So, we've talked with interiors that there would be -- we are looking for something like 80 to 100 basis point and have that split that between China and outside of China, but it's not all outside. So that's how I would answer your question in terms of the margin pressure.

I know there is a lot of skeptics out there that margin pressure is higher than it ever was and it's all gone away. I am very confident that we can continue to do exceptionally well there. Your comment around the partner, we have outstanding relationships with our partners. Like I said, they are integrated part of our company.

Our partner's success and our success are -- and we have a symbiotic relationship. We can't get rid of them and compete them in China. They need our technology, our metals capability, access to the global customer. A lot of these big programs are obviously better engineered in China; have input from their partners.

So, I mean I spend a huge amount of my time with our partners. I meet with them because we have so many of them at least very other week, not always in China. I mean they are here. So for instance next week I am in Canada meeting with -- one of our board meetings, and Thursday of next week, [indiscernible] dinner with them here at Michigan.

So we spend an awful lot of time with them and maybe someone in your coverage has a specific issue, but I don't see there being anything untoward going on in terms of our relationships whatsoever..

Okay. And just a quick follow-up; on the seating, it sounds like you still have supply chain and other efficiencies you can use and volume to offset price reductions.

What do you see around the competitive environment both with the other western players? And are the Chinese locals just disappearing as competitive forces due to quality issues? Or, have any of them learnt the secret to make quality seats?.

Well, I wouldn't so much say they have bad quality. I would just say it's the craftsmanship of our - of not just ours but I will say western type suppliers. The -- the second world smaller SUV the more complex second world type structures. Those capabilities don't exist with a lot of a local suppliers.

And that's why the market is -- all of us global players are winning in China at their expense. It's those kinds of things. It's not that their quality is terrible and ours is hugely better. It's more a question of capability than quality..

Okay, thanks..

Thanks, Brian..

Thank you. Our last question comes from the line of Mr. David Leiker. Sir, your line is now open..

Hi, this is Joe Vruwink] for David..

Hi, Joe..

Similar question to Brian; so when you look at what the other seating peers have reported this quarter, it's generally been high-single digit, low-double digit type growth rates. And over the midterm, the expectation is maybe mid- to high-single digit is sustainable.

So when you think about your booking today and look out to 2020, is that the type of growth rate you think is going to be possible for your business by that time?.

Yes, Joe. I think it is.

Right now, on the consolidated side we are certainly suffering some of those capital constraints and the decisions that predated the spin [ph] announcement, but if you look at what we've been winning and we have been winning attractive business, it's hard to turn in 2019 and I think 2020 is a good mark to say we really should be -- really better than industry growth.

And this is primarily because we think that there is advantage to or an increasing content per vehicle trend in this space which should allow us to grow little bit faster..

Yes. The other thing I would say is obviously we've gone to market in a different way in China. We are at first, and when we went there, you had to partner, and be in a minority position. So, all of our Chinese business is non-consolidated.

And I think as you compare your cost against the lot of the other automatics players, they are not in that situation. Some of their business is non-consolidated, but some is.

And so, when you look at our rate with zero China growth, it's probably not the best comparable and if you were to take our business and put, which is half of our business and consolidate it. The other half is our non-consolidate Joint Ventures and average of the two.

I think you find it -- look, we are already operating that growth rate comparable to our - to the automotive industry, the automotive supply industry and if you -- and that's what North America and Europe offering both hand side behind the back right now..

And then, just one follow-up on this point, you've done a good job of presenting the geographical makeup market share in regions for you and the others and in every region and inevitably there is some in-source business that's being done. There is regional peers that are still getting business.

When you think about big guys growing and grabbing what remains out there, is there going to be M&A opportunities where you are grabbing it but maybe some of it is grabs through acquisition?.

Potentially, potentially, and I'd say, especially the farther you get away from North American, Europe, I mean, Asia is much more fragmented than other regions. So yes, I would say potentially and that's something that we would like.

I think I need to wrap up the call because we are approaching the end of our time, so maybe just a few closing comments. Our company is just six months old and I guess could be more pleased in terms of the market with exception that we've had and the interest that we see from our investors in the analyst community.

We have excellent customer relationships and Joint Venture part relationships and that's like really the core of why we are growing our backlog I mean for many, many, many years the automotive seating is business was the growth engine of John's Controls and the more time we are, we've been separated and adding in terms around much of a more consents I have in our ability to get back to that position.

Our separation from Johnson Controls has been seamlessly completed; the payment that we had from those the final one. Our businesses are performing really well and that's enabling us to offset some of the volume softness and commodity headwinds that we talked about.

Our growth initiatives are like I said early gaining momentum and then just in terms of wrapping up by -- I'd for sure like to thank our employees all around the world for their dedication to customer, their hard work, especially the time of significant change.

I know our team morale is exceptionally high and engagement outstanding and I just couldn't be prouder of the global team and I want to thank them all here on this call. And with that, Oswald will conclude things..

Thanks, everyone..

Thank you. Good..

Thank you. And that concludes today's conference. Thank you all for joining. You may now disconnect..